• 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.

Source: RHB Research - 30 May 2024