IHH: Healthcare Group Sees Stable Earnings Amid Headwinds, Poised for Recovery

A leading healthcare group reported its first-half FY2025 financial performance, with EBITDA generally in line with expectations despite core net profit falling short due to higher-than-anticipated minority interest. The group, however, declared a higher interim dividend of 5 sen, up from 4.5 sen in the previous year.

Performance Review

For the first six months of FY2025, the group’s EBITDA stood at RM2.7 billion, showing a flat year-on-year performance. However, on a constant-currency basis, EBITDA demonstrated a robust 10% growth. Core net profit for the period was RM844 million, also flat year-on-year, but missed analyst expectations, primarily impacted by a higher minority interest component than forecast.

Segmental performance revealed a mixed picture. Malaysia operations saw strong growth, with revenue and EBITDA rising by 16.1% and 14.2% respectively, largely driven by the acquisition of Island Hospital which completed in 4QFY24. Conversely, Singapore revenue experienced a 2.5% year-to-date decline, attributed to ongoing renovation works at Mount Elizabeth.

Operational Adjustments and Future Outlook

The group appears to be “turning the corner” with management providing an optimistic outlook. Renovation works at Mount Elizabeth were completed on schedule in June 2025, with a phased reopening commencing in 3QFY25 and full operations expected to resume by 2QFY26. This is anticipated to stabilize performance in the coming periods.

To counter persistent payor pressures, the group is strategically adapting to structural shifts, including a move from inpatient to daycare services, which helps free up bed capacity and enhance revenue per bed. Strong momentum in medical tourism, particularly in Malaysia with double-digit growth in 2QFY25, is also expected to further boost revenue per bed. Management is actively engaging with payors to mitigate potential impacts.

Investment View

AmInvestment Bank has reiterated its BUY recommendation for the stock with an unchanged target price of RM8.60. This valuation is based on 14x FY26F EV/EBITDA and includes a 3% ESG premium, reflecting a 4-star ESG rating. While earnings came in below expectations for the first half, leading to forecast adjustments for FY25F/FY26F/FY27F due to the higher minority interest, the long-term outlook remains positive.

Downside risks to the estimates include a potentially greater-than-expected decrease in average revenue per inpatient from the rollout of diagnosis-related groups or the inability to fully realize synergies from the Island Hospital acquisition.