Investment Highlights

• We maintain HOLD on IHH Healthcare (IHH) with an unchanged DCF-derived fair value (FV) of RM6.34/share (WACC of 8.8%; terminal growth rate of 2%), which implies FY24F P/BV of 1.8x, at a 10% discount to its 5-year average of 2.0x. Our FV incorporates a 3% premium with our unchanged ESG rating of 4-star.

• Post-result briefing, we maintain FY23F-25F earnings as management guidance remains in line with our assumptions.

• Newly appointed CEO, Dr Prem Kumar Nair (Prem), unveiled the ACE Framework to drive future revenue and ROE growth. This framework is upheld by the following 5 pillars, namely:
  (a) Organic growth: Expanding bed capacity from 12K existing operational beds to 16K (+33%), primarily in Indian and Malaysian operations, over the next 5 years (Exhibit 1),
  (b) Expansion across healthcare continuum: Growing ambulatory care offerings and primary care penetration in selective markets in Singapore and Hong Kong,
  (c) Development of new growth engines: Growing laboratory business to become a distinct core business,
  (d) Inorganic opportunities: Acquisition of value-accretive assets which are aligned to cluster strategy, and
  (e) Turning around underperforming assets.

• We are neutral on the newly introduced framework, as it is more or less similar to strategies IHH has been adopting.

• However, it is noteworthy that Prem indicated Indian operations will be the IHH’s major earnings driver in the future for both revenue and margin enhancement, as the country has the highest healthcare expenditure growth in the world.

• On top of incoming ambitious bed capacity expansion in India, we expect more disposals of non-performing assets in the future. This is supported by the recent sale of Fortis Malar Hospital, which was announced in Nov 2023, and Vadapalani facility in Jul 2023.

• The stock currently trades at a fair FY23F P/BV of 1.7x – 13% discount to its 5-year average of 2.0x amid slowing global economic growth prospects.

Source: AmInvest Research - 4 Dec 2023