• Still BUY and MYR6.90 TP (SOP), 18% upside. 3Q23 core profit leapt 17% YoY to MYR369m, bringing 9M23 numbers to MYR1,053m – in line with our estimate but below Street’s. This was thanks to a better case-mix, robust patient footfalls, and consolidation of newly acquired entities. IHH Healthcare is currently trading at 13x 2024F EV/EBITDA, 0.8SD below its 5-year historical mean. We continue to like IHH given its reputable regional footprint across key regions and resilient demand for healthcare services.

• Results overview. 9M23 core earnings came in at 73% and 62% of our and Street’s estimates. Hospital revenue across IHH’s key geographical segments posted positive YoY growth, bringing total hospital and healthcare revenue growth up 22%. Gleneagles Hong Kong posted 29% YoY revenue growth whereas the laboratory unit’s topline was higher by 9.2% YoY (non-COVID- 19 revenue increased 18% YoY). Opex was 27% YoY higher in view of the higher utilities, IT-related, and repair maintenance costs. As such, core margins contracted 0.5ppts YoY to 6.3%.

• Segmental breakdown. Acibadem Healthcare Group grew by 36% YoY, underpinned by an 8% YoY rise in inpatient admissions volume and 40% spike in revenue intensity. The commencement of Atasehir Hospital’s operations, and Ortopedia and Kent Group acquisitions, also contributed organically to the Turkey unit. Malaysia revenue grew 15%, driven by a 6% and 11% growth in revenue intensity and patient volumes. Singapore bed occupancy rate or BOR picked up commendably (+5ppts YoY to 62%; its highest-ever post the pandemic), thanks to IHH’s swift response to deploy patient care associates to aid nursing shortages. Singapore operations revenue swelled 15% YoY thanks to a 17% improvement in revenue intensity despite only recording a 1% rise in patient volumes.

• Outlook. IHH intends to grow its bed capacity by 30% (4,000 beds) over the next five years while exploring strategic opportunities in Asia and Europe. We remain positive on its long-term prospects as we like the group’s solid execution strategy, reputable regional footprint across key regions (driven by strong brand awareness), inelastic demand nature towards healthcare services, and focus on affluent clientele, which should provide earnings resiliency despite the challenging market environment.

• Earnings estimates and valuation. We make no changes to our earnings estimate, recommendation, and TP, pending an analysts briefing later on. Maintain BUY and MYR6.90 TP. Our TP implies 15x FY24F EV/EBITDA, which is 0.5SD above its 5-year historical average of 14x. We incorporate 0% ESG premium/discount to our intrinsic value – IHH’s ESG score is in line with the country median. Key downside risks: A mandatory takeover offer overhang on Fortis Healthcare, lower-than-expected patient volumes/revenue intensity, and higher-than-expected operating costs.

Source: RHB Securities Research - 1 Dec 2023