IHH Healthcare: Powered by solid core performance
- 9M24 PATMI (ex EI and MFRS 129) of MYR1.7bn was up 21% y/y on strong core performance, above expectations
- Growth trajectory to continue with robust capital management measures in place
- Earnings for FY24/25 raised by 66%/47% to account for Island Hospital acquisition, hyperinflation, and lower taxes
- Maintain BUY with higher TPs of MYR8.50/SGD2.58
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Growth trajectory to continue with robust capital management measures in place. The acquisition of Island Hospital (600 bed capacity) for an equity consideration of MYR3.9bn was completed in early November 2024. As Island Hospital is the No.1 medical tourism hospital in Malaysia and the second largest private hospital player in Penang, the acquisition will enhance IHH’s market position in Malaysia. IHH expects synergies of more than MYR200mn to be realised over the next five years.
In Singapore, the flagship Mount Elizabeth Orchard is currently undergoing major renovations to expand its inpatient and outpatient treatment centres and improve ward configurations. 40% of beds have been closed in 3Q24, which will result in some near-term margin pressure, but Singapore EBITDA margins should trend back to normalised levels of c.29% towards the latter part of FY25, as the bulk of renovations are expected to be completed by 2Q/3Q25.
Additionally, IHH had a maiden Sukuk issuance of MYR4.0bn (sub 4% rates) in November 2024 to fund the Island Hospital transaction (100% debt financed). Under the Sukuk Programme, IHH can utilise up to MYR15.0bn for tactical M&A opportunities or ongoing capex requirements. This provides a sustainable source of funding for future growth initiatives.
EBITDA margins expected to remain firm, between 22%-24%, despite plans to increase bed capacity by 33% by 2028. IHH targets to increase operational bed capacity by 33% (c.4,000 beds), driven by India (+1,860 beds), Malaysia (+1,300 beds), and Europe (+400 beds). Hong Kong and Turkiye’s bed counts are also projected to grow by 170 beds and 120 beds, respectively, whereas capacity growth in Singapore will primarily come from >15 new clinics and two ambulatory care centres. We understand that expansion would be guided by existing occupancy levels with the increase in capacity occurring in manageable amounts, allowing IHH to maintain its EBITDA margins between the range of 22%-24%.
Gleneagles HK expected to deliver exponential EBITDA growth and would be PATMI positive in FY25, driving IHH’s next phase of growth. Gleneagles HK is beginning to deliver exponential EBITDA growth after it turned EBITDA positive in 2021, with management guiding that it will PATMI positive in 2025. Given that GHK contribution to the group revenue and Greater China contributions stands at c.6% and c.88% of group revenue, respectively as at 9M24, we believe this will contribute to IHH’s next phase of growth.
Maintain BUY with higher TPs of RM 8.50/SGD2.58 (vs. prev RM7.60/SGD2.18). Our FY24/25F earnings estimates have been revised upward by 66%/ 47% to account for the recent Island Hospital acquisition, hyperinflation in Turkey (RM500mn/300mn under EI in FY24/25), a lower effective tax rate in FY24. Our TP is based on a sum-of-the-parts (SOTP) valuation methodology. We applied EV/EBITDA multiples ranging between 10-20x based on its various geographical markets. While there might be some profit-taking after the strong run up following the announcement of the Island Hospital acquisition, we believe that investors who take a longer-term view on the counter could accumulate on dips. IHH’s expansion plans amidst favourable industry trends, such as an ageing population, increased prevalence of lifestyle diseases, increasing affluence, and medical advancements, make it well positioned for growth.
FY Dec | 3Q2023 | 2Q2024 | 3Q2024 | % chg y/y | % chg q/q |
Revenue | 5,826 | 6,093 | 5,643 | (3.1) | (7.4) |
Other Oper. (Exp)/Inc | (4,811) | (5,151) | (4,728) | (1.7) | (8.2) |
Operating Profit | 1,015 | 942 | 915 | (9.8) | (2.9) |
Other Non Opg (Exp)/Inc | 0.0 | 0.0 | 0.0 | - | - |
Associates & JV Inc | 5.58 | 6.00 | 8.00 | 43.3 | 33.3 |
Net Interest (Exp)/Inc | (231) | (174) | (149) | 35.4 | 14.4 |
Exceptional Gain/(Loss) | 224 | 127 | 50.0 | (77.7) | (60.6) |
Pre-tax Profit | 1,013 | 901 | 824 | (18.7) | (8.5) |
Tax | (375) | (154) | (172) | (54.2) | 11.7 |
Minority Interest | (106) | (124) | (118) | (11.6) | (4.8) |
Net Profit | 532 | 623 | 534 | 0.4 | (14.3) |
Net profit bef Except. | 308 | 496 | 484 | 57.1 | (2.4) |
EBITDA | 1,437 | 1,374 | 1,307 | (9.0) | (4.9) |
Margins (%) |
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Opg Profit Margins | 17.4 | 15.5 | 16.2 |
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Net Profit Margins | 9.1 | 10.2 | 9.5 |
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