The research house has maintained a ‘BUY’ call on IHH and set a target price (TP) of MYR7.50, with 15% upside. Moving into 2022, the research house is cognisant of inflationary headwinds and the tapering of COVID-19 contributions, but we deem this a minor stall. The house holds the believe that IHH Healthcare’s growth prospects beyond the shorter-term remain intact. On sustainability, IHH is focusing on seven sustainable development goals, to which it is positioned to create sustainable and scalable impacts.
IHH started its sustainability journey in 2016. Due to its sheer scale, disclosures by the firm are presented in the form of case studies for its ESG initiatives every year. In Malaysia, IHH initiated the Antimicrobial Stewardship Programme or AMS to regulate medicine usage for patient safety. Moreover, its Life Renewed programme was implemented to provide free medical treatment to underprivileged patients and roll out its value.
Driven outcomes (VDO) initiative, which is aimed at better predicting outcomes and care costs. The sector is regulated, and accreditation is a means to demonstrate the hospital’s ability to meet such standards, which often have similar coverage to ESG assessments. The majority of IHH’s hospitals are either locally and/or internationally accredited, demonstrating its commitment towards improving the quality of care. That said, IHH scored at the lower-end of our selected regional healthcare names, as we believe there is room for improvement in terms of disclosures, female representation, and legal overhangs.
Improving patient experience through innovation. The pandemic has brought forward IHH’s digitalisation offerings via the rollout of an integrated telemedicine platform across all key markets. Additionally, the company undertook several business/equity partnerships with emerging healthtech players, eg Doctor Anywhere and UCARE.AI. As part of its VDO initiative, the usage of artificial intelligence (AI) (with an estimated accuracy of 80% for inpatient bills) should build trust with patients and bend the healthcare costs curve in the longer term. IHH has allocated USD100m over the next three years to further develop its digital healthcare capabilities.
Defensive amid an inflationary environment. Concerns over inflationary pressure and lofty valuations will take centre stage for 2022. Healthcare provides a defensive flavour owing to the inelastic demand and strong pricing power. IHH expects cost pressures to kick in for FY22 – arising from higher wages and inflation, notably in Turkey. That said, Acibadem has already made appropriate price adjustments (+33% since the start of FY22). This is not expected to hamper demand, given the inelastic nature of healthcare and targeted group of patients belonging to the middle-upper class of the income bracket. Similarly, price adjustments will be made for its other markets as done previously – this is reflected in the revenue intensity trend.
Key risks: Unfavourable Supreme Court ruling on the Fortis acquisition, emergence of new COVID-19 variants, and longer-than-expected gestation periods.
Salient points on IHH Healthcare:-
Target Price (Return): MYR7.50 (+15%)
Price (Market Cap): MYR6.52 (USD13,634m)
ESG score: 3.00 (out of 4)
Avg Daily Turnover (MYR/USD) 30.7m/7.34m
