Key Takeaways From IHH’s3Q23analyst Briefing:

3Q23 Review: Decent Growth Across All Key Markets

To recap, 3Q23 revenue and EBITDA rose 27% and 42% to RM5.8bn and RM1.4bn respectively. Inpatient admission grew 7% YoY while bed occupancy rates (BOR) stood at 70%, similar with pre-pandemic levels.

Specifically, Malaysia operations EBITDA grew 10% YoY to RM257.3mn in 3Q23 driven by higher BOR of 74% (vs. 70% in 3Q22). Meanwhile, Singapore operations’ EBITDA rose 22% YoY despite ongoing renovation works at Mount Elizabeth amid higher revenue intensity. More importantly, we understand that Singapore’s nursing staff strength is fully resolved, allowing IHH to open all the block beds that were previously closed due to the shortage. In Turkiye, the EBITDA increased 33% YoY driven by price adjustments to counter inflation. As for India, the 3Q23 EBITDA surged 46% YoY on the back of cost efficiency and higher acute surgeries.

As far as foreign patients are concerned, we gather that foreign patients grew 6% YoY, contributing to about 22% of Singapore’s revenue. In Malaysia, foreign patients grew significantly by 72% YoY due to low base effect. Meanwhile, management shared that foreign patients in Turkiye increased 51% QoQ as medical tourists rebounded following the earthquake and elections in 1H23.

ACE Framework: Align to Care. For Good. To Grow.

IHH’s new CEO, Dr. Prem shared that the group is committed to deliver profitable growth backed by its new ACE framework. Overall, we believe that the ACE framework will enable IHH to improve patient care and enhance revenue intensity. It would ensure future profitability by:

1) Continuing organic expansion, including adding about 3,800 beds (+33% capacity) over the next five years, driving patient volume growth and upgrading infrastructure and equipment.

2) Expanding across the healthcare continuum, such as ambulatory care offerings and improve primary care penetration in selective markets such as Singapore and Hong Kong (need to move beyond acute tertiary care).

3) Developing new growth engines including the diagnostics, laboratory business and digitalisation.

4) Inorganic opportunities: Evaluate earnings accretive assets across Asia and Europe, in-line with IHH’s cluster strategy.

5) Turnaround Underperforming Assets.

Drivers and Outlook

Moving forward, we expect IHH’s growth momentum to remain intact. In Singapore, IHH will focus on primarily and ambulatory care (next to its hospitals), allowing the group to transfer patients and optimise the bed availability. In Malaysia, as majority of its hospitals are in Peninsula Malaysia, it will focus on East Malaysia going forward, following the recent acquisition of Timberland Medical Centre. It will also build a new 200 bed hospital in Kuching, Sarawak.

Meanwhile, in China/Hong Kong, management is confident that margins will continue to improve as the company is in the process of strengthening operations across its clinics and hospitals by running them as an eco-system, strengthening the local team and working with local authorities. In Turkiye, management shared that we can expect an escalation in volume uptick in 4Q23 due to seasonality (summer in 3Q23). IHH is also evaluating possible M&As, which will raise its Euro contributions. Lastly, management is confident that India operations will continue to grow via Fortis Healthcare and Gleneagles India. The group is confident that 3Q23 EBITDA margin of 21.8% (vs. 14.4% in 2Q23) is sustainable. Gleneagles India will see some rebranding exercise in coming months while Fortis will continue to optimise operations.

All in all, we expect a positive upwards momentum in 4Q23 as demand for quality healthcare remains strong. We expect FY23 EBITDA margin to increase to 23.4% (vs. 22.8% in FY22).

Impact

No Change to Our FY23-FY25 Earnings Estimates.

Valuation

Maintain Hold on IHH with an unchanged target price of RM6.30/share based on SOTP valuation.

Source: TA Research - 4 Dec 2023