• Maintain BUY and SOP-derived MYR7.50 TP, 22% upside, c.1% yield. We came away from IHH Healthcare’s post-result briefing feeling upbeat, due to its timely expansion plans across its key markets. Valuation is inexpensive, trading at 13x 2024F EV/EBITDA, at 0.8SD below its 5-year historical mean, on the back of a 3-year 2022-2025F CAGR of 7%. Our TP incorporates a 0% ESG premium/discount as IHH’s ESG score is in line with our country median.

• Checklist for each market. The acquisition of Timberland Medical Center (TMC) in Kuching has been completed and will be consolidated to the group in March. IHH’s key emphasis for Malaysia will be strengthening its local presence, which will keep its nurse retention rate in check. While nursing shortage concerns appear to have subsided, IHH Healthcare Singapore intends to review its remuneration package for its nursing staff following the recent public nurses retention scheme announced by the Singapore Government. The focus for Turkey is to expand its current regions in Europe (ie Bulgaria and Macedonia, Serbia and Netherlands) and to grow its foreign patient visits to Turkey to reduce the impact of hyperinflation.

• Recent policy developments in India. The Supreme Court of India, in a recent response to a public interest litigation filed by a non-profit organisation (NGO), has urged the Government to establish a regulated fee structure for patients. The ultimate objective of the NGO is to bring down the cost of healthcare in the private sector to the level of rates under the Central Government Health Scheme (CGHS). Given the complexity of implementing this (requires extensive consultation with various stakeholders) as well as the risk of jeopardising the quality of private healthcare in India, we are of the view that the standardised fee structure is unlikely take place in the near term, despite the Act being in place since 2012.

• Medical tourism. The division continues to see strong traction as evidenced by its robust foreign patient footfalls. The medical tourism segments in IHH’s Singapore, Malaysia, Turkey, and India operations accounted for 21%, 6%, 18% and 7% of revenues in 2023 vs pre-pandemic percentages of 25%, 5%, 16% and 10% respectively.

• Earnings revision and valuation. We make no changes to our earnings estimates. Our SOP-derived TP remains at MYR7.50 and implies 15.7x FY24F EV/EBITDA, which is in line with its 5-year historical average.

• Key downside risks: Mandatory takeover offer (MTO) overhang on Fortis, regulatory risks, lower-than-expected patient volume/revenue intensity, and higher-than-expected operating costs.

Source: RHB Research - 4 Mar 2024