RHB Investment Bank Bhd (RHB Research) has maintained its BUY recommendation for IHH Healthcare Bhd with an unchanged target price of RM9.10, offering a 25% upside from its current price of RM7.30. The research house highlighted the positive outlook following a recent visit to IHH Healthcare's hospitals in Penang, particularly emphasising the strategic acquisition of Island Hospital (IHSB) that will solidify IHH Healthcare's position as a leader in Penang's thriving health tourism sector.

The integration of Island Hospital into IHH Healthcare's portfolio alongside Gleneagles Hospital Penang and Pantai Hospital Penang is expected to strengthen the group's foothold in the region. The analysts observed that IHSB, recognised as a top-tier health tourism hospital, caters to a foreign-to-local patient mix of 60:40. This reflects its ability to deliver world-class patient outcomes, which aligns with Penang's reputation as Malaysia's most established health tourism destination, generating RM750 million in pre-pandemic health tourism revenue.

Penang's demographics further support this optimism. As one of Malaysia's most densely populated states with 1.8 million residents and the fifth-highest average household income, the region boasts strong demand for high-quality healthcare services. Penang's cultural and geographic proximity to Medan, Indonesia, enhances its appeal to health tourists, with its shared heritage and medical tourist-friendly infrastructure providing added incentives.

The acquisition of Island Hospital, completed in November, was financed through an RM4 billion sukuk with a competitive sub-4% funding cost. RHB Research projects IHSB will contribute 20% of IHH Malaysia's Malaysia EBITDA by 2025, with EBITDA growth expected to reach 40% next year. Analysts also forecast that the acquisition will become earnings accretive by 2026 after accounting for associated costs, including RM260 million in depreciation and finance charges.

However, no changes have been made to the earnings estimates for IHH Healthcare as the anticipated contributions from IHSB had already been factored into earlier projections.

RHB Research remains bullish on IHH, citing its strong regional footprint, robust expansion pipeline to increase bed capacity by 33% by 2028 and resilient demand for healthcare services. However, the house cautions that risks such as lower-than-expected patient volumes and revenue intensity could impact the outlook.