Rachel Tan of DBS Group Research has kept her "buy" call on IHH Healthcare Q0F , citing growth prospects over the medium term following "normalised" FY2023 core earnings.
Her ringgit-based target price for the counter, listed on both the Singapore and Malaysia exchanges, has been raised from RM7.30 to RM7.60. Her Singdollar target price, on the other hand, has been trimmed to $2.18 from $2.20.
On Feb 29, IHH, under the helm of new CEO Dr Prem Kumar Nair, reported revenue of RM20.9 billion, up 16% y-o-y. However, core earnings of RM1.3 billion for FY2023 was down by 7.3%, no thanks to higher staff costs and one-off items.
Nonetheless, core earnings for FY2023 surpassed the pre-pandemic years, signalling a normalised recovery. More tellingly, for the most recent 4QFY2023, core earnings improved by 20% y-o-y to RM508 million, but down 11% q-o-q.
Headline earnings for FY2023 was RM3 billion, almost double that of FY2022, led mainly by divestment gains, which had been partly shared out as a special dividend of 9.6 cents, bringing the full-year total for FY2023 to 18.6 cents.
Excluding the special payout, IHH is increasing its ordinary dividend to 9 cents, up from 7 cents paid for FY2022. Going forward, the company has revised its new dividend policy to at least 30% of its core earnings, up from 20% previously.
To drive growth over the longer term, Nair had earlier announced plans to increase capacity by around a third, or 4,000 new hospital beds by 2028, across its various operating geographies.
Other growth plans include adding another two to three ambulatory care centres in Singapore and Hong Kong over the next few years; growing more than 40 Parkway Shenton clinics by 2028, as well as to set up laboratory services to support Gleneagles HK.
Nair is also reversing the company's earlier plan to exit its China business. He now wants to stay put and invest more instead, citing the market's longer-term prospects despite near-term challenges.
See also: RHB still upbeat on ST Engineering but trims target price by 2.3%
"With the new management in place and embarking on a new growth plan, we are optimistic that IHH will be able to drive its growth trajectory moving forward," says Tan.
Citing the management, Tan says IHH is committed to maintaining its double-digit ROE, now that it achieved its previous double-digit ROE target in 4Q23.
Using a sum-of-the-parts method, Tan has raised her target price to RM7.60.
She points out that at current levels, IHH is trading at below 13x FY2024 EV/ebitda, below -0.5SD of its historical mean and close to its pandemic low.
"This is a very attractive level to ride on its medium-term growth trajectory," says Tan.
IHH's SGX-quoted shares closed at $1.73 on March 1, down 2.26%; its KL-quoted shares closed at RM6.14, down 0.16%.
