• Keep BUY, higher MYR7.50 TP (SOP) from MYR6.90, 22% upside. 4Q23 core profit came off by 28% QoQ to MYR266m (below expectations) amid a seasonally weaker quarter due to the holiday and festive seasons. We continue to like IHH Healthcare given its reputable regional footprint across key regions, its organic expansion target (+33% bed capacity by 2028), and resilient demand for healthcare services. It currently trades at 14.5x 2024F EV/EBITDA, 0.3SD below its 5-year historical mean.

• Results overview. Full-year core earnings came in at 91% and 79% of our and Street’s estimates, which we deem as below expectations, no thanks to increases in staff and utilities costs, and a weakening TRY. Full-year hospital and healthcare toplines (all geographical regions) posted 21% YoY growth on strong recovery from non-COVID-19-related revenue, commencement of Atasehir Hospital, and consolidation of newly acquired hospitals in various regions. In 2023, IHH’s operational beds grew to 12,307 (2022: 11,881 beds). Group bed occupancy rate (BOR) contracted slightly (69% vs 2022’s 70%).

• Segmental breakdown. Acibadem did well despite growing geopolitical tensions in the Middle East. Inpatient admissions spiked 13% QoQ (+2% YoY) thanks to the consolidation of newly acquired hospitals and improved performances from existing facilities. Malaysia revenue grew 13%, likely on better patient mix and an 8% YoY growth in inpatient admissions. Singapore BOR held up steadily, at 61% (3Q23: 62%) as concerns over nursing shortages was resolved gradually. On a group basis, all key geographic regions reported sequential lower inpatient admissions, except Turkey.

• Outlook. IHH had revised upwards its dividend policy to no <30% of its core PATAMI from no <20% moving forward. Concurrently, it continues to uphold its bed expansion target over the next five year (+33% or 4,000 beds). We remain positive on IHH’s long-term prospects as we like the group’s solid execution strategy and reputable regional footprint across key regions – driven by its 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 estimate and valuation. Post 2023’s year-end book-keeping, our 2024-2025 earnings are raised by 2% and 1%. Maintain BUY with a higher TP of MYR7.50. Our TP implies 15.7x FY24F EV/EBITDA, which is in line with its 5-year historical average. We incorporate a 0% ESG premium to our intrinsic value as the ESG score is in line with the 3.0 country median. Key downside risks: Mandatory takeover offer overhang on Fortis, lower-than-expected patient volume/revenue intensity, and higher than expected operating costs.

Source: RHB Research - 1 Mar 2024