FY23 was a Solid Year To recap, IHH posted outstanding double-digit growth across all key markets last year. FY23 revenue (+16%) and EBITDA (+15%) improved on the back of strong operational performance amid better case mix and higher inpatient admissions of 7% to 869,673. Bed occupancy rate remained stable at 69% on higher operational beds, which increased to 12,307 in FY23 from 11,881 in FY22.

• Malaysia operations: Revenue and EBITDA increased 20% and 11% in FY23 respectively driven by higher inpatient admissions of 17% and higher revenue per inpatient of 4%. We gathered that foreign patients increased by 130%, representing 6% of Malaysia’s revenue. However, EBITDA margin dipped 2%- pts to 25.4% mainly due to one-time backdated SST accruals (RM30mn) and nursing salary adjustment.

• Singapore operations continued to see higher case intensity (revenue per inpatient up 13% to RM59,529) from complex treatments, contributing to a higher revenue (+13%) and EBITDA (+13%) growth. However, the EBITDA margin declined 1%-pts to 29.2% due to higher nurse salary and nurses hired.

In Turkiye, revenue surged 33% while EBITDA rose 18%. Despite that, EBITDA margin dropped 3%-pts to 21.0% due to elections and earthquake in FY23. Meanwhile, India’s performance (EBITDA grew 22%) was driven by revenue per inpatient (+14%) and better cost management.

2024 Prospects Intact

Management shared that Singapore operations will remain stable and foresee higher revenue intensity driven by medical tourism and cancer care treatment, Proton Therapy Centre. This will help mitigating the higher nursing wages, to compete with the public healthcare system (Singapore public nurses will receive up to S$100,000 in retention scheme with payouts every four to six years). Note that nursing wages are unlikely to increase in Malaysia (conducted nursing adjustment in FY23). Meanwhile, management believes that Gleneagles Hong Kong will be profitable soon after achieving an EBIT breakeven in 2023.

In India, the group is investing in cutting-edge medtech, treatment, and equipment while upgrading facilities for advanced healthcare services and expand in existing clusters. Coupled with the improving performance of Gleneagles India and growth of Fortis, we expect India’s EBITDA margin to improve to 18.5% (vs. 17% in FY23) in FY24. Moving over to Turkiye, medical tourism will continue to be a driver in 2024, along with higher inpatient revenue. We believe that EBITDA margin will rebound to 24% (vs. 21% in FY23).

All in all, we expect the EBITDA margin to hover at 22-24% levels in FY24-26. Note that the group will maintain a tight rein on cost and leverage operational synergies to mitigate inflationary and staff costs pressures.

Capacity Expansion to Drive Growth

Management is optimistic on the growing demand for quality healthcare services and the continued revenue growth, with a focus on driving profitability, notably targeting to add 33% or close to 4,000 organic new beds over the next five years. This increase will see the addition of new beds across Malaysia (+46%), India (+37%), Hong Kong (+65%), Turkiye (+5%) and Europe (+30%) by 2028. For markets such as Singapore and Hong Kong, focus will be on the expansion of healthcare continuum, in line with in-market healthcare agendas. Thus, IHH targets to add 15 new clinics (Parkway Shenton) and 2 ambulatory care centres (ACC) in Singapore while aiming to open 6 new clinics or ACC in Hong Kong by 2028.

Management guidance for FY24 CAPEX stood at RM2.7-2.8bn. IHH shared that the group will prioritise hospitals that are currently operating at 70-75% levels, to avoid losing patients (clinics and A&E cannot admit patients as some hospitals running at full capacity during weekdays). As such, the additional capacity that will be added is expected to be taken up.

Impact

No Change to Our FY24-FY26 Earnings Projections.

Valuation

Maintain our Hold recommendation on IHH with an unchanged target price of RM6.58/share based on SOTP valuation.

Source: TA Research - 4 Mar 2024