IHH Healthcare Bhd: “Out of hospital” strategy drives multi-pronged benefits
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• Insurer pressure remains a risk, but margin impact is mitigated by cost efficiencies and better case mix
• Maintain BUY with TP MYR8.60/SGD2.61
Healthy operational performance in 2Q25, weighed down by currency translation losses but broadly in line. IHH reported PATMI (ex EI and ex MFRS) of MYR518mn (-9% y/y due to higher finance costs) on MYR6.4bn (+7% y/y or +18% y/y fx neutral) in revenue and MYR1.4bn (+2% y/y or +11% y/y fxn) in EBITDA. PATMI (incl MFRS) came in at MYR443mn (-29% y/y), due to lower net monetary gain from hyperinflationary economy and absence of deferred tax credits in 2Q25. This accounts for 22% of our full year forecast and is broadly in line with our estimates as we expect sequential growth in Singapore contributions as Mount Elizabeth Orchard ramps up from 3Q25. On the margins front, IHH delivered EBITDA margins of 22% with fxn EBITDA up in all countries except Singapore, due to the renovation at Mount Elizabeth Orchard.
Country performance and outlook
• Malaysia: Growth was mainly driven by the Island Hospital acquisition, while volumes and revenue at the rest of the hospitals were flat to slightly down. Foreign patient inflows contributed about 13% of revenue, and the shift to daycare lifted daycare revenue and volumes by 20% and 18% respectively. Margins are likely to stay stable in the mid-20s range despite payer pressure, which has eased off from its peak last year.
• Singapore: Mount Elizabeth Orchard renovation was completed in June-25 and the phased reopening should drive a recovery in volumes. Beds would ramp back to 220 (up from 110 currently) with normalized utilization expected by 2Q26. Insurer pressures remain a risk.
• Türkiye & Europe: Revenue and EBITDA grew 40%/30% y/y on higher intensity and admissions, partly offset by pre-opening costs at Acibadem Vitosha. Proportion of foreign patient revenues in Turkiye fell to 14% against a robust 50% y/y growth in local patient revenue.
• India: Continues to be a key growth market, with ongoing operational synergies between Fortis and Gleneagles India.
• Hong Kong: Continues on a steady growth trajectory with 18 more beds opened in anticipation of a ramp up in 2H25.
• Labs: Moving up the testing ladder with the introduction of metabolomic testing for personalized preventive care.
Structural shifts in care model from inpatient to day care eases payer pressure, preserves margins, and enhances ROE. By diverting low-acuity, high-volume treatments with shorter lengths of stay into day-care settings, IHH lowers average treatment costs and addresses insurer concerns over routine case inflation. This also frees up hospital capacity for higher margin complex surgical procedures that carry higher revenue intensity. Already, management notes the payer pressure in Malaysia has somewhat come down with day care revenue in Malaysia up 20% and case volumes up 18%. In addition, the daycare model reduces CapEx intensity, freeing cash for debt reduction and structurally higher ROE over time.
IHH maintains its plans to add c.4000 beds (c.33% capacity increase) by 2028. Utilisation is elevated across its network, reflecting unmet demand and the risk of patient leakage to competitors, though management retains flexibility to adjust the pace of expansion in line with market conditions.
Insurer pressure remains a risk, but margin impact is mitigated by cost efficiencies and better case mix. The suspension of preauthorization by Great Eastern in Singapore highlights growing insurer-provider tension over costs though the impact is likely modest as Great Eastern is only one of the seven ILP providers. More importantly, other major insurers such as Prudential and AIA continue to offer pre-authorisation at Mount Elizabeth hospitals, suggesting GE’s move is unlikely to spark wider industry suspension. Nonetheless, IHH continues to divert relevant procedures to day-care settings and centralise procurement, with group-wide capital equipment purchases alone generating USD150–170m in savings. At the same time, hospitals are increasingly focused on complex surgical cases, supporting case mix intensity which we believe should allow margins to remain resilient at 22–23% (in line with management’s 22–24% guidance).
Maintain BUY with TP raised to MYR8.60/SGD2.61 as we roll forward our valuation to FY25/26F EBITDA. We maintain BUY as IHH’s diversified footprint and strong growth prospects underpin earnings resilience. Our TP is based on an SOTP valuation on blended FY25/26F EBITDA and we applied EV/EBITDA multiples ranging between 10-20x based on its various geographical markets. Earnings estimates remain unchanged.
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- IHH Healthcare: 1Q25: Underlying growth intact despite fx drag on headline numbers30 May 2025
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