Key takeaways from IHH’s 1Q24 analyst briefing:
 

Expect Patient Growth in 2Q24 QoQ

To recap, IHH recorded double-digit revenue and EBITDA growth across all key markets in 1Q24, except for Malaysia. Malaysia operations posted higher revenue of 18.8% YoY to RM954.6mn, but EBITDA declined by 3.6% to RM239.3mn due to initiatives to reward healthcare workers. Moving into 2Q24, we expect Malaysia’s bed occupancy rates (BOR) to increase to 70% (from 67% in 1Q24) after the early Ramadan in March this year while EBITDA margin will hover at 25%. Similarly, we expect an uptick in patient volumes in Turkey operations due to seasonality.

In India, 1Q24 EBITDA margin rose 3.8%-pts to 18.9% driven by improved revenue intensity and better cost management from Fortis and Gleneagles India. Recently, Gleneagles Global Hospitals underwent a rebranding in March 2024 to become “Gleneagles Hospitals” and will undergo infrastructure upgrades to improve patient experience. Overall, management remains confident on India’s growth trajectory. As for Gleneagles Hong Kong (GHK), revenue and EBITDA rose by 24% and 80% to RM328.6mn and RM46.6mn respectively. This led to a higher EBITDA margin of 4.5 pts to 14.2%. Meanwhile, GHK BOR declined 4.0 pts to 64% due to additional 30 new beds. More importantly, management shared that GHK would be PATMI positive (vs. EBIT breakeven in 2023) by 1Q25.

Singapore Continues to Deliver on Higher Intensity

Despite no increase in the number of hospitals, Singapore’s 1Q24 revenue increased by 18% mainly boosted by higher revenue intensity of 15% and higher occupancy rates of 3%-pts to 63%. On 10 May 2024, IHH officially opened its Mount Elizabeth Proton Therapy Centre, reinforcing its position as Asia’s leading Centre of Excellence in comprehensive cancer care. Management shared that the cost of treatment of the Proton therapy is around SGD40-50k. Demand is overwhelming, currently running 2 shifts (initially 1 shift) as oncologists feel that patients can benefit from the Proton therapy. We understand that all local integrated insurance players cover Proton Therapy treatment as well. Note that 70% of Singaporeans are covered by insurance. Thus, we remain confident that Singapore’s EBITDA margins will remain resilient at c.30% while revenue will continue to increase on the back of higher revenue intensity.

Overall, we expect IHH’s EBITDA margin to hover at 22.8-23.5% levels in FY24-26 (vs. 22.1% in FY23), aided by a tight rein on cost and inflationary price adjustments.

Expanding Bed Capacity

In 1Q24, bed occupancy rates rose to 70% as compared to 69% in FY23. Backed by the increasing demand for quality healthcare, IHH targets to add close to 4,000 new beds (+33%) in the next 5 years. This increase will see an addition of new beds across Malaysia (+46%), Turkiye (+5%) and Europe (+38%), India (+34%) and Hong Kong (+65%) by 2028.

However, Singapore’s current operational beds of 793 beds (vs. 907 beds in FY22) is expected to reduce further as the group develop “Out of Hospital” opportunities to leverage on fast growing healthcare market opportunities in community, as population ages and government initiative to focus on preventive health increase. In addition, IHH will reduce two and four-bedded rooms, converting them into single rooms. More single rooms are being added because of the tremendous increase in demand for them in the past few years. Separately, the group is still in the midst of looking for potential M&As in Indonesia, Vietnam, Malaysia and Europe.

Impact

No Change to Our FY24-FY26 Earnings Projections.

Valuation

Maintain our Hold recommendation on IHH with an unchanged target price of RM6.65/share based on SOTP valuation.

Source: TA Research - 31 May 2024