Review

• IHH Healthcare Berhad’s (IHH) 9M24 core net profit of RM1.4bn came in above our expectation at 83.6% but within consensus forecast at 72.0% of full-year forecast. The variance was largely due to lower-than-expected tax rate and higher-than-expected interest income. Earnings were in line at the EBITDA level at 70.0% of our estimates.

• IHH’s 9M24 revenue and EBITDA expanded by 13.1% and 12.2% to RM17.7bn and RM4.0bn respectively. The increase came mainly from sustained growth in revenue intensity and volumes across all key markets.

• In Malaysia, revenue and EBITDA improved by 12% and 7% respectively on the back of higher patient inpatient admissions and better intensity from more acute case-mix. EBITDA margin decreased by 1.2%-pts to 25.5% due to higher staff costs. Meanwhile, Singapore operations EBITDA increased 16% to RM1.4bn driven by more complex treatments and inpatient admissions. The ongoing major renovations at Mount Elizabeth Orchard caused EBITDA margin to decline to 29% in 3Q24, compared to 32% in 2Q24.

• Over to Türkiye and Europe, 9M24 revenue per inpatient surged 45.8% YoY on the back of price adjustments to counter hyperinflation. 3Q24 inpatient volumes grew 1.8% YoY despite the summer holidays. As for India, 9M24 EBITDA expanded by 22% to RM555mn, driven by improved operations at Fortis and Gleneagles hospitals.

Impact

• We raise IHH’s FY24-26 earnings higher by 7.6-9.5% after revising our tax rate lower and finance income higher. We also raise India’s EBITDA margin by 3.1 pts and inpatients volumes higher by 3.8%.

Outlook

• We remain sanguine on IHH’s ability to extend its leading position in its key markets amid healthcare megatrends and aggressive expansion plans. The group targets to add close to 4,000 new beds (+33%) over the next 5 years.

• The recent acquisition of Island Hospital in Penang will strengthen the group’s position in medical tourism in Malaysia. We understand that Island Hospital, with 500 operational beds, is currently operating at an occupancy rate of around 50-55%. As such, the group would be able to transfer some patients from Gleneagles Penang (which is at full occupancy) to Island Hospital. More importantly, we expect IHH’s Malaysia EBITDA margin to remain resilient at 25% in FY25.

Valuation

• Following the earnings revision, we raise our TP to RM7.83/share (previously of RM7.38/share) based on SOTP valuation. Maintain Hold.

Source: TA Research - 29 Nov 2024