TA Research opined that key investment points for IHH Healthcare Bhd include a rising need for healthcare services.

“Overall, we like the group for its capable management, leading position in key markets and exposure across various countries. Nevertheless, at current price levels, future growth prospects may have been reasonably priced in,” it said.

The group is currently trading at a “+1SD” to its historical forward enterprise value/earnings before interest, tax, depreciation and amortisation (EBITDA) level average. While it has a comparable earnings -per-share growth as the industry, its return on investment and dividend yield currently stands below the industry average.

Based on a growing and aging population, the research house expects increased demand for resources such as food, clean water, energy and healthcare services.

Translating into opportunities for growth, key markets fell short of the optimal ratio of three beds per every thousand thousand people in developed countries, TA Research said.

“Second, it enjoys an advantage of being a leader in its key markets. Taking advantage of favourable demographics, it operates over 6,800 beds in 38 hospitals, medical centres, clinics and ancillary healthcare businesses,” it said.

Also, to help sustain and grow its presence, the hospital currently has about 3,000 beds in the pipeline. Together, this will increase total capacity to circa 9,800 beds (including hospital management agreement) – within the group’s five-year vision of 8,200 beds.

However, TA Research said, risks include the gestation period for new hospitals.

On average, gestation periods can last three to five years EBITDA: one to two years).

Operating in different countries, it is also susceptible to translation gains/losses from currency fluctuations and risks arising from changes in the regulatory, economic, environmental and competitive landscape.

“Initiate coverage on the group with a target price of RM4.65 per share based on a sum of the parts valuation translating into an implied forward EBITDA of 22 times,” TA Research said.

Source: The Star