• Maintain BUY and SOP-derived TP of MYR6.90, 18% upside with c.3%FY23F yield. We emerged from IHH Healthcare’s post-result briefing feelingupbeat on its sound expansion plan, given its unique geographical presencethat gives it exposure to high-growth regions. The stock is trading at aninexpensive 13x 2024F EV/EBITDA, or 0.8 SD below its 5-year historicalmean, on the back of a 3-year CAGR of 7% (FY22-25F). Our TP includes a0% ESG premium as IHH’s ESG score is in line with our country median.

• Organic expansion in the pipeline. Its new bedcount target (+33% or 3,800beds in the next five years) highlighted IHH’s ambitions for growth primarilyin developing countries like Malaysia and India, as 34% and 48% of the newbeds are being allocated for these markets. The key rationale behind theexpansion plan was due to its current low bed per 1,000 population ratio forboth Malaysia (2.1) and India (1.7), which still falls short of that of developednations like Singapore (2.5). Meanwhile, in matured markets like Singaporeand Hong Kong, IHH intends to shift its focus beyond tertiary care topreventive care such as expanding ambulatory care services to ease thecongestion in hospitals. Positively, the group intends to retain its Chinadivision (Parkway) and to turn around the business. Its Greater Chinadivision reported a MYR9.1m EBITDA vs a loss of MYR7.5m in 3Q22.

• Acibadem – waiting to turn the corner. Despite the TRY still being underpressure, the QTD performance of the currency against the USD and EURhas improved to -5% and -4% vs -22% each in 3Q23. Management has beenupbeat on the orthodox Turkish Central Bank’s restrictive monetary policy tocurtail inflation (borrowing rate now stands at 40%, from 8.5% in thebeginning of the year). That said, Acibadem will continue to swiftly respondto such monetary policy moves by adjusting ts ASP, while striving to diversifyits revenue based on non-TRY-denominated paying patients. Note that nonTRY revenue accounted for 42% of Acibadem’s total revenue in 3Q23.

• Robust balance sheet. Its net gearing dropped to 0.29x in September from0.36x in June, as IHH continues to pare down borrowings. We expect thegroup’s healthy balance sheet to meet its M&A requirement. Management’snear-term priority is still on paring down borrowings while identifying nonperforming assets for disposal.

• Earnings revision and valuation. We make no changes to our earningsestimates as IHH’s results were in line. Our unchanged TP implies 15xFY24F EV/EBITDA, which is 0.5SD above its 5-year historical average of14x. The consolidation of newly acquired hospitals, easing inflation pressurefrom Turkey and the conclusion of Fortis’ mandatory takeover offer (MTO)are key re-rating catalyts for the near term. Key downside risks: MTOoverhang on Fortis, lower-than-expected patient volume and revenueintensity, and higher-than-estimated operating costs.

Source: RHB Securities Research - 4 Dec 2023