RHB Investment Bank (RHB IB) emerged from IHH Healthcare Bhd’s post-result briefing feeling upbeat on its sound expansion plan, given its unique geographical presence that give it exposure to high-growth regions.
The research house, in its Malaysia Company Update today (Dec 4), maintains its BUY call and SOP-derived TP of MYR6.90, 18% upside with a total of 3% FY23F yield.
RHB IB makes no changes to its earnings estimates as IHH’s results were in line. Its unchanged TP implies 15x FY24F EV/EBITDA, which is 0.5SD above its 5-year historical average of 14x.
“The consolidation of newly acquired hospitals, easing inflation pressure from Turkey and the conclusion of Fortis’ mandatory takeover offer (MTO) are key re-rating catalyts for the near term.
Key downside risks to RHB IB’s call is MTO overhang on Fortis, lower-than-expected patient volume and revenue intensity, and higher-than- estimated operating costs.
RHB IB noted that IHH has organic expansion in the pipeline, with new bed count target, up by 33% or 3,800 beds in the next five years.
“This highlighted IHH’s ambitions for growth primarily in developing countries like Malaysia and India, as 34% and 48% of the new
beds are being allocated for these markets.
“The key rationale behind the expansion plan was due to its current low bed per 1,000 population ratio for both Malaysia (2.1) and India (1.7), which still falls short of that of developed nations like Singapore (2.5).
“Meanwhile, in matured markets like Singapore and Hong Kong, IHH intends to shift its focus beyond tertiary care to preventive care such as expanding ambulatory care services to ease the congestion in hospitals.
“Positively, the group intends to retain its China division (Parkway) and to turn around the business. Its Greater China division reported a RM9.1 million EBITDA vs a loss of RM7.5 million in 3Q22.
Post-briefing, the research house also pointed out that IHH is still waiting to turn the corner with Acibadem.
“Despite the TRY still being under pressure, the QTD performance of the currency against the USD and EUR has improved to -5% and -4% compared to -22% each in 3Q23.
“Management has been upbeat on the orthodox Turkish Central Bank’s restrictive monetary policy to curtail inflation (borrowing rate now stands at 40%, from 8.5% in the beginning of the year).
“That said, Acibadem will continue to swiftly respond to such monetary policy moves by adjusting to ASP, while striving to diversify
its revenue based on non-TRY-denominated paying patients,” it added.
RHB IB added it expect the group’s healthy balance sheet to meet its M&A requirement.
“Its net gearing dropped to 0.29x in September from 0.36x in June, as IHH continues to pare down borrowings. Management’s
near-term priority is still on paring down borrowings while identifying nonperforming assets for disposal.
