• Stay BUY, with higher MYR8 TP (SOP) from MYR7.90, 27% upside. 1H24 core earnings of MYR839.8m were slightly ahead of our but missed consensus estimates – at 51% and 46% of FY24F earnings. The stronger- than-expected results were driven by sustained demand for healthcare services, better case-mix of more acute patients, and timely price adjustments to counter against inflation. We continue to like IHH Healthcare due to its reputable regional footprint across key regions, expansion pipeline (+33% bed capacity by 2028), and resilient demand for healthcare services.

• Results overview. Revenue from the hospital and healthcare (H&H) division increased 18% YoY to MYR5.7bn, driven by organic patient growth across the countries IHH has a presence in (all four countries’ hospitals reported positive YoY growth in operating metrics). Sequentially, the H&H segment grew 3% QoQ on higher patient admission volume (except for Turkey due to several festivities – primarily in June). Staff costs rose notably by 39% YoY as IHH ramped up its recruitment to align with its capacity expansion plan. Operational beds were largely flat YoY and QoQ at 12,222. The bed occupancy rate (BOR) was flattish QoQ at 70% (2Q23: 67%).

• Segmental breakdown. All key regions posted robust YoY growth in revenue intensity and inpatient admission. Acibadem’s EBITDA margin steadied at 25% on the back of a 21% YoY revenue growth. The ongoing geopolitical tensions in the Middle East dragged IHH’s foreign patient visits (revenue contributions plunged to 14% from 23% in 2022). Singapore BOR expanded 7ppts YoY%, showing that concerns over nursing shortages are manageable.

• Outlook. We remain upbeat on IHH’s strategic plan for both organic and inorganic growth over the mid- to long-term. The group’s bed expansion target of 4,000 beds by 2028 (primarily in developing markets like Malaysia and India) provide an opportunity for IHH to tap into regions where quality healthcare is scarce. We maintain our positive view on its long-term prospects, as we like the group’s solid execution strategy, reputable regional footprint across key regions (driven by strong brand awareness), the inelastic demand nature towards healthcare services, and the focus on affluent clients, which should provide earnings resiliency.

• Earnings estimate and valuation. Post results, we lift our 2024F-2026F earnings by 6%, 3%, and 1% after some housekeeping. Maintain BUY with a higher TP of MYR8. Our TP implies 15x FY24F EV/EBITDA, which is in line with IHH’s 5-year historical average. We incorporate 0% ESG into our intrinsic value as the group’s 3.0 ESG score is in line with the country median.

• Key downside risks: Mandatory takeover offer overhang on Fortis Healthcare, lower-than-expected patient volume/revenue intensity, and higher-than-expected operating costs.

Source: RHB Research - 30 Aug 2024