Will IHH Healthcare Bhd Ever Stop Growing?

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IHH Healthcare Bhd  (SGX: Q0F) is a dual-listed (in both Singapore and Malaysia) global healthcare group that’s majority-owned by Malaysia’s sovereign wealth fund, Khazanah Nasional.

It’s also one of the largest healthcare groups in the world with four hospitals in Singapore, 11 in Malayisa, and interests in 16 other hospitals through a partial ownership stake in Acidbadem Healthcare Group, the largest of its kind in Turkey.

Healthy results

The company had announced its second quarter results just yesterday and was able to report healthy growth in both its top and bottom-line,

For the first half of the year, revenue had grown by 9.6% year-on-year to RM3.6 billion while profit actually spiked by 29.6% to RM368.2 million. Much of the company’s strong showing had been driven by growth in patient volume and the opening of two new hospitals in that period, namely, Acibadem Atakent Hospital and Pantai Hospital Manjung. Higher average revenue per inpatient in both Singapore and Malaysia for the Parkway Pantai Group also contributed to IHH Healthcare’s results. The former’s a key subsidiary of the latter.

On the cash flow side, IHH Healthcare was able to achieve a cash flow from operations of RM741.6 million, which is a 37% year-on-year improvement.

It should also be noted that the company was able to achieve this strong set of results while also maintaining (and even improving) a solid balance sheet. As of 30 June 2014, the company’s net gearing ratio (net debt to total equity) had been reduced to 10% from 12% a year ago.

Growth potential

It seems that IHH Healthcare is not slowing down. Even when faced with higher staff costs and other inflationary issues, the company is already looking to adjust its prices to ease such risks.

In Singapore, Mount Elizabeth Novena Hospital is still not fully utilized yet, so there is growth potential on that front. Elsewhere, all of the company’s ongoing projects in Malaysia and Hong Kong “are progressing well”, though there’s a greenfield project which is “facing delays.”

I’d let the company share its thoughts as well on its own growth prospects:

“Overall, [IHH Healthcare] is confident that its strong balance sheet and cash flow will support its expansion plans as it expects to continue registering earnings growth in 2014 barring any unforeseen circumstances. It remains optimistic about the growth in demand for quality private healthcare services across its home markets and in emerging markets, and the opening of new facilities will support this demand and drive revenue growth.”

Foolish Summary

From its latest earnings report, it seems that one of the major concerns for management lies with currency risks. As IHH Healthcare operates in a number of different countries (the first few that come to mind are Singapore, Malaysia, and Turkey), managing currency fluctuations and its related risks can become a significant challenge for the company.

As for investors, there is one more risk to note about the company which is not operationally-related – the price of the share. At IHH Healthcare’s closing price of S$1.92 per share yesterday, the company is trading at about 60 times its trailing earnings and has a price-to-book value of 2.2.

IHH Healthcare has been carrying a rich valuation for quite a while now, but that has not stopped the company from providing a 28% return year-to-date exclusive of dividend gains.

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore contributor Stanley Lim doesn’t own shares in any companies mentioned.