Investment Highlights

• We maintain BUY call on IHH Healthcare (IHH) with a highe sum-of-parts (SOP)-based fair value (FV) of RM7.80/shar (from an earlier RM7.35/share), which implies FY25F P/E o 30x, at a 25% discount to its 5-year average of 40x. In addition the FV incorporates a 3% premium with our unchanged ESG rating of 4 stars.

• IHH’s 1HFY24 core net profit of RM1,126mil (excluding adjustments from the adoption of MFRS 129 on Turkiye’s hyperinflation) came in above expectations, accounting fo 69% of our earlier FY24F net profit and 61% of street’s. Thi stems largely from rising revenue per patient across al markets amid rising inpatient admissions.

• Hence, we raised FY24F-FY26F earnings by 21%-31% to account primarily for higher revenue and margin assumptions for hospitals in Singapore, Malaysia, Turkiye and Hong Kong.

• While the group declared an interim dividend of 4.5 sen (+ sen YoY), which translates to a payout ratio of 35% fo 1HFY24, below our assumption of 45%. Recall IHH has increased dividend policy from at least 20% of core PATAM to 30% for FY24F onwards vs. 62% in FY23 (excluding specia dividend of 9.6 sen from IMU Healthcare disposal gains).

• On a YoY basis, IHH’s 1HFY24 revenue rose by 23% to RM12bil, mainly driven by continued strong contributions across key markets in Greater China (+23%), Acibadem (+22%), India (+19%) Singapore (+17%) and Malaysia (+12%) Driven by higher inpatient admissions and revenue/patien intensity together with reduced interest expense (-12%) and halving of effective tax rate to 8.7%, 1HFY24 core net profi surged 75% YoY.

• Sequentially, the group’s 2QFY24 core net profit climbed 2.2% to RM569mil in tandem with revenue increase of 2.3%. QoQ 2QFY24 inpatient admissions increased 3% in Singapore, 6% in Malaysia and 5% in India but seasonally slid 7% in Turkiye and Europe. Conversely, revenue/inpatient was flat QoQ in Malaysia and India while sliding 1% QoQ in Singapore vs Acibadem’s 7% QoQ increase.

• Going into 2HFY24 onwards, we expect the strong 1HFY2 revenue trajectory to be sustainable, supported by the expansion of the group’s bed capacity from 12k currently b 4k over the next 5 years, particularly in Malaysia (+1,300) India (+1,860), Acibadem (+1,040) and Hong Kong (+170), as well as continuing EBITDA margin improvements fo operations in India and China.

• We deem that the stock currently trades at an attractive FY25F PE of 24x vs. its 5-year average of 40x while a healthy FY24F net debt/EBITDA of 1x offers leverage for cluster-based acquisitions to fuel growth prospects.

Source: AmInvest Research - 30 Aug 2024