ANALYSTS are split on IHH Healthcare following relatively flat third quarter earnings and the company’s forecast for its Mount Elizabeth Hospital upgrades to finish ahead of schedule.
The private healthcare provider’s RM534 million (S$161.5 million) net profit for Q3 ended Sep 30 posted on Thursday (Nov 28) was nearly on par with its RM532 million net profit for the third quarter last year.
Following this was Friday’s news of ongoing renovations for Mount Elizabeth Hospital set to finish one to two quarters early, by the second to third quarter of 2025.
At a briefing following the results release, group chief executive Prem Nair said the company expects to finish ongoing renovations for Mount Elizabeth Hospital one to two quarters early – by Q2 or Q3 of 2025.
CGS International in a Monday report downgraded its call on IHH Healthcare to “hold” from “add”, trimming its price target for the counter on Bursa Malaysia to RM7.75 from RM7.88.
The research house forecasts that IHH Healthcare will face earnings headwinds in FY2025 from the accelerated renovation of Singapore’s Mount Elizabeth Hospital and its acquisition of Penang’s Island Hospital.
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The earlier-than-expected completion of Mount Elizabeth Hospital’s renovation spells “margin pressure” for IHH Healthcare’s Singapore business over the next three quarters, said CGS International analyst Tay Wee Kuang.
“This will mean taking out half the bed capacity in the hospital over the next three quarters, which we think could have a significant impact on profitability in Singapore given its total bed capacity of 790 beds across four hospitals,” said Tay.
He thinks earnings accretion from the RM3.9 billion Island Hospital acquisition completed on Nov 4 will only come in during FY2026.
“We estimate the acquisition to be earnings before interest, taxes, depreciation and amortisation (Ebitda) accretive in FY25F but only earnings accretive from FY26F as IHH optimises operations within Island Hospital,” said Tay.
With the expected “margin compression” from IHH Healthcare’s accelerated Mount Elizabeth renovations and Island Hospital acquisition, the research house is dimming its forecasts for the healthcare provider by 3.5 per cent for FY2024 and 4.1 per cent for FY2025.
However, it raised its earnings forecasts for FY2026 by 5.8 per cent, as it expects positive earnings growth then.
Conversely, DBS Group Research maintained its “buy” call on IHH Healthcare’s Singapore listing and upped its price target by 18.3 per cent to S$2.58 from S$2.18 on higher earnings estimates.
The research group revised its earnings forecasts upwards by 66 per cent for FY2024 and by 47 per cent by FY2025 “to account for the Island Hospital acquisition, hyperinflation in Turkey, and a lower effective tax rate in FY2024”.
With robust capital management in place, IHH Healthcare is slated for a maintained growth trajectory, said DBS Group Research analysts Amanda Tan and Andy Sim.
“As Island Hospital is the number one medical tourism hospital in Malaysia and the second-largest private hospital player in Penang, the acquisition will enhance IHH’s market position in Malaysia,” they said.
While bed closures from Mount Elizabeth’s renovations could bring “near-term margin pressure”, they think the company’s Singapore segment’s Ebitda margins will “trend back to normalised levels” near the latter part of FY2025, as upgrades should be finished by the second or third quarter.
Tan and Sim think IHH Healthcare’s expansion plans and favourable industry trends – such as ageing population, increased prevalence of lifestyle diseases, increasing affluence and medical advancements – make it “well positioned for growth”.
“While there might be some profit-taking after the strong run-up following the announcement of the Island Hospital acquisition, we believe that investors who take a longer-term view on the counter could accumulate on dips,” they said.
On Tuesday, shares of IHH Healthcare closed flat on the Singapore Exchange at S$2.16, while its shares on Bursa Malaysia closed up 0.3 per cent or RM0.02 at RM7.22.
