KUALA LUMPUR (Aug 28): Healthcare provider IHH Healthcare Bhd saw its net profit dropped 47.8% to RM165.11 million in the second quarter ended June 30, 2018 (2QFY18) from RM316.56 million a year ago, mainly due to the absence of a one-off gain of RM241.1 million from its divestment of Apollo Hospitals in 2QFY17.
Earnings per share was also lower at 1.75 sen for 2QFY18 compared with 3.84 sen for 2QFY17.
Quarterly revenue fell 4% to RM2.66 billion from RM2.77 billion a year ago, mainly due to the effect of the strengthening ringgit against the currencies of the countries in which it operates.
In a filing with Bursa Malaysia today, IHH said excluding the effects of the strengthening ringgit, the group's revenue for 2QFY18 increased 14% year-on-year on sustained organic growth from existing operations and the continuous ramp-up of Gleneagles Hong Kong Hospital and Acibadem Altunizade Hospital, which opened in March 2017.
The weak quarterly performance dragged the group's net profit for the cumulative six months (1HFY18) down 71.7% to RM222.34 million from RM786.61 million, even though revenue rose by a marginal 1.1% to RM5.51 billion from RM5.46 billion in 1HFY17.
In a statement today, IHH managing director and chief executive officer Dr Tan See Leng said that in Turkey, it is watching lira developments closely and is accelerating plans to restructure and reduce Acibadem's foreign debt to manage its exposure to currency volatility.
"In Greater China, we remain on track to sequentially realise our greenfield pipeline; and in India, we are heartened by the resounding mandate from Fortis Healthcare Ltd shareholders at the recent shareholders' meeting, which speaks to their trust in our ability to drive performance at Fortis while addressing its immediate funding needs.
"Adding Fortis to the IHH family signifies a transformational growth opportunity for us in one of the world's fastest growing markets," he added.
On July 13, IHH announced the proposed acquisition of a controlling stake in Fortis through a INR40 billion subscription to a preferential allotment of equity shares for a 31.1% interest in Fortis and subsequent mandatory cash open offer for up to an additional 26% equity interest, at an offer price of INR170 per share.
Earlier this month, IHH received 99.7% of votes from Fortis shareholders in support of its preferential allotment and will be undertaking the mandatory cash open offer in September, subject to the proposed acquisition's approval by the Competition Commission of India.
Looking ahead, IHH continues to believe in the long-term growth potential and sustained demand for quality private healthcare in its home markets of Malaysia, Singapore, India and Turkey, and key growth market of Greater China.
While the group expects the pre-operating costs and start-up costs of new operations to partially erode its profitability during the initial stages, the group seeks to mitigate the effects by ramping up patient volumes in tandem with phasing in opening of wards at these new facilities in order to achieve optimal operating leverage.
The group also expects higher costs of operations arising from wage inflation as a result of increased competition for trained healthcare personnel in its home markets.
"While such sustained cost pressures may potentially reduce the group's earnings before interest, tax, depreciation and amortisation and margins, the group expects to mitigate these effects through improvements in case mix and tight cost control.
"In addition, the group will increasingly leverage technology to enhance our service offerings. This includes rolling out various initiatives to improve the efficiency of the operations, transform healthcare service delivery and improve clinical outcomes," said IHH.
IHH shares closed up four sen or 0.72% at RM5.63 today, bringing a market capitalisation of RM46.42 billion.