Maybank Securities has resumed coverage of IHH Healthcare , with a " buy" call and sum-of-the-parts based RM7.97 target price for its Bursa-quoted shares, up from a previous target of RM7.13. IHH Healthcare is traded on the Singapore Exchange as well.

 

Year to date, its shares has surged by more than a fifth. Even so, Maybank analysts Yin Shao Yang and Nur Natasha Ariza believe there are reasons to " track" the healthcare giant in the coming year.

 

" IHH has clear growth drivers ahead of it, leveraging on higher demand and revenue intensity, especially in India and Malaysia. Valuations are also ripe for a re-rating, in our view," state the analysts in their Dec 27 note, where they expect IHH to deliver 3-year forward revenue and EBITDA CAGR of 13%.

 

One reason to own this stock is that healthcare is seen to be a growing and " defensive" industry, with spending showing a " perfect correlation" with GDP growth. 

 

Next, two comparable healthcare groups in Malaysia, Sunway Healthcare and Columbia Asia Healthcare are likely to list in the coming two years.

 

The Maybank analysts believe that if these two competitors can fetch higher valuations than what IHH has now with 13x FY2024 EV/Ebitda, its shares are primed for a re-rating in tandem.

 

However, there are possible downside risks, the analysts caution. For example, growing staff costs is a " slow-burning" trend that is not easy to ascertain.

 

That aside, key risks to their assumptions would include possible negative regulatory changes, for example, government intervention to stipulate private hospital charges.

 

Also, if Sunway Healthcare and Columbia Asia Healthcare are not listed at higher valuations, that will have a bearing on IHH' s ability to re-rate.

 

On the other hand, possible privatisation by IHH' s largest shareholder Mitsui will be a catalyst.

 

The Maybank analysts point out that talks of the Japanese conglomerate making such a move had happened first in May 2021 and most recently in September, causing IHH' s share price to move by more than 20% and 5% respectively.

 

" If there were another privatisation attempt, it stands to reason that IHH&rsquo s share price will rise again," says Maybank.

The analysts&rsquo updates follow IHH&rsquo s Q3 results and a forecast that it will finish its Mount Elizabeth Hospital upgrades ahead of schedule

 

ANALYSTS are split on IHH Healthcare following relatively flat third quarter earnings and the company&rsquo s forecast for its Mount Elizabeth Hospital upgrades to finish ahead of schedule.

 

The private healthcare provider&rsquo s RM534 million (S$161.5 million) net profit for Q3 ended Sep 30 posted on Thursday (Nov 28) was nearly on par with its RM532 million net profit for the third quarter last year.

 

Following this was Friday&rsquo s news of ongoing renovations for Mount Elizabeth Hospital set to finish one to two quarters early, by the second to third quarter of 2025.

 

At a briefing following the results release, group chief executive Prem Nair said the company expects to finish ongoing renovations for Mount Elizabeth Hospital one to two quarters early &ndash by Q2 or Q3 of 2025.

 

CGS International in a Monday report downgraded its call on IHH Healthcare to &ldquo hold&rdquo from &ldquo add&rdquo , trimming its price target for the counter on Bursa Malaysia to RM7.75 from RM7.88.

 

The research house forecasts that IHH Healthcare will face earnings headwinds in FY2025 from the accelerated renovation of Singapore&rsquo s Mount Elizabeth Hospital and its acquisition of Penang&rsquo s Island Hospital. 

 

The earlier-than-expected completion of Mount Elizabeth Hospital&rsquo s renovation spells &ldquo margin pressure&rdquo for IHH Healthcare&rsquo s Singapore business over the next three quarters, said CGS International analyst Tay Wee Kuang.

 

&ldquo This will mean taking out half the bed capacity in the hospital over the next three quarters, which we think could have a significant impact on profitability in Singapore given its total bed capacity of 790 beds across four hospitals,&rdquo said Tay.

 

He thinks earnings accretion from the RM3.9 billion Island Hospital acquisition completed on Nov 4 will only come in during FY2026.

 

&ldquo We estimate the acquisition to be earnings before interest, taxes, depreciation and amortisation (Ebitda) accretive in FY25F but only earnings accretive from FY26F as IHH optimises operations within Island Hospital,&rdquo said Tay.

 

With the expected &ldquo margin compression&rdquo from IHH Healthcare&rsquo s accelerated Mount Elizabeth renovations and Island Hospital acquisition, the research house is dimming its forecasts for the healthcare provider by 3.5 per cent for FY2024 and 4.1 per cent for FY2025.

 

However, it raised its earnings forecasts for FY2026 by 5.8 per cent, as it expects positive earnings growth then.

 

Conversely, DBS Group Research maintained its &ldquo buy&rdquo call on IHH Healthcare&rsquo s Singapore listing and upped its price target by 18.3 per cent to S$2.58 from S$2.18 on higher earnings estimates.

 

The research group revised its earnings forecasts upwards by 66 per cent for FY2024 and by 47 per cent by FY2025 &ldquo to account for the Island Hospital acquisition, hyperinflation in Turkey, and a lower effective tax rate in FY2024&rdquo .

 

With robust capital management in place, IHH Healthcare is slated for a maintained growth trajectory, said DBS Group Research analysts Amanda Tan and Andy Sim. 

 

&ldquo As Island Hospital is the number one medical tourism hospital in Malaysia and the second-largest private hospital player in Penang, the acquisition will enhance IHH&rsquo s market position in Malaysia,&rdquo they said. 

 

While bed closures from Mount Elizabeth&rsquo s renovations could bring &ldquo near-term margin pressure&rdquo , they think the company&rsquo s Singapore segment&rsquo s Ebitda margins will &ldquo trend back to normalised levels&rdquo near the latter part of FY2025, as upgrades should be finished by the second or third quarter.

 

Tan and Sim think IHH Healthcare&rsquo s expansion plans and favourable industry trends &ndash such as ageing population, increased prevalence of lifestyle diseases, increasing affluence and medical advancements &ndash make it &ldquo well positioned for growth&rdquo .

 

&ldquo 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,&rdquo they said

Its year-on-year profit is nearly flat, though revenue is down 3% on year

 

PRIVATE healthcare provider IHH Healthcare : Q0F +0.92% expects its ongoing renovation of Mount Elizabeth Hospital along Orchard Road to be largely completed by the second to third quarter of 2025, one to two quarters ahead of schedule.

 

However, the facility&rsquo s refurbishment will result in &ldquo some margin pressure&rdquo on IHH Healthcare&rsquo s Singapore operations until the middle of 2025, given that Mount Elizabeth has nearly halved the number of operating beds since the start of 2024 for the retrofitting works, said group chief executive Prem Nair.

 

&ldquo We expect by Q1 or Q2 next year to add 25 per cent of the beds back, and the remainder of the beds later in 2025,&rdquo he said in a briefing held on Thursday (Nov 28) with the announcement of its results.

 

As at September this year, Mount Elizabeth had around 100 to 120 beds in operation, down from around 230 to 240, noted group chief financial officer Dilip Kadambi.

 

&ldquo We want to accelerate (the refurbishment) and, from a patient standpoint, get the hospital up and running very quickly, rather than have a prolonged renovation exercise in Mount Elizabeth Orchard,&rdquo he said.

 

&ldquo There will be some pressure in Q4 (2024), and in Q1 and Q2 of next year. However, as soon as we open the facility, we&rsquo ll have a pretty good ramp up &hellip and the margin will probably go back, by end 2025, to (around) 29 per cent,&rdquo he added.

 

Mount Elizabeth&rsquo s renovation plans were announced in January 2023. IHH Healthcare had said then that the refurbishment would cost S$350 million, and be done in phases to prevent disruption to major clinical services.

 

Earnings

The group on Thursday announced net profit of RM534 million (S$161.2 million) for the three months ended Sep 30, not much changed from the RM532 million in the corresponding year-ago period.

 

Revenue for the third quarter fell 3 per cent to RM5.6 billion from RM5.8 billion year on year.

 

In response to an analyst&rsquo s comment that the third quarter is historically the strongest one of the year, Kadambi noted that a recent appreciation of the ringgit had some effect on the currency conversion from foreign markets.

 

However, the group said that the third quarter had &ldquo higher patient volumes&rdquo and &ldquo revenue intensity from taking on more complex cases&rdquo . Without the effects of the Malaysian Financial Reporting Standards, revenue and earnings before interest, taxes, depreciation and amortisation (Ebitda) would have grown by 10 per cent and 7 per cent, respectively.

 

Brownfield expansion

IHH Healthcare&rsquo s senior management is bullish on India, noting that the market offers favourable trends for private healthcare, such as increasing income, higher insurance penetration and younger demographics.

 

Its India facilities, which include Gleneagles India and Fortis Healthcare, are running at about 77 per cent occupancy &ndash a figure Kadambi described as &ldquo reasonably full&rdquo and bodes well for the group&rsquo s intended brownfield expansion.

 

IHH Healthcare previously announced that over the next five years, it would expand bed capacity by 38 per cent, or 1,560 beds, and invest in medical equipment for its Fortis Healthcare brand. Gleneagles India will raise its number of beds by 34 per cent, or 300 beds, over the same period.

 

The group also recently opened the 350-bed Fortis Hospital, Manesar, in the National Capital Region of India, a region encompassing Delhi and its surrounding districts.

 

Said Dr Nair: &ldquo Essentially, we&rsquo d like to keep average occupancy in the high 60s to early 70s. Anytime it goes above that, we&rsquo d look for the ability to expand &ndash brownfield, ideally, or adjacent land, or new tactical acquisitions to fill that cluster.&rdquo

 

The group has also strengthened its foothold in Malaysia, with the completion of the Island Hospital acquisition on Nov 4. It is the third hospital in IHH Healthcare&rsquo s Penang cluster, which was running at full capacity before the deal.

 

The group had previously issued RM4 billion in unrated sukuk &ndash or Sharia-compliant bonds &ndash to finance the deal, which includes the purchase of the hospital and a vacant plot of land that can be used for future development.

 

The group is now focused on utilising the 600 beds in Island Hospital, before considering whether further capacity is needed in the future &ndash &ldquo 10, 20, 30 years down the road&rdquo , said Dr Nair.

This was despite revenue slipping 3 per cent to RM5.6 billion from RM5.8 billion due to inflation

 

IHH Healthcare on Thursday (Nov 28) posted a net profit of RM534 million (S$161.5 million) for its third quarter ended Sep 30, 2024, nearly on a par with RM532 million the year before.

 

Earnings per share stood at 6.06 sen, relatively unchanged from 6.04 sen. Earnings held steady despite revenue for the quarter slipping 3 per cent to RM5.6 billion from RM5.8 billion due to inflation.

 

An interim single-tier cash dividend for the financial year ending Dec 31, 2024, of 4.5 sen per share was paid out on Oct 30, 2024.

 

IHH said that it saw higher patient volumes and increased revenue from taking on more complex cases during Q3 across key markets including Singapore, Malaysia, Turkey, India and Greater China (including Hong Kong).

 

However, the group noted that its revenue was impacted by the relative movements of inflation rates upon the application of MFRS 129 &ndash which requires financial statements of an entity whose functional currency is the currency of a hyperinflationary country to be restated into the measuring unit current at the end of the reporting period.

 

Excluding MFRS 129, the group&rsquo s revenue would have grown by 10 per cent year on year for Q3 FY2024.

 

For the nine-month period, IHH&rsquo s net profit was down 13 per cent year on year to RM1.9 billion, against RM2.2 billion. Revenue was up 13 per cent to RM17.7 billion from RM15.6 billion.

 

Earnings per share for the nine-month period stood at 21.86 sen, down from 25.26 sen the year before.

 

Looking ahead, the group said it was &ldquo confident&rdquo of its trajectory as healthcare needs continue to grow both locally and around the region. As part of its strategic priorities, it aims to add close to 4,000 new beds in the next five years.

 

These efforts have added a combined 1,000 beds, allowing the group to extend its offerings to &ldquo significantly&rdquo more patients, he added.

 

Overall, IHH expects sustained revenue growth fuelled by healthcare megatrends.

 

It added that it will focus on driving profitability and sustaining healthy returns on equity, while maintaining &ldquo prudent capital management and mitigating inflationary and interest-rate pressures&rdquo .

 

Acquisition is seen complementing group&rsquo s existing Penang hospitals and yields immediate commercial synergies

 

INTEGRATED healthcare provider IHH Healthcare : Q0F +1.57%&rsquo s RM3.9 billion (S$1.17 billion) acquisition of Penang&rsquo s Island Hospital will propel the group to a leading healthcare provider for medical tourists, doubling down on the flow of patients coming from nearby regions, said analysts.

 

They are largely positive due to longer-term earnings accretion, but note that the acquisition came at a premium valuation and the transaction is pending the finalisation of its funding structure.

 

Macquarie Capital research analyst Gan Huan Wen said that the 600-bed Island Hospital, which IHH acquired from private equity firm Affinity Equity Partners, is a top destination for medical tourists in comparison, medical tourism revenue makes up just 5 to 6 per cent of IHH&rsquo s Malaysia revenue.

 

Medical tourists generally bring in higher revenue per patient, too. &ldquo Island Hospital&rsquo s RM12,000 per patient average is 12 per cent above that of IHH&rsquo s Malaysia operations,&rdquo he added.

 

IHH&rsquo s acquisition will increase the group&rsquo s prominence among medical tourists, particularly those from Indonesia, said Gan. He estimated that Indonesians contribute more than 55 per cent of healthcare traveller receipts in Malaysia.

 

CGS International analyst Tay Wee Kuang said that the acquisition will support IHH&rsquo s ambitions to grow its northern Malaysia cluster as a medical tourism hub.

 

IHH group chief executive Prem Nair said in a briefing after the announcement that the group has clusters of hospitals across Malaysia with their own area of coverage, and, as a system, the hospitals in each group work collaboratively.

 

Kenanga Investment research analyst Raymond Choo similarly noted that Penang is considered a regional hub for medical tourism, accounting for 51 per cent volume share of inbound foreign patients into Malaysia.

 

He believes the new hospital will be an integral part of IHH&rsquo s cluster strategy, with Penang serving as the group&rsquo s second-largest Malaysian cluster.

   

IHH Healthcare plans RM3.9 billion cash purchase of Penang&rsquo s Island Hospital, expects it to be EPS accretive in 2026

 

IHH Healthcare confident Malaysia will remain key medical tourism hub despite headwinds

 

Choo noted that Island Hospital is &ldquo strategically located&rdquo due to its proximity to one of IHH&rsquo s existing hospitals, Gleneagles Hospital Penang. &ldquo Island Hospital services are complementary to Gleneagles Penang and patients can be decanted to the former since they have capacity in the new wing,&rdquo he said in a note.

 

Said CGS&rsquo Tay: &ldquo The acquisition of Island Hospital could also yield immediate commercial synergies by allowing IHH to receive more patients that it previously would have lost to Island due to limited bed capacity.&rdquo

 

The RM3.9 billion deal also includes an adjacent vacant land measuring 120,000 square metres, valued at RM223.4 million. An AmInvestment Bank report noted: &ldquo This land could significantly expand Island Hospital&rsquo s bed capacity by 400 to 1,000.&rdquo

 

Premium valuation justified

Macquarie&rsquo s Gan said that the acquisition was valued &ldquo significantly above&rdquo the 13 times enterprise value (EV) to earnings before interest, taxes, depreciation and amortisation (Ebitda) multiple that IHH is trading at.

 

An RHB research note on the deal also pointed out that Island Hospital&rsquo s valuation works out to an EV/Ebitda of 24.6 times, based on the trailing 12-month financial results of the hospital.

 

This is 22 per cent higher than the 20.1 times EV/Ebitda in a similar deal involving a Malaysian healthcare asset: Columbia Asia&rsquo s purchase of Ramsay Sime Darby Health Care in November 2023.

 

The analyst added: &ldquo We believe the premium valuation is justified considering Island Hospital&rsquo s superior margin profile (a first-half profit after tax of 15 per cent) and growth prospect (a 40 per cent 2025 Ebitda growth).&rdquo

 

Analysts also find the deal favourable given its earnings-accretive nature &ndash IHH group chief financial officer Dilip Kadambi believes the deal will be earnings-per-share accretive in 2026.

 

That said, the analysts highlighted that the funding mix is uncertain at this juncture. IHH had said that the transaction will be funded through the internally generated funds of IHH and its subsidiaries, as well as external borrowings.

 

The RHB research analyst said: &ldquo If the deal is funded by 80 per cent debt and 20 per cent cash and is completed by November, we estimate potential earnings accretion of 2 per cent for 2024 and 9 per cent for 2025.&rdquo

 

Kenanga&rsquo s Choo, meanwhile, expects the acquisition to be short-term earnings dilutive with some gestation.

 

Senior management also told analysts that the acquisition would have negatively impacted IHH&rsquo s FY2023 earnings by RM110.9 million, due to finance costs increasing by RM157 million. This is assuming the acquisition is funded fully by debt at a 4 per cent interest rate.

 

Nonetheless, CGS&rsquo Tay added: &ldquo We continue to like IHH as we expect revenue momentum to remain robust from more extensive services across both hospitals and out-of-hospital facilities.&rdquo

IHH says Island Hospital will add 600 beds and yield potential synergies, given that it will be running 3 hospitals on the island

 

INTEGRATED healthcare provider IHH Healthcare : Q0F -0.52%&rsquo s indirect wholly-owned subsidiary Pantai is proposing to fully acquire Island Hospital in Penang, Malaysia, for RM3.9 billion (S$1.17 billion) in cash, the group announced on Wednesday (Sep 4).

 

The deal entails Pantai acquiring the full equity interest in the hospital, comprising 20 million shares, from Comprehensive Care, a company majority controlled by private equity firm Affinity Equity Partners.

 

In addition to the 600-bed hospital, Island Hospital comes with vacant land for development valued at RM223.4 million.

 

IHH Healthcare noted that the land bank has secured approvals for future development, with a gross floor area of more than 120 square metres, and also has the potential to yield around 400 beds.

 

Excluding the value of the vacant land, the enterprise transaction implies 19.2 times 2024 earnings before interest, taxes, depreciation and amortisation.

 

In a media briefing, group chief financial officer Dilip Kadambi said that IHH Healthcare&rsquo s acquisition targets must add to the strengths of its hospital network in the area, have &ldquo a certain value-creation plan&rdquo , and become earnings accretive in the second year &ndash or third at the latest. Island Hospital largely meets these requirements, he noted. &ldquo We have identified almost RM200 million worth of synergies that we can capture over the next five years and, overall, it is earnings-per-share accretive in Year Two itself, which is 2026.&rdquo

 

The equity value of Island Hospital was determined on a cash-free, debt-free basis, and on a willing-buyer, willing-seller basis.

 

The factors taken into consideration included recent transactions of similar hospital assets in South-east Asia, the ongoing scaling-up of Island Hospital&rsquo s operations, and the net debt of the hospital and its subsidiaries, which is estimated to be RM276.3 million as at Jun 30.

 

The transaction will be funded through the internally generated funds of IHH and its subsidiaries, as well as external borrowings &ndash the respective proportions of which have yet to be finalised, said IHH Healthcare.

 

The funding mix will be determined after considering the group&rsquo s internal cash requirements, gearing level and interest costs.

 

As at Jun 30, IHH Healthcare had cash and cash equivalents of RM1.4 billion.

 

Synergies with current hospitals

Island Hospital is set to be IHH Healthcare&rsquo s 18th hospital in Malaysia and third in Penang, after Gleneagles Hospital Penang and Pantai Hospital Penang. After the proposed deal, the three hospitals will have more than 1,000 operational beds.

 

Group chief executive Prem Nair said that there will inevitably be some internal competition, but most of IHH Healthcare&rsquo s hospitals &ldquo work very well together&rdquo .

 

&ldquo We have clusters of hospitals (across Malaysia) and they all have their area of coverage,&rdquo he noted. &ldquo As a system, they work collaboratively. Island&rsquo s addition will add to (Penang&rsquo s) cluster significantly.&rdquo

 

Alongside this transaction, IHH Healthcare is expanding its bed capacity organically, with the aim of adding around 4,000 new beds in the next five years. When asked whether the Island Hospital acquisition will slow the group&rsquo s organic growth, Kadambi replied that the two are &ldquo distinct events&rdquo . &ldquo (The bed addition) is brownfield expansion, for which we definitely have the resources from our cash flow... I don&rsquo t think our brownfield expansion plans will be impacted in any way because of this acquisition,&rdquo he said.

 

Island Hospital has five core specialities, covering orthopaedics, general surgery, gastroenterology, cardiology and oncology. For FY2024, the hospital is expected to have more than 42,000 inpatient admissions, with the average revenue per inpatient admission at RM12,000.

 

Kadambi estimated that the revenue contribution of Island Hospital would be &ldquo upwards of 15 per cent&rdquo .

 

Dr Nair also noted that Island Hospital comes fully resourced, with around 119 resident and visiting specialists. There is capacity to add new doctors and specialists, and to ramp up its bed capacity. In addition, the acquisition is likely to extend IHH Healthcare&rsquo s leading position in medical tourism, increasing access to the Indonesian catchment area, said the group. This comes after the group said in its second-quarter earnings briefing that it is bullish on medical tourism in Malaysia, with Indonesia serving as a key source of such tourists.

 

Kadambi said the acquisition will &ldquo increase the medical tourism within the IHH network by two times&rdquo .

 

Dr Nair also noted: &ldquo With the addition of Island Hospital, you will see more than one in three medical tourists utilising the IHH group of hospitals in Malaysia.&rdquo

 

Media outlets had previously reported that IHH Healthcare and Malaysian healthcare player Sunway Medical Centre were among the bidders for Island Hospital.

The group also highlights transitional care opportunities in Singapore, and Ebitda breakeven in its China clinics

 

DESPITE the strengthening ringgit and possible competition from recent reforms in Indonesia&rsquo s healthcare sector, Singapore-listed IHH Healthcare : Q0F +0.53% is still bullish on Malaysian medical tourism, its management said on Friday (Aug 30). 

 

This comes as the group&rsquo s expanding network aims to grow its reach and access to foreign patients.

 

It has added a new Sarawak hospital and expanded its current hospitals, including Gleneagles Hospital Kuala Lumpur. 

 

Dr Prem Nair, group chief executive of IHH Healthcare, said that the group has a year-to-date 50 per cent growth in medical tourism revenue in Malaysia.

 

&ldquo We&rsquo re expanding our reach to tap... a growing demand for medical tourism, predominantly attracting patients from Indonesia,&rdquo he said during the group&rsquo s second-quarter analyst briefing, after IHH Healthcare on Thursday reported a more than doubling in profit to RM623 million (S$188 million) for Q2 ended Jun 30.

 

Group chief financial officer Dilip Kadambi added that both domestic and foreign volumes in Malaysia have &ldquo grown very robustly&rdquo , and foreign patients contribute &ldquo a range of 6 to 7 per cent&rdquo to the group&rsquo s gross revenue, similar to previous quarters. 

 

IHH Healthcare&rsquo s acquisition of Timberland Medical Centre in Sarawak, completed in March, positions the group to attract patients from Indonesia, a key source for medical tourists in Malaysia.

 

While the ringgit has &ldquo strengthened somewhat&rdquo in recent months, it continues to be very competitive, noted Dr Nair.

 

The country also has other factors in its favour, he added, highlighting its accessibility, clinical competence and presence of a national body, the Malaysia Healthcare Travel Council, that facilitates medical tourism.

 

&ldquo We are quite bullish on medical travel in Malaysia,&rdquo he said.

 

IHH Healthcare previously announced that it will grow its Malaysian bed capacity by 46 per cent, or 1,300 beds, in the next five years.

 

Its private hospital, Gleneagles Hospital Kuala Lumpur, will be expanded by 2027, with a new medical block adding 260 new beds.

 

A market for future expansion

IHH Healthcare&rsquo s management is also aware of upcoming healthcare reforms in Indonesia, as the government aims to retain its patients.

 

An August RHB report said that Indonesia&rsquo s outgoing president, Joko Widodo, had estimated the country loses US$11.5 billion in medical treatment revenue per year, as citizens seek treatment abroad.

 

To combat this, Indonesia in July last year passed a healthcare Bill that addresses the shortage of specialist doctors there by streamlining the process for foreign doctors and Indonesian graduates of foreign institutions to practise in Indonesia.

 

A special economic zone (SEZ) for healthcare was also established in Bali, targeting international tourists.

 

Dr Nair said that such developments were positive and have made the market a place for IHH Healthcare to consider future expansion.

 

However, he believes that the announced reforms and the SEZ will likely take &ldquo several years&rdquo to have an effect, as hiring foreign doctors and bringing them into the country will take time.

 

&ldquo I don&rsquo t think it&rsquo s going to affect medical tourism (in Malaysia) for now,&rdquo he noted, adding that IHH Healthcare will watch Indonesia closely to see what the group could do there in the future.

 

The group is not in any hurry to enter new markets at the moment, he shared. It currently has operations in Singapore, Malaysia, Turkey and Europe, India and Greater China.

 

Out-of-hospital opportunities

In Singapore, the group highlighted that it is developing out-of-hospital opportunities, such as a new transitional care facility (TCF), TCF@East, with 200 beds.

 

Such facilities were set up by the Ministry of Health (MOH) during the Covid-19 pandemic to prevent hospitals from being overwhelmed, and are for medically stable patients from public hospitals waiting for long-term care arrangements, such as home care.

 

Health Minister Ong Ye Kung previously said that TCFs will be retained after the pandemic. They are generally run by private healthcare providers.

 

IHH Healthcare&rsquo s TCF@East is expected to admit its first patients in January.

 

Dr Nair explained: &ldquo This venture brings us out of our traditional strengths with primary and quaternary care, and into a new and less-familiar step-down care landscape.&rdquo

 

He noted that such facilities are refurbished from existing buildings, with the cost of refurbishment fully funded by MOH, while private players operate the facility. &ldquo That&rsquo s a model that&rsquo s worked very well, in terms of Ebitda (earnings before interest, taxes, depreciation, and amortisation),&rdquo said Dr Nair.

 

Kadambi added that compared to a hospital, Ebitda break-even for a TCF is likely to come much sooner.

 

As for China, which was previously loss-making, its clinics are now Ebitda break-even and expected to remain positive, said Dr Nair. This comes after the group revamped its operations there to link up its clinics, single ambulatory care centre and tertiary hospital Parkway Shanghai, and enhanced its referral mechanisms.

 

The group has spent some time consolidating its clinics, moving some operations to the ambulatory care centre, said Dr Nair. Parkway Shanghai is also not yet operating at full capacity, and the group intends to work on it next.

 

&ldquo In China, (our operations) will be focusing on outpatient growth, post-treatment and follow-up care, and referrals from the ambulatory care centre to Parkway Shanghai and back,&rdquo he pointed out.

Its earnings per share for the quarter comes in at 7.07 sen, an improvement from 3.43 sen in the year-ago quarter

 

PRIVATE healthcare group IHH Healthcare : Q0F 0% posted a net profit of RM623 million (S$188 million) for the second quarter of its 2024 fiscal year ended Jun 30.

 

Net profit more than doubled from RM301 million for the same period the year before, on the back of strong operational performance and the positive impact of deferred tax credits, said IHH Healthcare in its latest financial statement released on Thursday (Aug 29).

 

Revenue grew 30 per cent to RM6.1 billion from sustained growth in patient volume, and more acute and complex cases being taken on across all markets. 

 

Earnings before interest, taxes, depreciation and amortisation jumped by 34 per cent to RM1.4 billion over the same period. This was mainly driven by higher revenue, though it was partially offset by higher staff costs and other operating expenses, such as utilities.

 

Earnings per share for the quarter came in at 7.07 sen, an improvement from 3.43 sen in the year-ago quarter.

 

The company has recommended an interim single-tier dividend of 4.5 sen per ordinary share for the financial year ending Dec 31.

 

IHH Healthcare said that the growth in revenue was driven by a sustained demand for quality healthcare services, a higher number of patients with acute conditions and price adjustments to counter inflation.

 

Its hospital and healthcare segment was the biggest contributor to this quarter&rsquo s revenue, with revenue growth of 18 per cent.

 

Hospital occupancy for the quarter stood at 70 per cent, with over 220,000 inpatient admissions.

 

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IHH Healthcare is confident of its growth trajectory its plans include adding close to 4,000 new beds in the next five years.

 

Overall, it expects continued revenue growth fuelled by healthcare megatrends and plans to focus on driving profitability and sustaining a healthy return on equity, while managing its capital prudently.

Dual-listed IHH Healthcare has appointed veteran business leader and lawyer Tan Sri Dr Nik Norzrul Thani bin N Hassan Than as chairman and independent non-executive director of its board, effective today. 

 

Nik Nozrul succeeds Tan Sri Mohammed Azlan bin Hashim, who had elected to retire at the group&rsquo s annual general meeting in May.

 

According to a June 26 announcement, Nik Nozrul brings &ldquo extensive expertise&rdquo to the stewardship of IHH Healthcare, including in the fields of Islamic finance, banking, offshore finance, debt restructuring, as well as international, corporate and commercial law.

 

He practises with Zaid Ibrahim & Co., Malaysia' s largest law firm, and is a member of KPMG' s Global Legal Services network. He also provides legal counsel for mergers and acquisitions, regulatory compliance, and the issuance of private debt securities, including Islamic financial instruments.

 

Nik Nozrul also serves on the board of other Malaysia-listed companies including SD Guthrie Berhad (formerly known as Sime Darby Plantation Berhad), Malaysian Rating Corporation Berhad and T7 Global Berhad.

 

Before joining Zaid Ibrahim & Co., he worked at international law firm Baker & McKenzie. In 2017, he was appointed chairman of the Malaysia-Singapore Business Council by Malaysia&rsquo s Ministry of International Trade & Industry.

 

&ldquo I am honoured to have this opportunity to steward IHH Healthcare on the next phase of its growth journey,&rdquo says Nik Nozrul. &ldquo The board and management have put in place strong foundations to future-proof the organisation and realise our aspiration.&rdquo

 

The fall in profit was mainly the result of Q1 2023&rsquo s high base, which included a one-off gain from the sale of a non-core asset

 

IHH Healthcare posted a 45 per cent fall in net profit to RM768 million for its first quarter ended Mar 31, from RM1.4 billion in the corresponding period of the year before.

 

Profit fell mainly because of the high base in Q1 2023, which included a one-off gain from the sale of its non-core asset, International Medical University (IMU), said the healthcare provider in a bourse filing on Wednesday (May 29).

 

Earnings per share stood at 8.72 sen for the quarter, down from 15.79 sen in the year-ago quarter.

 

But the company&rsquo s Q1 revenue hit a quarterly high, rising 16 per cent to RM6 billion from RM5.1 billion the year before. It was the first time revenue broke the RM6 billion mark.

 

The company attributed the double-digit growth in revenue and Ebitda (earnings before interest, taxes, depreciation and amortisation) to its sustained patient volumes and its provision of more complex treatments.

 

No dividend was declared for the quarter in the year-ago period, a dividend of 9.60 sen was paid out. The company had given a special dividend in Q1 2023, which represented a 100 per cent payout of the gains from the divestment of IMU.

 

For the quarter, occupancy stood at 70 per cent, with 218,981 in-patient admissions. The group also conducted 24.2 million laboratory tests.

 

It had 12,166 operational beds as at Mar 31.

 

Looking ahead, the group said it is confident of its growth trajectory, including plans to add close to 4,000 new beds in the next five years.

 

It said it expects continued revenue growth, fuelled by healthcare megatrends, and will focus on driving profitability and sustaining healthy returns on equity, while being prudent about capital management and mitigating inflationary and interest-rate pressures.

 

Prem Kumar Nair, IHH&rsquo s group chief executive, added: &ldquo Overall, we expect favourable tailwinds from secular trends in the countries we operate in, which will underpin our longer-term growth.&rdquo

PRIVATE healthcare group IHH Healthcare : Q0F -2.26% is continuing its quest for organic growth as it works to expand its capacity by around 33 per cent by 2028, said its senior management on Friday (Mar 1).

 

This is equivalent to around 4,000 new beds in several markets, with more than 1,000 each slated to be added to Malaysia and India over the next five years.

 

In other markets &ndash specifically Turkey, Europe and Hong Kong &ndash bed numbers will go up by around 120 to 310 over the same period.

 

To increase its capacity, the group is planning to spend around RM2.7 billion (S$763.9 million) to RM2.8 billion in FY2024, said group head of finance Dilip Kadambi.

 

This is &ldquo higher than the normal capital expenditure that is done on a year-on-year basis&rdquo , but the group has a &ldquo pretty strong cash flow&rdquo , with most of the expenses to be funded from its free cash, he said.

 

Ashok Pandit, IHH&rsquo s group chief strategy and business development officer, added that the planned expansions are not likely to have a &ldquo sudden impact&rdquo on profit margins.

 

&ldquo Across our core markets, demand remains strong, and organic capacity expansion is something quite natural. It&rsquo s something we continuously do,&rdquo he said.

 

The comments come after the integrated healthcare provider on Thursday announced its earnings of RM727.5 million for the fourth quarter ended December 2023, a 280 per cent leap from RM191.3 million in the corresponding year-ago quarter.

 

Its Q4 revenue rose 9 per cent to RM5.3 billion, on stronger hospital and healthcare revenue. The growth was attributed to recovery from core non-Covid-19 revenue, with local and foreign patients seeking treatment at the group&rsquo s hospitals, as well as price adjustments to counter inflation.

 

The company also revised its dividend policy upwards to no less than 30 per cent of the group&rsquo s profit after tax and minority interests, excluding exceptional items, from a &ldquo no less than 20 per cent&rdquo policy.

 

It declared a second and final cash dividend of 5.5 sen per share for FY2023, which brings its total dividends for the year to 9 sen per share.

 

At the briefing, group chief executive Prem Nair noted that alongside beds, the company is growing its out-of-hospital business in Singapore and Hong Kong, to facilitate bed utilisation as it decants some lower-intensity cases to ambulatory-care centres.

 

The group plans to add more than 15 new clinics and around two to three ambulatory-care centres in Singapore by 2028. Hong Kong is expected to have six new clinics and/or ambulatory-care centres.

 

Dr Nair said that the Singapore market has higher revenue intensity because it offers complex treatments. For example, Mount Elizabeth Novena Hospital is equipped with a &ldquo full suite&rdquo of cancer treatments, including the less-common proton therapy.

 

However, the Singapore market&rsquo s full-year earnings before interest, taxes, depreciation and amortisation margin slid one percentage point due to the group ramping up its hiring of nurses post-Covid.

 

Dr Nair said nurse capacity in Singapore is now full, but also highlighted that the company would likely have to respond to the government&rsquo s payout scheme of up to S$100,000 for nurses in the public sector, in order to keep its headcount of nurses.

 

While there is no &ldquo specific pressure&rdquo at the moment to increase the number of nurses, he noted that this was an area the group was keeping an eye on amid a global nurse shortage.

 

Meanwhile, IHH in December last year received approval from the authorities in India to repatriate RM1.8 billion from Fortis&rsquo mandatory tender offer escrow account. The sum had been held there because IHH&rsquo s bid to buy an additional stake in Fortis Healthcare has stalled.

 

Kadambi said a &ldquo big part&rdquo of the RM1.8 billion was used to pare down debt in December. The remaining money is sitting as cash in the bank, which can be used for its bed expansion or future acquisitions.

 

The amount repatriated has been replaced with a banker&rsquo s guarantee.

 

In response to queries on the Fortis offer, Pandit said the group remains &ldquo strongly committed&rdquo to its strategy in India, as it offers an opportunity to expand in a &ldquo sustained, profitable manner&rdquo .

 

As for its China operations, the group is &ldquo spending quite a bit of time on restructuring China operations&rdquo , said Nair.

 

The company had previously considered divesting its Shanghai business, but more recently, it said that it was planning to stay invested, with its four clinics serving as referral points to its two hospitals.

 

Pandit added: &ldquo The strategy in the short to medium term remains &ndash build the clinics as a feeder to the hospitals.&rdquo

 

INTEGRATED healthcare provider IHH Healthcare on Thursday (Feb 29) enhanced its dividend policy, while reporting earnings of RM727.5 million (S$205.8 million) for the fourth fiscal quarter ended December 2023, a 280 per cent jump from RM191.3 million in the corresponding quarter a year earlier. 

 

The dividend policy is revised upwards to no less than 30 per cent of the group&rsquo s profit after tax and minority interests, excluding exceptional items, from a &lsquo no less than 20 per cent&rsquo policy. With this, the company declared a second and final cash dividend of 5.5 sen per share for FY23, to be paid on Apr 26.

 

On a per-share basis, its latest financial result translated to earnings of 8.26 sen, versus 2.17 sen in the previous year. The company said that the outperformance was driven by higher patient volumes and improved case mix, with its hospitals serving more acute patients.

 

Q4 revenue rose 9 per cent to RM5.3 billion, as hospital and healthcare revenue rose 13 per cent to RM5.2 billion, while its earnings before interest, taxes, depreciation, and amortisation jumped 10 per cent to RM1.2 billion. 

 

The growth in hospital and healthcare revenue was attributed to strong recovery from core non-Covid-19 revenues, as both local and foreign patients returned to seek treatment at the group&rsquo s hospitals. The group also noted that it had adjusted prices to counter inflation.

 

The ramp-up of operations at Atasehir Hospital, which opened in September 2022, the continuous ramp-up of operations at GHK Hospital, as well as the acquisitions of Ortopedia on Aug 9, 2022 and Kent on Feb 14, 2023 also contributed to the increase, it added.

 

In Singapore, its hospital inpatient admissions was, however, flat at 14,997 in the quarter, while its revenue per inpatient admission increased 8 per cent to RM62,665.

 

Meanwhile, its Malaysia hospital inpatient admissions rose 8 per cent to 61,638 in the quarter, while its revenue per inpatient admission increased 4 per cent to RM10,151.

 

For the full year, the group&rsquo s revenue rose 16 per cent to RM20.9 billion, while net profit excluding exceptional items fell 7 per cent to RM1.3 billion on higher net finance costs and lower exchange gain.

 

The group said that the net profit was eroded by higher depreciation and amortisation on re-indexation of assets in Turkey under MFRS 129, deferred tax recognised on the uplifted carrying value of the reindexed assets and translational effects from a weakened Turkish lira against the ringgit during the year.

 

MFRS 129 refers to the framework for financial reporting in hyperinflationary economies. 

 

Excluding effects of MFRS 129, the group&rsquo s FY23 net profit excluding exceptional items would rise by 17 per cent, it highlighted.

 

AGILUS Diagnostics, an India-based indirect subsidiary of , will no longer launch its initial public offering (IPO) through an offer of sale issuance proposed late last year.

 

IHH on Wednesday (Feb 14) said that this was due to &ldquo commercial considerations&rdquo .

 

The Malaysian hospital operator added that the decision was made &ldquo in consultation and mutual agreement&rdquo with private-equity investors, along with the boards of directors of both Fortis Healthcare and Agilus.

 

Fortis is a 31.17 per cent-owned indirect subsidiary of IHH, and is the holding company of Agilus.

 

These parties held meetings on Feb 13, where they greenlighted Agilus&rsquo withdrawal of its draft red herring prospectus (DRHP). It was filed by Agilus with the Securities and Exchange Board of India (SEBI) and dated Sep 29, 2023. 

 

The private-equity investors comprise International Finance Corporation, Nylim Jacob Ballas India Fund III and Resurgence PE Investments.

 

IHH said that going forward, Agilus will make the necessary application to SEBI for its withdrawal of the DRHP immediately &ndash though the company &ldquo may re-file again for a proposed IPO in future, subject to applicable laws&rdquo .

 

UOB Kay Hian' s Philip Wong has kept his " buy" call and RM6.40 target price for IHH Healthcare Q0F 0.00% , which is dual listed on both the Bursa and SGX.

 

The company, which runs hospitals and clinics across the region, recently reported its 3QFY2023 earnings which was within expectations.

 

For the three months to Sept 2023, IHH reported a core profit of RM352 million, up 11.9% y-o-y and up 12% q-o-q. This brings 9MFY2023 core earnings to RM998 million, down 4.1% y-o-y.

 

A key driver was Singapore, where revenue was up 14.9% y-o-y. While patient numbers was " flattish" , up just 1% y-o-y, each patient paid a bill that' s on average up 17% y-o-y. With sustained margins, earnings for Singapore was up 14.2% y-o-y.

 

" Positively, nursing strength is at full force while new ambulatory care centres should supplement some growth heading into 2024," states Wong in his Dec 1 note. 

 

In Malaysia, another key market, revenue was by 18% y-o-y, with volume up 11% y-o-y while " revenue intensity" was up 6% y-o-y.

 

See also: CGS-CIMB reiterates Boustead Singapore at ' add' and $1.40

 

While the company managed growth in its operations in Turkey, the weaker lira ate into the margins of Acibadem, as IHH' s Turkish unit is called.

 

" Acibadem continues to strive for a more diversified revenue base given its economic circumstance, now with 58% of revenue being derived from domestic patients," says Ong. India, another key market, generated a revenue growth of 11% y-o-y.

 

" Higher insurance penetration and increasing income are structural trends that will support long-term growth," says Ong.

 

See also: Citi lowers FLCT' s TP to $1.24, cuts FY2024 and FY2025 DPU estimates by 8.4%

 

He has kept his " hold" call and RM6.40 target price, which implies 39.7x FY2024 earnings, or close to -1SD of its five-year mean PE. 

 

" While valuations appear decent relative to its historical valuations, it is not as attractive vs other similarly-profiled large defensive stocks. 

 

" While the nature of its operations is defensive, certain regions in which IHH operates in can be tumultuous. Furthermore, valuations have factored in an earnings recovery in 2024. As such, we have a HOLD recommendation," says Ong.

 

Tay Wee Kuang of CGS-CIMB Research has similarly kept his call, although he is decidely more bullish with his recommendation to " add" and RM7.70 target price.

 

Tay believes that IHH has room to improve its ebitda with several growth strategies in place, including in Singapore and Hong Kong where IHH is looking to grow its ambulatory care offerings and improve primary care penetration. By doing so, IHH can make space for " higher revenue intensity treatments" , says Tay.

 

Meanwhile, IHH, which had plans to divest its loss-making China operations, which consists of two hospitals and four clinics, has a change of heart under new CEO Dr Prem Kumar Nair, who took on this role on Oct 1 following the resignation of Dr Kelvin Loh, who went to join AIA as group chief healthcare officer.

 

As Tay put it, IHH sees an opportunity to run its China operations as an ecosystem with referrals across primary care, outpatient and inpatient care that could lead to a turnaround of its business. 

 

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" We note that this is a shift from its plans to divest its China operations previously, and would likely lead to drawn-out gestational losses, albeit at a minimal impact to the group as a whole, in our view," he adds.

 

Tay believes that IHH is on track to reach his core patmi estimate of RM1.78 billion for the whole of FY2023 and generate EPS of 17.6%.

 

For him, re-rating catalyst include achieving double-digit ROE, approval for IHH to commence its mandatory open offer for an additional stake in Fortis.

 

Downside risks, on the other hand, are margin compression from rising inflation, as well as outsized losses of its gestating assets, especially with management&rsquo s rethinking of its divestment plans in China.