Analysts positive on IHH Healthcare as positives not priced in yet

KUCHING: Analysts at Kenanga Investment Bank Bhd’s research arm (Kenanga research) are positive on IHH Healthcare Bhd (IHH) as they believe that the group’s positives have yet to be fully reflected in its current share price, making its current valuations extremely attractive.

In a company update, the research arm guided that the local private healthcare sector has recently attracted significant attention from investors due to the recent acquisition of Ramsay Sime Darby Healthcare by Columbia Asia Healthcare at premium valuations, and the impending listing of Sunway Healthcare Group which is also expected to be at premium valuations.

As a result, KPJ Healthcare Bhd and Sunway Bhd have seen their share prices rising by 36 and 69 per cent year to date (YTD), respectively.

However, IHH has largely sat out from this share price rally with its share price increasing by only 2 per cent YTD.

Kenanga Research reasons that this is likely due to investors still being fixated on its earnings disappointment in its financial year 2023 (FY23) which was caused by the presidential election, earthquake and long weekend holidays in Turkey and shortages of nurses in Singapore and Malaysia.

But with the return of foreign patients in Turkey and India and the resolution of nurse shortages and the disposal of underperforming assets, the research arm reckons that investors will now focus on IHH’s earnings catalysts in FY24.

For FY24, Kenanga Research guides that they are expecting IHH’s Malaysian, Singaporean, Indian and Turkey hospitals to enjoy a revenue per inpatient growth at around 12 to 16 per cent, inpatient throughout growth at 9 to 12 per cent and bed occupancy rate (BOR) at around 65 to 73 per cent.

Compared to FY23’s estimated growths, these are higher forecasted rates except for revenue per inpatient growth which is estimated to be 19 per cent in 2023 due to a low base effect in 2022.

“We believe the key growth factor for its inpatient throughput and BOR would be revenue intensity from a case-mix with more acute cases and medical tourists, and the addition of new beds whichw as previously constrained by staff shortages which are gradually easing.

“We expect sustained performance in Malaysia, while staff shortages in Singapore have been resolved. There is also a return of Middle Eastern and Central Asian medical tourists to its hospitals in Turkey and India,” the research arm shared.