IHH: Healthcare Provider Navigates Cost Headwinds with Strategic Expansion

A leading healthcare provider reported a mixed second quarter for fiscal year 2025, with core net profit experiencing a decline despite a modest increase in revenue. The results, however, were largely in line with both internal and market expectations, reflecting the company’s ability to manage operational dynamics amidst ongoing expansion.

Performance Review

For the second quarter of FY25, the company recorded a headline net profit of RM419 million, a 4.1% year-on-year (YoY) decrease. After excluding the impact of MFRS 129 and other non-operating items, core net profit stood at RM518 million, down 9.3% YoY. This decline was primarily attributed to higher operating expenses, including increased staff costs and start-up expenditures associated with newly opened hospitals, coupled with elevated tax charges.

Despite the profit dip, revenue saw a 3.4% YoY increase to RM6.3 billion, driven by a higher intensity case mix and sustained demand for quality healthcare services. Inpatient admissions grew in Malaysia and India, though Singapore and Turkiye experienced slight declines of 1% and 3% YoY, respectively. The Group’s bed occupancy rate softened marginally to 68% in 2QFY25 from 70% in the prior year.

EBITDA, excluding MFRS 129, showed resilience, rising 2% YoY to RM1.4 billion. This improvement was largely underpinned by robust contributions from Malaysian and Indian operations, which effectively offset cost pressures observed in Singapore and Greater China. The company also declared an interim dividend of 5.0 sen per share.

Future Outlook and Recommendation

The healthcare provider remains steadfast in its ambitious expansion strategy, targeting a 33% increase in bed capacity, approximately 4,000 new beds, across key markets including Malaysia, India, Hong Kong, Turkiye, and Europe over the next five years. Recent strategic moves by the company include the acquisitions of Shrimann Superspeciality Hospital in India and Bayindir Healthcare Group in Turkiye, further solidifying its presence in high-growth emerging markets. Additionally, bed capacity at Singapore’s Mount Elizabeth Orchard Hospital is slated for progressive reopening throughout the year.

While near-term headwinds such as higher operating and energy costs persist, TA Securities believes the company’s strong fundamentals and strategic expansion initiatives position it for steady long-term growth. The firm has reiterated its ‘Outperform’ rating for the company, with a new SOTP-based target price of RM8.79, implying significant upside potential from its current trading price of RM6.79.