• Maintain BUY with a higher SOP-derived TP of MYR9.10 from MYR8.80, 26% upside. IHH Healthcare’s 9M24 core earnings of MYR1,367.8m beat estimates, accounting for 81% and 72% of our and consensus’ expectations. The stronger-than-expected results were driven by sustained demand for healthcare services, better case-mix of more acute patients, and timely price adjustment to counter against inflation. We continue to like IHH 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 rose 11% YoY to MYR5.8bn, driven by organic patient growth across all the countries it has presence in (with all four countries’ hospitals reporting YoY growth in operating metrics). On a sequential basis, the H&H segment grew 1% QoQ on the back of higher patients admission volume (except for Turkey due to summer break). Operational beds number was largely flattish YoY and QoQ, at 12,222. Its bed occupancy rate (BOR) improved 3ppt QoQ to 73%.

• Segmental breakdown. All key geographic regions posted a robust YoY growth in revenue intensity and inpatient admission. Singapore saw 4ppt QoQ decline in BOR given IHH Singapore’s ongoing initiative to decant less-acute patients to its ambulatory care unit while at the same time advocating preventive care service. Malaysia saw higher revenue intensity (+6.5% YoY) driven by a better-patient case mix. IHH Laboratories reported 15% YoY growth in EBITDA (margin expanded 2ppt YoY) on the back of higher test volumes.

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

• Earnings estimate and valuation. Post results, we lift our 2024-2026 earnings by 5%, 7%, and 5% after some housekeeping. Our SOP-derived TP is revised higher to MYR9.10, implying 16x FY25F EV/EBITDA, which is 0.4SD above its 5-year historical average. We incorporate 0% ESG premium to our intrinsic value as IHH’s ESG score is the same as the country median.

• Key downside risks: Lower-than-expected patient volume and revenue intensity, unfavourable regulatory measures, and higher-than-expected operating costs.

Source: RHB Securities Research - 29 Nov 2024