PETALING JAYA: Earnings growth for IHH Healthcare Bhd
may be decent, but it is not as attractive compared with other similar large defensive stocks, says UOB Kay Hian Research (UOBKH Research).
The research house said, despite the nature of IHH’s operations being defensive, meaning it generally exhibits low volatility through all phases of the economic cycle, there are certain regions in which the group operates that are tumultuous.
It noted that to safeguard against Turkiye’s macro headwinds, the healthcare group will focus on the integration of Kent Health Group, which is the largest private hospital group in the city of Izmir in Turkiye.
“Turkiye’s operations are only expected to enlarge bed count by 5% by 2028. While the Turkish lira has recently stabilised and inflation has dipped below 50% for the first time in over a year, the Malaysian Financial Reporting Standard for financial reporting in hyperinflationary economies is likely to be in place for the foreseeable future,” the research house said.
As for its growth prospects in Asia, the twin growth engines of Fortis Healthcare and the recently rebranded Gleneagles Hospitals in India are projected to enlarge capacity by 34% by 2028.
“These entities combined have a presence across 12 of 28 states in India. Operations could also potentially see a two to three percentage points margin accretion over the near term following improved maturity,” UOBKH Research said.
The research house also added Singapore’s operations would be optimised as IHH looked to expand across the healthcare continuum, including two ambulatory care centres (ACCs) and 15 primary care clinics by 2028 to complement its current portfolio of four hospitals, two ACCs, and more than 50 clinics.
“A transitional care facility has also been recently established, with capex funded by the government. It offers significantly better economics compared with a tertiary hospital.
“Additionally, the retrofitting of Mount Novena and investment in advanced medical technologies, such as photon therapy to provide cutting-edge care will lift revenue intensity in a relatively mature and saturated market,” the research house said.
UOBKH Research said IHH’s operations in Malaysia would see a growth spurt, aided by plans to add 1,300 beds by 2028, representing a 46% increase in bed capacity.
“To further support growth, IHH is on the lookout for opportunistic acquisitions, such as Island Hospital and Timberland Medical Centre, which offer strategic synergies. These efforts should help IHH remain competitive amid the expanding footprints of other private hospital groups in Malaysia like Sunway Healthcare and Columbia Asia,” the research house said.
As for North Asia, Hong Kong and China operations are expected to focus on ACCs to establish a hub-and-spoke model around Gleneagles Hong Kong and Parkway Shanghai.
Gleneagles Hong Kong is currently profitable with 300 beds and is due to eventually reach its 500-bed capacity while IHH’s clinics in Shanghai have broken even.
“The gradual expansion of operations, including further ACC rollouts should underline growth for IHH’s North Asia operations for the years to come,” UOBKH Research said.
The research house said it made no changes to IHH’s earnings estimates and maintained its “hold” recommendation with a sum-of-the-parts-valuation of RM6.95.
