RHB Research said despite the challenging market environment, IHH’s solid execution strategy, reputable regional footprint, and the resilient demand for healthcare services should provide the group with earnings resilience.
PETALING JAYA: Earnings prospects remain positive for IHH Healthcare Bhd
despite the group posting weaker-than-expected results in the first half (1H) of 2023.
The positive outlook for the private healthcare services provider is mainly driven by resilient demand for healthcare services. Its wide geographical footprint across Asia and, central and eastern Europe is also an advantage for the company.
In its report, RHB Research said despite the challenging market environment, IHH’s solid execution strategy, reputable regional footprint, and the resilient demand for healthcare services should provide the group with earnings resilience.
The brokerage maintained its “buy” call on IHH, with a sum-of-parts-based target price of RM6.80, pending an analysts briefing. The target price was based on 34 times forward earnings.
IHH’s net profit surged to RM1.69bil in 1H23 from RM1.11bil in 1H22, while revenue jumped to RM9.82bil from RM8.54bil previously. The year-to-date earnings accounted for only 40% of consensus estimates for 2023.
“The weaker-than-expected results were mainly due to higher cost of operations and utilities, as well as increased spending on repairs and maintenance,” RHB Research said.
“We still like IHH for its reputable regional footprint across key regions and the resilient demand for healthcare services,” it added.
Meanwhile, MIDF Research raised its target price for IHH to RM7.12 from RM6.57 previously after rolling over valuations to 2024 at 35.5 times, with an unchanged “buy” recommendation for the counter.
The brokerage acknowledged that IHH’s results were slightly below its expectations.
However, it still raised its earnings forecasts for IHH by 6% for 2023 and 5% for 2024.
This was in consideration of the divestment of IMU Health segment and the recent addition to the the company’s Labs segment as well as recent share acquisition of a chain of hospitals in India, it noted.
“We maintain a ‘buy’ call for IHH, on the basis of expected support by healthcare trends, as well as IHH’s operational resilience, and a solid financial position. Additionally, we expect expansion plans for its strategically located hospitals and its new Labs segment will sustain its robust performance in the near-term,” MIDF Research said.
It noted that the upsurge in demand for healthcare services from local and international patients was in line with the growing ageing population in locations in which IHH operates. In addition, it said IHH was exploring strategic opportunities in advanced medical treatments for oncology and paediatric patients in Asia and Europe.
“Despite the robust demand for healthcare services, we believe the main challenge to IHH’s operations are the cost pressures stemming from elevated inflation and rising interest rates,” MIDF Research said.
“Nevertheless, we are optimistic in the group’s commitment to cost management and capitalisation on synergies within its international network to achieve cost efficiencies,” it added.
Beyond operational growth, MIDF Research said IHH was expected to actively seek opportunities to acquire strategic assets across Asia and Europe, riding on its sound financial position, while catering to local needs and the burgeoning medical tourism sector.
