IHH: Core PBT Exceeds Estimates on Strong Operations, “BUY” Rating Maintained

A leading global healthcare provider demonstrated robust operational performance in the third quarter of 2025, with its core Profit Before Tax (PBT) aligning with market expectations. Despite this, core Profit After Tax and Minority Interest (PATAMI) fell short due to higher-than-anticipated effective tax rates and increased minority interest. The investment bank maintains its “BUY” recommendation, with a slightly adjusted target price.

Performance Review

The healthcare giant reported a 3Q25 core net profit of MYR462 million, marking a 10% sequential increase but a 12% year-on-year decline. This brought the nine-month 2025 core net profit to MYR1.3 billion, representing 70% and 68% of the investment bank’s and consensus full-year estimates, respectively. Core PBT, however, met expectations, achieving 76% of estimates, underscoring strong underlying operational fundamentals.

Hospital and healthcare revenue surged 3.4% quarter-on-quarter and 9.3% year-on-year to MYR6.3 billion in 3Q25. This growth was propelled by sustained demand for quality healthcare services, a higher-acuity patient mix, strategic price adjustments to mitigate inflation, and the successful consolidation of Island Hospital (November 2024) and Bayindir Healthcare Group (July 2025). Regional contributions were strong, with Malaysia leading at +8.1% revenue growth, followed by India (+3.2%) and Acibadem (+5.2%). The group’s EBITDA margin saw a significant improvement to 23.3%, an increase of 1.8 percentage points quarter-on-quarter and 0.3 percentage points year-on-year. This expansion was primarily driven by higher bed occupancy in Malaysia and robust progress in containing payer pressure and cost inflation. Acibadem and India further contributed to margin improvement through operational efficiencies from newly opened hospitals and improved operations, respectively.

Challenges and Earnings Adjustments

The positive operational momentum was partially offset by a revenue drop of 1.8% in the Singapore unit, primarily due to declines in inpatient revenue intensity and volumes. The key deviation for the overall PATAMI miss stemmed from a higher effective tax rate and a greater minority interest allocation than initially forecasted.

Following these results, the investment bank has revised down its 2025F-2027F earnings estimates by 6% to account for these higher tax and minority interest impacts. Consequently, the target price has been marginally reduced from MYR9.15 to MYR9.14.

Future Outlook and Investment Rationale

Despite the slight earnings adjustments, the “BUY” recommendation is maintained, supported by compelling near-term catalysts. These include anticipated positive revisions in India’s Central Government Health Scheme rates and the potential removal of regulatory overhangs, which are expected to significantly reopen the India growth story. The revised target price implies an unchanged 16.3x FY26F EV/EBITDA, which is 2.4 standard deviations above its five-year mean, a valuation deemed justified given the growth prospects.

Key Risks

Potential risks to this positive outlook include weaker-than-expected economic growth leading to dampened patient volumes, overpayment for future acquisitions, aggressive cost inflation across operating markets that cannot be fully passed through, and currency volatility resulting in translation losses.