Analysts are remaining positive on Malaysia-based hospital operator IHH Healthcare Q0F following its latest FY2022 ended Dec 31, 2022 results, which saw earnings dip by 16.9% y-o-y to RM1.55 billion ($466.4 million). Revenue for the period increased by 5% y-o-y to RM18.0 billion, mainly thanks to local and foreign patients returning for treatment at the group’s hospitals.
The way UOB Kay Hian sees it, the group’s results were a disappoint with 4QFY2022 earnings coming in below expectations, due to softer-than-expected inpatient admission growth and lower Acibadem contributions. Analyst Philip Wong as kept his “buy” call with a lower target price of RM6.80 from RM7.10 previously.
Nonetheless, Wong sees encouraging signs in the group’s Singapore operations, which topline grew by 5.3% q-o-q.
Wong notes that 4QFY2022 revenue intensity of 10.9% q-o-q far-outstripped a decline in inpatient admission (-2.5%). Bed occupancy rates (BoR) remained underwhelming and were relatively unchanged at 56%, compared to pre-pandemic levels of 66%. This is in part due to high medical tourism contributions previously (>20% of patient volume).
The analyst believes that 2023’s growth should be fuelled by the return of medical travel and domestic electives.
In Malaysia, 4QFY2022 BoR (68%) softened marginally due to seasonality and revenue grew by 4.4% q-o-q. This was on the back of better revenue intensity (+5.4%) amid flattish inpatient volume growth (-0.4%). “We expect BoR to largely recover to >70% (pre-pandemic levels) in 2023,” says Wong.
In Turkey, Acibadem’s revenue grew by 21% q-o-q driven by +8.9% better revenue intensity and 19.7% inpatient volume growth. The latter was attributed to the ramp-up of two hospitals. Earnings were lifted by net monetary gain from its hyperinflationary accounting adjustment.
Positively, Acibadem has increasingly diversified its revenue base, with only 54% of revenue being derived from domestic patients (2018: 67%). But the analyst has concerns on weaker Lira that cats into the group’s margins.
In India, revenue dipped 2.2% q-o-q alongside lower occupancy rates as it transitions to a post-Covid-19-peak phase. “Off high operating leverage, earnings dipped 7.5% q-o-q. Cost discipline measures coupled with increased productivity is expected to buffer margins in 2023 alongside a synchronised recovery of medical travel,” says Wong.
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Overall, Wong says: “IHH’s attractive valuations and decent earnings growth outweigh the hyper-inflationary risks associated with Acibadem.”
On the other hand, CGS-CIMB Research is reiterating its “add” call on IHH and unchanged target price of RM7.33.
Analyst Tay Wee Kuang likes the stock for its different ways of achieving revenue growth across countries.
“Across Malaysia, Turkey and India, IHH has identified scope to increase bed capacities in existing hospitals and views such organic expansion as a cost-effective way to grow. Its acquisition of Kent Health Group announced on Feb 2 will also increase bed capacities in Turkey,” says Tay.
The group has also expressed interest in mergers and acquisitions (M&As) to support its growth ambitions.
Business may be picking up, but the group has acknowledged that there is a global shortage of nurses and that has affected Singapore operations.
To optimise staffing requirements amid the shortage, IHH introduced the Patient Care Assistants (PCAs) role in Singapore to ease the administrative tasks of nurses. Management said that the introduction of PCAs is at about 50% across its Singapore operations and expects PCAs to be fully integrated across its operations in Singapore by the end of FY2023.
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Elsewhere, operations have not been limited by the shortage of nurses. Tay believes that the nursing shortage should not impede overall operational improvement.
The way Tay sees it, the group’s business strategy to grow remains grounded and sound, although its success will lie in the execution across its diversified portfolio. “We are of the view that IHH’s growth story is intact but our estimates reflect a more conservative outlook compared to the management in terms of revenue growth as we think that optimisation of new bed capacities could take longer than expected. We also believe cost pressures will continue to weigh on margins,” says Tay.
As at 4.00pm, shares in IHH are trading at RM5.89 on Bursa Malaysia and $1.76 on the Singapore Exchange.
