IHH Healthcare Berhad (IHH) saw revenue cross its targeted RM20bn to reach a record RM20.9bn in FY23 with a revenue of RM5.3bn (+9.0% yoy/-9.2% qoq) in 4Q23. Its FY23 core net profit of RM1.93bn was above expectations, at 108.6%/116.9% of CGS International’s and Bloomberg consensus’ FY23F estimates.
CGS International, in its Company Note today (Mac 5) reiterated an Add call with a higher SOP-TP of RM7.88, as they continue to like the different levers of growth available to IHH across its operating regions.
Affirmation of underlying growth observed in 4Q23
IHH observed yoy revenue growth in 4Q23 across key regions of operations for its hospital services business, i.e. Malaysia: (+13% yoy), Singapore: (+11% yoy), India (+8%), as well as Turkey and Europe (+17% yoy).
Malaysia, Turkey and Europe saw higher inpatient admissions, driven by higher demand from foreign patients.
The management shared that foreign patient revenue had grown c.130% yoy in Malaysia for FY23, to c.6% of total revenue from Malaysia. Foreign patients to Turkey formed 18% of total revenue from Turkey and Europe in 4Q23 and FY23 alike, while its European operations formed 30% of its revenue from the region, bringing non-Lira contribution to revenue for the region to 48% from c.40% in FY22.
Singapore and India saw higher revenue intensity with more complex treatments undertaken.
With the exception of India, there was a slight decline in EBITDA margins yoy in 4Q23, due to higher staff costs as IHH stepped up hiring efforts to address issues of nursing shortage across its hospitals. Organic bed expansion to pick up towards FY28F Management had previously guided for IHH to add c.4,000 beds organically to increase its total bed capacity by more than 30% from c.12,330 beds as of end -FY23.
In its latest analyst briefing held on 1 Mar 23, the management said it is targeting to add c.570 beds across Malaysia, India and Hong Kong in FY24F, suggesting that capacity expansion should only pick up from FY25F.
Nevertheless, CGS International’s revenue growth forecast of 13.5% yoy in FY24F outpaces IHH’s estimated capacity expansion of c.4.6% is due to higher revenue intensity assumptions amid an increase in contribution from foreign patients across Malaysia, Turkey and Europe, as well as an increase in ambulatory care centres in Singapore and Hong Kong, which will allow IHH to better utilise its bed capacity across hospitals by decanting lower revenue-intensive activities into these facilities.
CGS International’s reiterated Add with higher TP of RM7.88
IHH raised its minimum payout ratio from 20% to 30% following a record FY23 net profit.
CGS International has tweaked their FY24F/25F EPS by -0.8%/+1.9% after increasing revenue forecasts and reflecting lower margins.
CGS International’s SOP-based TP is raised to RM7.88 as they roll forward their valuations to peg its hospital services (ex. Fortis) at 15x FY25F EV/EBITDA (comparable to peers) alongside the market valuation of its listed subsidiaries, i.e. PREIT (Add, TP: S$4.50) and FORH (Not-rated).
Re-rating catalyst: sustained double-digit ROE.
Downside risks: margin compression due to lower bed occupancy exacerbated by capacity expansion, and acquisitions of non-earnings accretive hospitals.
