IHH
Ihh Healthcare Berhad
Company Background
PETALING JAYA: The recent acquisition of Penang-based Island Hospital Sdn Bhd by IHH Healthcare Bhd raises questions about whether the latter may have overpaid for an asset that will require additional investment for future development.
KUALA LUMPUR: RHB Research has maintained its 'overweight' rating for the healthcare facilities and services sector, with IHH Healthcare Bhd and KPJ Healthcare Bhd as its top picks.
© New Straits Times Press (M) Bhd
$IHH / 5225 (IHH HEALTHCARE BERHAD)
Research by MIDF
BUY – TP RM7.35
" Solidifying the Northern Hospital Cluster”
• IHH Healthcare had proposed acquisition of Island Hospital for RM4b with expansion land valued at RM223m
• Strategic location, high-quality asset, powerhouse for medical tourism in Penang
• Revised FY26-27 earnings forecast, catering to additional expected revenue of +15% from acquired hospital
• Maintain BUY with TP: RM7.35
Analyst:
MIDF Research
research@midf.com.my
$IHH / 5225 (IHH HEALTHCARE BERHAD)
Research by Kenanga
Outperform– TP RM7.73
" Acquiring Hospital in Penang ”
IHH is acquiring Island Hospital in Penang for RM3.923b cash. We estimate that the forward valuation is at 19.2x EV/EBITDA for a private hospital operator commanding an EBITDA margin of 30% with a profitable bottom line. While the deal is expected to be short- term earnings dilutive with some gestation, we like the deal due to a strategic fit to expand complementary services in Penang which is a location integral to its cluster strategy. Pending the completion of the deal expected by end-CY24, we maintain our forecasts, TP of RM7.73 and OUTPERFORM call.
Analyst:
Raymond Choo Ping Khoon
pkchoo@kenanga.com.my
$IHH / 5225 (IHH HEALTHCARE BERHAD)
Research by Public
Outperform– TP RM7.68
" To Acquire Penang Island Hospital – A Medical Tourism Powerhouse ”
IHH Healthcare (IHH) has announced a proposal to acquire a 100% stake in Island Hospital Sdn Bhd (IHSB), a Penang-based hospital with a potential total capacity of 600 beds, for a total cash consideration of RM3.92bn, from Comprehensive Care Sdn Bhd (CCSB). This acquisition will strengthen IHH’s foothold in Penang and strategically position it to capitalise on the region's strong growth in medical tourism especially from Indonesia. We are positive on IHH’s move, as this will help the Group to strengthen its competitive position by leveraging synergies with its two existing facilities, Gleneagles Hospital Penang and Pantai Hospital Penang, thereby establishing a network of c.1,000 operational beds in Penang. The acquisition is targeted to complete by the end FY24F, and is expected to be earnings accretive after FY26F. However, our preliminary estimates suggest that FY25-26F earnings may drop by <5% due to additional interest cost to be incurred. At this juncture, we maintain our forecast pending the completion of this acquisition. Maintain our Outperform call with an unchanged TP of RM7.68.
Analyst:
Thye May Ting
thye.mayting@publicinvestbank.com.my
$IHH / 5225 (IHH HEALTHCARE BERHAD)
Research by RHB
BUY – TP RM 8.00
" Expanding Its Footprint In The Pearl Of The Orient; BUY”
IHH Healthcare entered into a sale and purchase agreement with Comprehensive Care (CCSB) for the proposed acquisition of Island Hospital Penang (IHSB) for a total cash consideration of MYR3.9bn. We see positive synergies from the acquisition considering IHSB’s superior margin profile, promising growth prospect, and synergistic value creation in fortifying IHH Penang’s operation. We incorporate 0% ESG for IHH based on our in-house ESG scoring framework given its ESG score is the same as the country median.
Analyst:
Oong Chun Sung
chun.sung@rhbgroup.com
$IHH / 5225 (IHH HEALTHCARE BERHAD)
Research by HLIB
BUY – TP RM7.70
" Good asset at a reasonable price ”
IHH announced that it has entered into a sale and purchase agreement with Comprehensive Care for the proposed acquisition of Island Hospital for an EV consideration of RM4.2bn (equity + net debt). Excluding the value of the adjacent vacant land, the implied FYE Dec 2024f EV/EBITDA of this acquisition will be 19.2x, which is lower than past deals. We view this Island Hospital acquisition positively given (i) the assets are of high quality, good brand-name and strategically located on Penang Island but with a reasonable/attractive EV/EBITDA price tag, (ii) the deal is core earnings accretive from FY25f onwards despite with our conservative assumptions, (iii) an indication of IHH sticking to its disciplined M&A rules, and (iv) Island Hospital does not fall onto the hands of IHH’s competitors. Maintain BUY on IHH with an unchanged SOP- derived TP of RM7.70.
Analyst:
Chee Kok Siang
cheeks@hlib.hongleong.com.my
$IHH / 5225 (IHH HEALTHCARE BERHAD)
Research by TA
HOLD – TP RM6.88
" Proposed Acquisition of Island Hospital”
Yesterday, the board of IHH proposed to buy Island Hospital for RM3.92bn, with the transaction expected to be completed by 4Q24. We consider the offer price as fair, as the acquisition is valued at an EV/EBITDA of 24.6x, which is in-line with previous hospital acquisitions in Malaysia, ranging from 20.1x to 31.3x. Overall, we are positive as the acquisition is expected to be EPS accretive from 2026. In addition, IHH Malaysia medical tourism revenue is expected to at least double, given Island Hospital status as the top medical tourism hospital in Malaysia. No change to our earnings estimates pending completion of the acquisition. Maintain Hold on IHH with an unchanged TP of RM6.88/share based on SOTP valuation.
Analyst:
Tan Kong Jin
kjtan@ta.com.my
$IHH / 5225 (IHH HEALTHCARE BERHAD)
Research by CGS
ADD – TP RM7.88
" Acquisition of Island Hospital the right fit”
■ IHH’s proposed acquisition of Island Hospital (IHSB) for a total consideration of RM3.92bn translates into a 1H24 TTM EV/EBITDA (ex-land) of 23.3x.
■ We view the valuations as fair, given IHSB’s 1H24 EBITDA/PATMI growth of 46%/54% yoy; IHH expects acquisition to turn earnings accretive by FY26F.
■ We reiterate Add on IHH as we think the acquisition will support IHH’s ambitions to grow its northern Malaysia cluster as a medical tourism hub.
■ Our SOP-based TP remains unchanged at RM7.88, pending the finalisation of the funding structure for the acquisition.
Analyst:
TAY Wee Kuang
weekuang.tay@cgsi.com
$IHH / 5225 (IHH HEALTHCARE BERHAD) -2Q24
IHH Healthcare has reported strong performance across several regions, showing significant growth in revenue, EBITDA, and core net profit for the first half of FY24.
Revenue Growth: Year-over-year (YoY), IHH’s revenue increased by 23% due to higher demand, more acute patient cases, and price adjustments. Revenue per inpatient admission rose notably in Türkiye (+51%), Singapore (+17%), India (+10%), and Malaysia (+9%). Quarterly (QoQ), the revenue increased by 3%, with Malaysia and India seeing higher inpatient admissions, although Türkiye experienced a decline due to seasonality.
EBITDA and Profit: EBITDA rose 13% YoY due to a higher yield from acute cases, with core net profit up by 30% YoY to RM840 million, supported by lower taxes. QoQ, core net profit increased by 6%.
Outlook: The company expects continued growth in FY24, driven by the return of foreign patients in Türkiye, resolution of nurse shortages in Singapore and Malaysia, and margin improvements from asset disposals. IHH plans to expand bed capacity by 33% by 2028, focusing on Malaysia and India, while increasing healthcare offerings in Singapore and Hong Kong.
Looking forward, IHH's growth prospects remain robust, particularly with plans to expand bed capacity by 33% by 2028, which should further enhance its ability to serve a growing patient base. The company’s strategy to overcome challenges like nurse shortages and geopolitical tensions by focusing on high-demand areas and cost management is sound. The return of foreign patients, especially in Türkiye, and expansion in healthcare services across Singapore and Hong Kong, will likely support sustained growth.
However, the company faces risks, including the potential impact of currency fluctuations on revenue from overseas operations and ongoing geopolitical instability. Additionally, the execution of its expansion plans, particularly in regions with staffing challenges, will be critical to maintaining its growth trajectory.
$IHH / 5225 (IHH HEALTHCARE BERHAD)
Research by CGS
ADD – TP RM7.88
" Capacity expansion to come in FY25F”
■ 1H24 core net profit (ex. MFRS 129) of RM1.16bn was ahead at 55.7%/62.7% of our/Bloomberg consensus’ FY24F estimates.
■ 2Q24 revenue of RM6.09bn is a record high, with qoq growth observed across all countries (i.e. SG, MY, IND and Greater China) except Turkey.
■ We increase our FY24F EPS by 13.0% to adjust for better EBITDA margins and lower effective tax rate.
■ Reiterate Add with better profitability ahead from organic bed capacity expansion; SOP-based TP unchanged at RM7.88.
Analyst:
TAY Wee Kuang
weekuang.tay@cgsi.com
$IHH / 5225 (IHH HEALTHCARE BERHAD)
Research by TA
HOLD – TP RM6.88
" 2H24 Earnings to Remain Resilient”
We revise our revenue per inpatient for Turkey & Europe operations by 13.7% and lowered our tax rate by 2pts. Consequently, we have adjusted our FY24/25/26 net profit projections to RM1.64/1.71/1.81bn, from the earlier estimates of RM1.51/1.60/1.72bn.
Analyst:
Tan Kong Jin
kjtan@ta.com.my
$IHH / 5225 (IHH HEALTHCARE BERHAD)
Research by RHB
Buy - TP RM8
"Advancing Towards a New Level Of Success; Stay BUY"
Stay BUY, with higher MYR8 TP (SOP) from MYR7.90, 27% upside. 1H24 core earnings of MYR839.8m were slightly ahead of our but missed consensus estimates – at 51% and 46% of FY24F earnings. The stronger- than-expected results were driven by sustained demand for healthcare services, better case-mix of more acute patients, and timely price adjustments to counter against inflation. We continue to like IHH Healthcare due to its reputable regional footprint across key regions, expansion pipeline (+33% bed capacity by 2028), and resilient demand for healthcare services.
Analyst:
Oong Chun Sung
chun.sung@rhbgroup.com
$IHH / 5225 (IHH HEALTHCARE BERHAD)
Research by Public
Outperform - TP RM7.68
"Another Record High Quarterly Revenue"
IHH Healthcare (IHH) reported a headline net profit of RM437m (+39% YoY) in 2QFY24, in tandem with another record-high quarterly revenue (+30% YoY) of RM6.1bn, mainly driven by sustained growth in inpatient volume across all markets. After excluding the MFRS129 effect and other non-operating items, IHH’s 2QFY24 core net profit was up 42% YoY to RM571m. The results exceeded both our and the street’s estimates at 57% and 63% of full-year forecasts, respectively. The discrepancy in our forecast is mainly due to higher-than-expected inpatient volume growth. We increase our FY24F forecast by 6% to factor in a higher number of inpatient admission and we maintain our FY25-26F earnings forecasts. All told, we reiterate our Outperform call on IHH, with a higher SOTP-based TP of RM7.68, based on 20x FY25 EV/EBITDA. IHH has declared an interim dividend of 4.5sen.
Analyst:
Thye May Ting
thye.mayting@publicinvestbank.com.my
$IHH / 5225 (IHH HEALTHCARE BERHAD)
Research by Kenanga
Outperform - TP RM7.73
"Boosted by Better Yields and Lower Tax"
IHH’s 1HFY24 results met expectations. Its 1HFY24 core net profit rose 30% YoY driven by revenue intensity, better yields and a lower tax. We expect its earnings momentum to accelerate, underpinned by revenue intensity and rising demand in 2HFY24. We maintain our forecasts and roll forward our valuation base from FY24F to FY25F. Consequently, our SoP-TP is raised from RM7.00 to RM7.73. Reiterate OUTPERFORM call.
Analyst:
Raymond Choo Ping Khoon
pkchoo@kenanga.com.my
$IHH / 5225 (IHH HEALTHCARE BERHAD)
Research by HLIB
Buy - TP RM7.70
"Steadily in line"
IHH reported 1H24 core PATMI (including MFRS 129) of RM840m (+30.3% YoY), which came in within ours (51%) and consensus’ (54%) full year forecast. We maintain our FY24f/25f/26f forecasts as the results were in line. Going forward, IHH is set for sustained growth, underpinned mainly by plans to increase bed capacity by 33% by 2028. Maintain BUY on IHH with a slightly higher SOP-derived TP of RM7.70 to reflect higher market cap of Indian-listed Fortis Healthcare (31.1%-ownership).
Analyst:
Chee Kok Siang
cheeks@hlib.hongleong.com.my
$IHH / 5225 (IHH HEALTHCARE BERHAD)
Research by TA
Hold - TP RM6.85
"A Solid 2Q24"
Reiterate our Hold recommendation on the stock with a TP of RM6.85/share based on SOTP valuation.
Analyst:
Tan Kong Jin
kjtan@ta.com.my
$IHH / 5225 (IHH HEALTHCARE BERHAD)
Research by MIDF
Buy - TP RM7.35
"Increased Inpatient Visits Boosted 1HFY24 Earnings"
• IHH’s 1HFY24 normalised earnings up +30%yoy; came in within expectations
• Revenue up +23% from increased inpatient visits and higher revenue per admission across all hospitals
• Demand fundamentals for healthcare services robust, but cost pressures remain a risk
• Maintain BUY with unchanged TP: RM7.35
Analyst:
MIDF Research
research@midf.com.my
$IHH / 5225 (IHH HEALTHCARE BERHAD)
Research by Kenanga
Outperform - TP RM7.00
"Shaping Healthcare Future Sustainably"
IHH is committed to sustainability efforts through its aspiration to “Care. For Good” which is an integral part to IHH’s sustainable growth, and forms the backbone of the group’s Environmental, Social and Governance (ESG) roadmap. Pending further improvement on its ESG initiatives, we maintain our overall ESG score for IHH at 3 stars. We maintain our forecasts, TP of RM7.00 and OUTPERFORM call.
Analyst:
Raymond Choo Ping Khoon
pkchoo@kenanga.com.my