This article first appeared in The Edge Financial Daily on August 29, 2018

KUALA LUMPUR: Healthcare provider IHH Healthcare Bhd saw its net profit drop 47.8% to RM165.11 million in the second quarter of financial year 2018 ended June 30 (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 that was chalked in 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 which it operates.

In a filing with Bursa Malaysia yesterday, 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 yesterday, IHH managing director and chief executive officer Dr Tan See Leng said 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. He also said that adding Fortis Healthcare Ltd to the group signified a “transformational growth opportunity” for IHH.

On July 13, IHH announced the proposed acquisition of a controlling stake in Fortis through a 40 billion Indian rupees (RM2.34 million) 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 170 Indian rupees per share. Earlier this month, IHH saw overwhelming support from Fortis shareholders for the preferential allotment. It will undertake the mandatory cash open offer in September, subject to regulators’ approval.

IHH said it believes in the long-term growth potential and sustained demand for quality private healthcare in its home markets of Malaysia, Singapore, India and Turkey, and the key growth market of Greater China.

It noted that pre-operating and start-up costs of new operations is expected to partially erode its profitability during the initial stages, but it seeks to mitigate this by ramping up patient volumes in tandem with phasing in the opening of wards at the new facilities.