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Maintain BUY, higher MYR7.90 TP (SOP) from MYR7.50, 28% upside. 1Q24 core profit of MYR402.8m accounted for 25% and 24% of our and Street’s expectation. Results were in line, aided by sustained demand for healthcare services, a better case mix, and timely price adjustments to counter inflationary pressure. We continue to like IHH Healthcare given its reputable regional footprint across key regions, expansion pipeline (+33% bed capacity by 2028), and resilient demand for healthcare services.
Results overview. Revenue from the hospital & healthcare (H&H) division reported 19% YoY growth to MYR5.6bn on consolidation of newly acquired entities Kent Health Group (Feb 2023) and Timberland Medical Centre (Feb 2024) on top of other factors (see above). Sequentially, the H&H wing grew 8% QoQ on higher revenue intensity across regions and inpatient admission volumes (except for Malaysia due to the Aidil Fitri festivities). Staff costs were notably higher (+19% YoY), aligning with IHH’s capacity expansion plan. Operational beds were largely flat YoY and QoQ at 12,166. The group’s bed occupancy rate (BOR) contracted slightly to 70% (1Q23: 71%).
Segmental breakdown. All key geographic regions (ex-Malaysia) posted robust QoQ growth in revenue intensity and inpatient admissions. Acibadem Healthcare Group’s EBITDA margin held up nicely (21% vs 1Q23’s 20%) on 23% YoY revenue growth. The ongoing Middle East tensions has dragged IHH’s foreign patient visits (revenue contributions plunged to 13% from 23% prior to 2023). Malaysia’s BOR contracted 5ppts QoQ to 67% on an increase in operational beds. Singapore BOR continue to inch up higher (2ppts QoQ) to 63%, indicating nursing shortage concerns are under control.
Outlook. We were upbeat on IHH’s strategic plan to drive growth organically and inorganically over the mid to long term. The group’s bed expansion target of 4,000 beds by 2028 – primarily in developing markets (eg Malaysia and India) – could offer IHH opportunity to tap into regions where quality healthcare remains scarce. We maintain our positive view 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 a focus on affluent clientele, which should provide earnings resiliency.
Earnings estimates and valuation. Post results, our 2024F-2025F earnings are raised by 1% each. Maintain BUY with a higher MYR7.90 TP, which implies 15.5x FY24F EV/EBITDA (in line with the 5-year historical average). We incorporate a 0% ESG premium/discount to our intrinsic value as IHH’s ESG score is in line with the country median. Key risks: Mandatory takeover offer overhang on Fortis Healthcare, lower-than-expected patient volume/revenue intensity, and higher-than-expected operating costs.
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