RHB Investment Bank (RHB IB) is optimistic about IHH Healthcare Bhd’s long-term prospects, as its 3Q23 core profit leapt 17% YoY to MYR369 million, bringing 9M23 numbers to RM1.053 billion.
In its Malaysian Results Review, it said that for IHH’s quarterly results is in line with its estimates but is below Street’s estimate at at 73% and 62% respectively.
“This was thanks to a better case-mix, robust patient footfalls, and consolidation of newly acquired entities,” it said.
The research house said hospital revenue across IHH’s key geographical segments posted positive YoY growth, bringing total hospital and healthcare revenue growth up 22%.
“Gleneagles Hong Kong posted 29% YoY revenue growth whereas the laboratory unit’s topline was higher by 9.2% YoY (non Covid-19 revenue increased 18% YoY).
“Opex was 27% YoY higher in view of the higher utilities, IT-related, and repair maintenance costs. As such, core contracted 0.5ppts YoY to 6.3%.”
Thus, RHB IB keeps its BUY call and RM6.90 SOP-TP, 18% upside, and the TP implies 15x FY24F EV/EBITDA, which is 0.5SD above its 5-year historical average of 14x and after incorporating 0% ESG premium/discount to our intrinsic value – IHH’s ESG score is in line with the country median.
“We make no changes to our earnings estimate, recommendation, and TP, pending an analysts briefing later on. We continue to like IHH given its reputable regional footprint across key regions and resilient demand for healthcare services,” it said.
On the outlook, the research house views IHH positively as intends to grow its bed capacity by 30% (4,000 beds) over the next five years while exploring strategic opportunities in Asia and Europe.
“We remain positive on its long-term prospects as we like the group’s solid execution strategy, reputable regional footprint across key regions (driven by strong brand awareness), inelastic demand nature towards healthcare services, and focus on affluent clientele, which should provide earnings resiliency despite the challenging market environment,” it said.
The key downside risk to RHB IB’s call a mandatory takeover offer overhang on Fortis Healthcare, lower-than-expected patient volumes/revenue intensity, and higher-than-expected operating costs.
