IHH hosted a “Meet the GCEO” analyst call yesterday as Dr. Prem Kumar Nair shared his forward-thinking vision, deep-rooted core values and perspectives on the future of the group. Key takeaways are below:

Value Creation for Stakeholders: Profit Growth

To recap, Dr. Prem was appointed as IHH’s Group Chief Executive Officer on 1 October 2023. Dr. Prem is a physician and healthcare executive with over 30 years of experience in both public and private healthcare sectors. He was with Raffles Medical Group for 27 years, where he held concurrent roles as Chief Corporate Officer, and Managing Director for Singapore Healthcare. Prior to his appointment as GCEO of IHH, Dr. Prem was the Country CEO for IHH Singapore.

He believes that the group will achieve a sustainable profit growth by: i) aligning with IHH’s aspirations to Care. For Good, putting patients first, ii) challenge to transform and future-proof the organisation roll out projects to enhance process efficiencies and iii) empower to excel as all key markets will have greater responsibility to chart their own growth trajectories.

Strategy Moving Forward

Dr. Prem shares that its top 2 priorities are organic expansion and expand across healthcare continuum. IHH will be adding about 3,800 beds (+33% capacity) over the next five years, mostly in India, Malaysia and Turkiye. Dr. Prem believes that brownfield expansion is the best option, given its faster ramp up, recruitment of doctors and lower capex of 30-40%. Note that greenfield expansion typically takes around 3-5 years to achieve EBITDA breakeven (vs. 6-18 months for brownfield). We understand that some of the additional beds space will come from moving its administrative space, physiotherapy department, medical records to buildings/shop lots located adjacent to its hospitals. In Singapore, beds are pack. As such, IHH Singapore is decanting into the primary care business, moving out departments/services such as endoscopy and fertility to create space for higher intensity services.

Meanwhile, the group will expand across healthcare continuum by growing ambulatory care offerings and improving primary care penetration, especially in Singapore (recently opened its first Ambulatory Care Centre (ACC) facility, Parkway MediCentre at Woodleigh) and Hong Kong (third ACC will open in January-24). This is in-line with Singapore’s national government initiative of a Healthier SG, focusing on preventive care. We understand that the price differential between ACC and hospital is more than 30%. For instance, a knee replacement surgery can be done in an ACC (discharge in less than 24 hours vs. about 7 days in hospitals). Overall, we believe that the opening of more ACC will help to expand volumes and drive hospital intensity higher.

Improve Underperforming Assets

Management targets to improve underperforming assets in China by increasing patient volumes via integration of referrals between Parkway Shanghai Hospital and 4 of its clinics in Shanghai as well as refreshing its clinics facilities/environment. As far as M&A’s are concerned, the group is looking at Indonesia and Vietnam for possible acquisitions. Management added that the acquisition has to be EPS accretive and provides synergy.

Separately, Dr. Prem reiterates that India is the fastest growing healthcare market. As such, he believes India’s ops will be one of the key drivers for the group (via Fortis Healthcare and Gleneagles India) and see further opportunity to expand margins (around 20% EBITDA margin over the next 12 months).

Impact

No change to our FY23-FY25 earnings estimates. Overall, we believe the new vision and directions can bring IHH to the next levels in terms of profitability and operational efficiency to remain as one of the top service providers in the world.

Valuation

Reiterate our Hold recommendation on IHH with an unchanged target price of RM6.30/share based on SOTP valuation.

Source: TA Research - 8 Dec 2023