IHH Healthcare (IHH) reported an increase of 17% YoY headline net profit to RM368.9m in 3QFY23, mainly attributed to higher patient volume. After excluding the MFRS 129 effect, IHH’s 9MFY23 core net profit up 16% YoY to RM1.43bn in 3QFY23. The results exceeded both our and street’s estimates at 82% and 85% of full-year forecasts respectively. The discrepancy in our forecast was mainly due to the higher-than-expected growth in overall group bed occupancy rate (BOR) and inpatient admissions. We maintain our earnings forecast as we expect a slowdown in patient volume in 4QFY23 due to year-end holiday season. As such, we maintain our Outperform rating on IHH with an unchanged SOTP-based TP of RM7.63, based on 20x FY24 EV/EBITDA.

• Revenue boosted by higher BOR and patient volume. IHH’s 3QFY23 revenue rose 27% YoY to RM5.8bn, mainly attributed to higher inpatient and outpatient volume, encompassing both local and international patients seeking medical treatment at the Group's hospitals. The boost in revenue also contributed by the commencement of Atesehir Hospital operation, ramp-up of GHK Hospitals and higher contribution from the acquisitions of Ortopedia and Kent in Turkey. The number of inpatient admissions has increased in all regions, including Malaysia (11% YoY), Singapore (1% YoY), India (2% YoY) and Turkey (8% YoY). Meanwhile, IHH’s overall BOR improved QoQ to 70% (2QFY23: 67%).

• Improvement in EBITDA. IHH’s EBITDA increased by 56% YoY to RM1.7bn, driven by higher revenue and better costs management. However, the growth in EBITDA was partially offset by weaker Lira against Ringgit. IHH’s 3QFY23 core net profit (after stripping off the nonoperating items and MFRS 129 effect) jumped 53.2% YoY to RM573.4m. EBITDA margin increased by 5.3ppts YoY to 28.4% in 3QFY23.

• Outlook. Moving forward, IHH has outlined plans to continue expand its bed capacity by c.4000 new beds across Malaysia, India, Hong Kong, Türkiye and Europe within the next five years. We remain optimistic on IHH’s long-term prospect, as the Group continues to stay committed in evaluating value-accretive assets, both existing and potential new markets. This dynamic approach positions the Group to remain competitive and sustainable in the evolving healthcare landscape. All told, we maintain our Outperform rating on IHH.

Source: PublicInvest Research - 1 Dec 2023