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IHH Q3 net profit plunges on higher costs from new hospital openings

MAINBOARD-LISTED IHH Healthcare Berhad's third-quarter net profit plunged on the back of higher costs from depreciation and amortisation, as well as finance costs led by the opening of Gleneagles Hong Kong Hospital and Acibadem Altunizade Hospital.

In a filing to the bourse operator on Monday, the healthcare provider said net profit for the three months as at end-September fell 53 per cent year-on-year to RM82.1 million (S$27 million), dented by the expected start-up costs arising from the opening of the new hospitals. Excluding the exceptional items, net profit dropped 42 per cent to RM125.4 million.

Revenue for the quarter rose 15 per cent year-on-year to RM2.8 billion, driven by sustained growth in inpatient admissions and revenue intensity across most home markets, as well as the ramp-up of new hospitals opened in March 2017.

IHH said Tokuda Group and City Clinic Group in Bulgaria, acquired in June 2016 and since consolidated into Acibadem, also contributed to the higher revenue.

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Earnings before interest, tax, depreciation, amortisation, exchange differences and other non-operational items (Ebitda) grew 3 per cent to RM562.4 million in Q3. This, as sustained operational growth in core markets offset the impact from the start-up costs incurred by the newly opened hospitals, as well as from the higher operating and staff costs, the group said.

For the first nine months of the year, net profit jumped 33 per cent to RM868.7 million while net profit excluding exceptional items grew 36 per cent to RM413.4 million.

Revenue for the nine months went up 12 per cent year-on-year to RM8.3 billion, while Ebitda dipped 3 per cent to RM1.7 billion.

As at end-September, IHH recorded a cash balance of RM5.8 billion, indicating a healthy financial position. Net gearing stood at 0.05 times compared with 0.21 times in the year-ago period.

Said IHH managing director and chief executive Tan See Leng: "We continue to deliver topline and Ebitda growth, underlining the inherent strength of our differentiated strategy. While the start-up costs for Gleneagles Hong Kong and Acibadem Altunizade have had a short-term impact on our earnings, these were according to our plans and within expectations, creating the momentum to take us to the next level on full ramp-up next year."

He noted that the group is now well-placed to expand in Greater China as its next home market.

"We also continue to build out our cutting-edge capabilities, and now have the distinction of being the region's only private healthcare provider with in-house molecular diagnostics capabilities to customise medical treatment after acquiring Angsana Holdings," added Dr Tan.

In its outlook, IHH said it expects cost pressures in terms of wage inflation, higher purchasing costs with a stronger US dollar, higher pre-operating costs and start-up costs from new operations that would partially erode profitability in the initial stages.

To mitigate these effects, IHH said it would remain prudent in its cost management, "undertake ways to improve the mix of higher revenue intensity cases and ramp up new facilities to achieve optimal operating efficiencies".

The stock closed down four cents to S$1.83 on Monday, before results were out.

Separately, the group said its executive chairman, Abu Bakar Suleiman, will retire from his role as president of IMU Health on Dec 31 and assume an advisory role from next year. "Presently, Dr Abu Bakar is the chairman of IMU Health and will continue as such," IHH said.

The group's current non-executive deputy chairman, Mohammed Azlan Hashim, will be redesignated as non-executive chairman from Jan 1.