Date: 15 October 2024
Broker: UOB Kay Hian
Company Overview
IHH Healthcare provides a wide range of healthcare services through hospitals, medical centers, clinics, and ancillary businesses. The company operates in multiple countries including Singapore, Malaysia, Turkey, and India.
- Bloomberg ticker: IHH MK
- Shares issued: 8,807.0 million
- Market cap: RM51,256.7 million (US$10,974.6 million)
- GICS sector: Healthcare
Stock Data and Performance
- Share price: RM7.24
- Target price: RM6.95 (-6.1% downside)
- 52-week high/low: RM6.40/RM5.45
- 3-month average daily turnover: US$4.6 million
Price Performance
- 1 month: +1.6%
- 3 months: +0.8%
- 6 months: -1.9%
- 1 year: -7.0%
- Year-to-date: -4.9%
Major Shareholders
- Mitsui & Co.: 32.8%
- Khazanah Nasional: 25.6%
- EPF: 10.6%
Growth Strategy – ACE Framework
IHH Healthcare’s ACE framework drives its growth through three pillars:
- Align: Ensuring operations align with the company’s mission.
- Challenge: Encouraging innovation and operational efficiencies.
- Empower: Supporting localized growth in each key market.
Regional Highlights
Singapore
IHH is expanding its presence through ambulatory care centers (ACC) and primary care clinics, with plans for two new ACCs and 15 clinics by 2028. These will complement the existing portfolio of four hospitals and two ACCs. The company is also retrofitting Mount Novena and investing in advanced technologies like photon therapy, which will increase revenue intensity.
Malaysia
IHH plans to add 1,300 beds across its 17 hospitals by 2028, representing a 46% increase in bed capacity and a compound annual growth rate (CAGR) of 7.9% from 2023 to 2028. The company is also looking for acquisition opportunities, such as Island Hospital and Timberland Medical Centre, to stay competitive in the Malaysian market.
Turkey
IHH’s Turkish operations are focused on integrating the Kent Health Group, the largest private hospital group in Izmir, Turkey. The company expects only a 5% increase in bed count by 2028. Although the Turkish lira has stabilized and inflation is below 50%, the macroeconomic environment remains challenging, with hyperinflationary accounting rules (MFRS 129) likely to continue.
India
IHH’s India operations, led by Fortis Healthcare and Gleneagles Global Hospitals, are projected to grow bed capacity by 34%, or 1,860 beds, by 2028. This expansion spans across 12 of India’s 28 states, with a potential for a 2-3 percentage point margin improvement in the near term.
North Asia
IHH’s operations in Hong Kong and China will focus on building a hub-and-spoke model around Gleneagles Hong Kong and Parkway Shanghai. Gleneagles Hong Kong, which currently has 300 beds, will eventually reach its 500-bed capacity, while Parkway Shanghai’s clinics have recently broken even.
Financial Performance
Key Financials (2023-2026F)
- 2023 Revenue: RM20,935 million
- 2024 Revenue: RM22,350 million
- 2025 Revenue: RM23,724 million
- 2026 Revenue: RM24,881 million
Net Profit (2023-2026F)
- 2023 Net Profit: RM1,279 million
- 2024 Net Profit: RM1,542 million
- 2025 Net Profit: RM1,722 million
- 2026 Net Profit: RM1,893 million
Valuation and Recommendation
IHH is valued based on a sum-of-the-parts (SOTP) approach, with key business units such as Parkway Pantai, Acibadem, and Fortis contributing significantly to the valuation. The SOTP value per share is RM6.95, with the following breakdown:
- Parkway Pantai: RM3.79/share
- Acibadem: RM2.14/share
- Fortis: RM0.75/share
While the company operates in defensive sectors and is expanding across several key markets, its valuation is relatively high compared to similar large-cap defensive stocks. Additionally, macroeconomic challenges in certain regions, such as Turkey, and speculation regarding corporate restructuring by its major shareholder could impact valuations.
ESG Initiatives
Environmental
- 15% of non-scheduled waste was diverted from landfills in 2020.
- Medical waste is treated or incinerated to protect public health.
Social
- Non-discriminatory hiring practices and commitment to diversity.
Governance
- 54% of IHH’s board consists of Independent Non-Executive Directors (INEDs).
Risks
- Execution Risk: Potential delays in executing expansion plans.
- Regulatory Hurdles: Heightened risks from regulatory environments in key markets.
- Fortis Turnaround: Any shortfall in turning around Fortis could impact overall performance.
Conclusion
IHH Healthcare is positioned for growth with its strategic expansions across key markets, especially in Singapore, Malaysia, India, and North Asia. However, with a HOLD recommendation and a target price of RM6.95, the stock’s current valuation may not be attractive relative to other large defensive stocks.
