CGS International
May 30, 2025

IHH Healthcare Bhd: Positioned for Robust Earnings Growth in 2H25 and Beyond

Executive Summary

IHH Healthcare Bhd, a leading regional hospital operator, is poised for an earnings rebound in the second half of 2025. Recent quarterly results were in line with expectations, and multiple catalysts—including the full reopening of Mt. Elizabeth Orchard in Singapore and strategic expansion in Malaysia, India, and Turkey—are set to drive profitability. CGS International has upgraded IHH to an Add, maintaining a RM7.75 target price, reflecting a 12.1% potential upside from current levels.

Strong 1Q25 Performance Sets the Stage for Growth

Despite seasonal headwinds due to the Ramadan fasting period, IHH reported robust 1Q25 revenue growth of 5.7% year-on-year to RM6.3 billion. This figure represented 23.4% of CGS International’s full-year estimate and 24.1% of the Bloomberg consensus. The company’s core PATMI (excluding MFRS129 adjustments) stood at RM521 million, in line with forecasts at 22.2% of the full-year target.

• Revenue growth was seen across all segments on a constant currency basis.
• Depreciation of the Singapore dollar versus the ringgit affected reported revenue in Singapore and lab segments.
• EBITDA margin remained solid at 21.3% in 1Q25.

Singapore: Mt. Elizabeth Orchard’s Upgrades a Major Catalyst

Mt. Elizabeth Orchard Hospital in Singapore is undergoing extensive renovations, with half of its bed capacity closed since the start of FY25. However, staff have been redeployed to other Singapore hospitals to mitigate operational disruption. The hospital’s full reopening in 3Q25 is expected to drive a significant uptick in revenue and EBITDA margin in the second half of 2025, as the cost base remains stable while capacity and patient volumes normalize.

Malaysia: Island Hospital Acquisition Diversifies Revenue

IHH’s Malaysian operations delivered 17.1% revenue growth to RM1.1 billion in 1Q25. Excluding Island Hospital’s consolidation, revenue would have been flat. Profit after tax (PAT) for Malaysia fell 19.5% to RM103 million, reflecting higher depreciation, amortization, and finance costs related to the acquisition of Island Hospital in 4Q24. The acquisition is expected to be earnings-accretive from its second year and is strategically important as 60% of Island Hospital’s revenue is derived from foreign patients, reducing exposure to local seasonality.

India: Organic Expansion to Drive Medium-Term Growth

India remains a key market for IHH, where it owns the Fortis and Gleneagles networks. Management emphasized a disciplined approach to acquisitions, focusing on organic growth. IHH plans to add 1,500 beds in India between FY25 and FY28 (having already added 400 beds in FY24), bringing total bed capacity to over 5,000 by end-FY24. This expansion underpins IHH’s 5-year growth plan, with India expected to be a major growth engine through FY28.

Turkey and Europe: New Hospitals to Support Margins

IHH opened the Acibadem Kartal hospital in Turkey in February 2025. Pre-opening expenses compressed the segment’s EBITDA margin by 1 percentage point to 18% in 1Q25, but management anticipates breakeven EBITDA within the first year of operations. A second hospital, Vitosha, is slated to open soon, with margins expected to revert to the 19-20% range by 2Q25.

Financial Highlights: Key Figures and Projections

• Revenue is forecasted to grow steadily, with a 10.2% increase in 2025 and double-digit growth through 2026.
• Operating EBITDA margin is expected to stabilize above 21%.
• Net gearing is projected to fall from 33.9% in 2024 to 8.4% by 2027, reflecting stronger cash flows and deleveraging.

Peer Comparison: IHH in the Regional Context

IHH stacks up as one of the largest and most diversified hospital operators in the region, with competitive P/E and EV/EBITDA multiples, and a resilient ROE profile. Dividend yields remain modest but are expected to grow as earnings normalize.

Shariah and ESG Leadership

IHH Healthcare Bhd is Shariah-compliant and continues to strengthen its ESG credentials. The company improved its LSEG ESG score to A- for FY23, up from B in FY22, with gradual enhancements across Environmental, Social, and Governance pillars. Several IHH hospitals hold accreditations from reputable bodies like Joint Commission International (JCI) and Malaysian Society for Quality in Health (MSQH), reflecting strong compliance with international healthcare standards.

• IHH’s ESG performance has improved from D+ in 2012 to A- in 2023.
• Key improvements were made in social and governance areas, including reducing the CEO-to-employee pay gap and increasing board independence.

Key Risks and Catalysts

• Upside Catalysts: Faster-than-expected earnings accretion from Island Hospital and swifter bed occupancy ramp-up at Mt. Elizabeth Orchard.
• Downside Risks: Potential delays in completion of Singapore renovation works and rising pre-opening costs for new hospitals in Turkey.
• Malaysia: Medical inflation has abated, and IHH is actively negotiating with insurers to offer more competitive packages and discounts.

Shareholding and Price Performance

• Major Shareholders:
  • Mitsui & Co Ltd – 32.9%
  • Khazanah Nasional Bhd – 25.8%
  • Employees Provident Fund – 8.6%
• Stock Performance:
  • 1M: +0.6%
  • 3M: -7.3%
  • 12M: +11.6%
  • Relative to FBMKLCI (12M): +17.0%

Sum-of-Parts Valuation and Outlook

CGS International’s SOP-based target price remains RM7.75, underpinned by stable hospital EV/EBITDA multiples and market values for ParkwayLife REIT and Fortis Healthcare stakes. The implied FY26F EV/EBITDA is 10.4x, with an implied FY26F P/E of 23.7x.

Conclusion: IHH Healthcare Bhd Poised for Outperformance

IHH Healthcare Bhd stands at the forefront of Asia-Pacific private healthcare with a clear path to sustained earnings growth. With strategic capacity expansions in Singapore, Malaysia, India, and Turkey, diversified revenue streams, robust financials, improving ESG credentials, and a skilled management team, IHH is well positioned to deliver value for shareholders. The upside potential remains attractive, with key catalysts on the horizon and strong sectoral tailwinds supporting long-term performance.