Maybank Securities has resumed coverage of IHH Healthcare , with a "buy" call and sum-of-the-parts based RM7.97 target price for its Bursa-quoted shares, up from a previous target of RM7.13. IHH Healthcare is traded on the Singapore Exchange as well.
Year to date, its shares has surged by more than a fifth. Even so, Maybank analysts Yin Shao Yang and Nur Natasha Ariza believe there are reasons to "track" the healthcare giant in the coming year.
"IHH has clear growth drivers ahead of it, leveraging on higher demand and revenue intensity, especially in India and Malaysia. Valuations are also ripe for a re-rating, in our view," state the analysts in their Dec 27 note, where they expect IHH to deliver 3-year forward revenue and EBITDA CAGR of 13%.
One reason to own this stock is that healthcare is seen to be a growing and "defensive" industry, with spending showing a "perfect correlation" with GDP growth.
Next, two comparable healthcare groups in Malaysia, Sunway Healthcare and Columbia Asia Healthcare are likely to list in the coming two years.
The Maybank analysts believe that if these two competitors can fetch higher valuations than what IHH has now with 13x FY2024 EV/Ebitda, its shares are primed for a re-rating in tandem.
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However, there are possible downside risks, the analysts caution. For example, growing staff costs is a "slow-burning" trend that is not easy to ascertain.
That aside, key risks to their assumptions would include possible negative regulatory changes, for example, government intervention to stipulate private hospital charges.
Also, if Sunway Healthcare and Columbia Asia Healthcare are not listed at higher valuations, that will have a bearing on IHH's ability to re-rate.
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On the other hand, possible privatisation by IHH's largest shareholder Mitsui will be a catalyst.
The Maybank analysts point out that talks of the Japanese conglomerate making such a move had happened first in May 2021 and most recently in September, causing IHH's share price to move by more than 20% and 5% respectively.
"If there were another privatisation attempt, it stands to reason that IHH’s share price will rise again," says Maybank.
IHH's SGX-quoted shares last traded at $2.19, up 26.59% year to date; its Bursa-quoted shares changed hands at RM7.24 as at 10.57 am, up 0.14% for the day and up 20.87% ytd.
