IHH Healthcare - Parting With Loss-Making Indian Unit

Date: 
2023-11-27
Firm: 
KENANGA
Stock: 
Price Target: 
7.00
Price Call: 
BUY
Last Price: 
6.18
Upside/Downside: 
+0.82 (13.27%)

IHH is selling Fortis Malar hospital for RM72m cash. We are positive on the divestment of this loss-making asset, in-line with its rationalisation strategy to improve profitability. Pending the completion of the deal, we maintain our forecasts, TP of RM7.00 and OUTPERFORM call.

Divestment of a small loss-making Indian unit. IHH’s 31.1%-owned Fortis Healthcare Limited is selling the Fortis Malar Hospital in Chennai, India for RM71.9m cash. Fortis Healthcare holds a 62.7% in Fortis Malar implying HH’s effective stake at 19.55%. The divestment encompasses the outpatient department and radiology business operations linked to Fortis Malar Hospital, including the land and building where the hospital is situated. Additionally, multiple adjacent land parcels related to the property are part of the transaction. Fortis Malar has 170 beds and focuses on providing comprehensive medical care in the areas of Cardiology and Cardiac Surgery, Neuro Surgery, Gynaecology, Orthopedics, Gastroenterology, Neurology, Pediatrics, Diabetics, Nephrology and Internal Medicine. The proposed divestment is expected to be completed by 1QCY24.

The divestment of the loss-making Fortis Malar (at both the EBITDA and net profit level) is in-line with its rationalisation strategy to improve overall profitability. We are positive on the deal since this loss-making divestment will help improve bottom line albeit marginally.

Outlook. Looking ahead into 2023, we expect IHH’s revenue per inpatient growth of 10%−15% (vs. 18% in 2022 due to low base effect in 2021), inpatient throughput growth of 10%−15% (vs. 10% in 2022) and bed occupancy rate (BOR) of 60%−73% (vs. 56%−70%% in 2022) for its hospitals in Malaysia, Singapore, India and Türkiye. IHH expects double-digit top line growth in Malaysia, while staff shortages at its operations in Singapore are easing. Its operations in Türkiye should pick up leaving behind memories of an earlier earthquake. Its operations in India are seeing the return of medical tourists from the Middle East and Central Asia while its hospital in Hong Kong should turn profitable by this year-end.

We maintain our forecasts and SoP-TP of RM7.00 (see Page 2). There is no adjustment to TP based on ESG given a 3-star rating as appraised by us (see Page 3).

We continue to like IHH for: (i) its pricing power, as the inelastic demand of healthcare provides it with the ability to pass cost through amidst rising inflation, (ii) the strong recovery in patient throughput, from both domestic and international markets as the pandemic has effectively ended, and (iii) its commanding market position in the private healthcare space with presence in Malaysia, Singapore, Türkiye and Greater China. Reiterate OUTPERFORM.

Key risks to our call include: (i) regulatory risk, (ii) risks associated with overseas operations, and (iii) the lack of political will to roll out a national health insurance scheme.

Source: Kenanga Research - 27 Nov 2023

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