IHH's Q2 net profit up 8% on gains from divestment and foreign exchange

MAINBOARD-LISTED IHH Healthcare Berhad on Thursday posted an 8 per cent year-on-year rise in its second-quarter net profit to RM246.1 million (S$82.8 million), lifted by divestment and foreign exchange gains.

The group recorded a RM54.8 million gain from the divestment of its 90 per cent stake in Shenton Insurance, undertaken as part of ongoing efforts to rebalance the group's portfolio to optimise returns.

Net profit for the three months ended June 30 was also lifted by an exchange gain of RM7.5 million relating to Acibadem Holdings' non-Turkish lira borrowings in Q2 2016, compared to a loss of RM22 million a year ago.

Earnings per share rose to 2.99 sen for the quarter, compared with 2.78 sen in the year-ago period.

Revenue grew 18 per cent to RM2.5 billion on sustained organic growth and contribution from newly opened hospitals.

Newly acquired assets over the past year - Continental Hospitals and Global Hospitals in India, and Tokuda Group and City Clinic Group in Bulgaria - also contributed to the increase in IHH's Q2 topline.

But the growth in revenue was partly offset by start-up costs from the new hospitals in Malaysia, higher operating and staff costs, as well as pre-opening expenses incurred for Gleneagles Hospital Hong Kong, which is gearing up for its opening in early 2017.

Operational profit after tax and minority interests (Patmi), which strips out exceptional items and contribution from Parkway Life Reit, fell 20 per cent year on year to RM173.9 million, dragged by moderate earnings before interest, tax, amortisation and depreciation (Ebitda) growth. Higher depreciation from new hospitals in Malaysia and India, higher net financing costs as loans were incurred for working capital, capital expenditure, acquisitions and purchase of investment properties, also weighed on operational Patmi.

For the first half of 2016, revenue rose 21 per cent to RM4.9 billion, while Patmi jumped 21 per cent to RM481.6 million.

Net gearing has been maintained at 0.19 times as at end-June 2016 with significant cash holdings of about RM2.3 billion.

In its outlook, IHH said it continues to believe in the robust demand for quality private healthcare in its home and growth markets, especially India and China.

"The group's extensive geographical footprint means it will be exposed to geopolitical risks and currency volatility that may result in translational differences to its financial statements. At the same time, it will face increasing cost pressures including pre-operating and start-up costs at newer hospitals; wage inflation from the global competition for healthcare talent; and rising purchase costs if the US dollar continues to strengthen against its home market currencies."

But the group said it would continue to mitigate these through cost optimisation, tight cost control and taking on higher revenue intensity procedures.