Review

• IHH Healthcare Berhad’s (IHH) 1H23 core net profit of RM644.9mn (- 11.0% YoY) accounted for 42.1% and 38.4% of ours and consensus’ fullyear estimates. Notwithstanding, we deem the results as within expectations as we expect 2H23 to be stronger due to increasing occupancy rates and expansion plans.

• In 1H23, revenue rose 15.0% to RM9.8bn but core net profit declined 11.0% to RM644.9mn mainly due to higher finance costs and MFRS 129 related adjustments from the hyperinflationary economy in Turkey.

• Operationally, Malaysia operations recorded a strong EBITDA growth of 23% YoY in 1H23 as revenue per inpatient grew 2% while inpatient admissions surged 27%. In Singapore, revenue and EBITDA increased by 12% and 4% as revenue per inpatient increased 13%. The satisfactory performance was driven by more acute patients seeking treatment and price adjustments.

• In India, revenue per inpatient surged 15% while inpatient admission increased 4% on the back of growth in domestic electives. As for operations in Turkey and Europe, hospital inpatient admissions increased 8% while its revenue per inpatient increased 43% due to the positive price adjustments to counter inflation.

• QoQ, 2Q23 revenue and EBITDA declined by 9.1% and 12.6% to RM4.7bn and RM1.0bn respectively. We attribute the weaker performance to: i) lower sales, ii) higher cost of operations, and iii) higher debit adjustment relating to the application of MFRS 129.

• The group declared an interim dividend of 3.5sen/share, bringing YTD dividend to 13.1sen.

Impact

• No change to our FY23-25 earnings projections, pending management guidance at the results briefing today.

Outlook

• Going into 3Q23, we expect patient volumes to improve on the back of pent-up demand for quality healthcare services and health tourism. Expansion wise, the group targets to expand its bed capacity by 25% over the next 3 years.

Valuation

• Maintain our Hold recommendation on the stock with an unchanged TP of RM6.30/share based on SOTP valuation.

Source: TA Research - 30 Aug 2023