IHH Healthcare ‘on track’ for double-digit ROE despite medical inflation woes
Management says sustained medical inflation in Malaysia will stabilise over time
INTEGRATED healthcare operator IHH Healthcare is “on track for double-digit return on equity (ROE)” in the coming years, said its management on Friday (Feb 28).
While the group did not give a concrete timeline for achieving this goal, it has “set itself up for going towards double-digit ROE in 2025 as well”, said group chief financial officer Dilip Kadambi during an earnings call after the release of its FY2024 results.
ROE for FY2024 stood at 8.7 per cent, while ROE without exceptional items and the effects of Malaysian Financial Reporting Standard 129 – the financial reporting standard for hyperinflationary economies – was 9 per cent.
The group on Thursday reported net profit of RM732 million (S$221.2 million) for the quarter ended Dec 31, up 1 per cent from RM728 million in the corresponding year-ago period. For the full year, profit declined 10 per cent year on year to RM2.7 billion, from about RM3 billion the year before.
The fall was due to the absence of one-off gains from the sale of International Medical University and Gleneagles Hospital Chengdu in FY2023.
Without exceptional items including these one-off gains, profit would have risen 32 per cent year on year to RM1.7 billion, from RM1.3 billion.
During the call, Dr Prem Nair, IHH Healthcare group chief executive, said the group’s strong performance allowed it to increase its total dividend to RM0.10 per share, up 11 per cent from FY2023’s RM0.09 per share.
This translates to about 40 per cent of the group’s net profit, which is above the group’s dividend policy of distributing at least 30 per cent of its net profit excluding exceptional items.
Medical inflation in Malaysia
Questions were raised about Malaysia’s current sustained period of medical inflation possibly affecting IHH Healthcare’s profit margins. The country contributed about 17 per cent to the group’s full-year revenue in FY2024.
Bank Negara Malaysia cited data indicating that medical cost inflation in Malaysia reached 15 per cent in 2024, above the global and Asia-Pacific average of 10 per cent.
Therefore, the central bank announced interim measures to tackle the high costs, such as having insurance companies spread out their changes in policy premiums over a minimum period of three years, to ensure most policyholders’ yearly premium adjustments are less than 10 per cent.
On IHH Healthcare’s end, price increases at the group’s hospitals are mainly in the “low single digits” and primarily capture consumer inflation, said Dr Nair. He noted that insurance companies have been asking for discounts in the range of 10 to 40 per cent from hospitals, but some of these discounts are “not realistic”, given the margins in which IHH Healthcare operates.
“What has to happen is everyone comes to the table and discusses all these (issues),” he said. “It’s a combination of insurers, regulators, private hospitals, even policyholders and patients.”
And the government has been taking steps to address medical inflation, as the Malaysian Public Accounts Committee started speaking to several stakeholders in the healthcare industry in closed-door meetings.
Therefore, he believes the situation will stabilise over time, and IHH Healthcare will wait for “some of these things to play out”, said Dr Nair. In any case, as the group operates in several other markets, “when something happens in a particular country, we have the other countries to cushion”, he said.
