The Three Numbers That Weaken IHH Healthcare Berhad

In terms of size, IHH Healthcare Berhad (KLSE: IHH; 5225.KL; SGX: Q0F) dwarfs many of its regional peers. These include Singapore’s Raffles Medical (SGX: R01), Australia’s Healthscope and Thailand’s Bangkok Dusit Medical Services Public Limited.

However, size does not always equate to efficiency. IHH only generated MYR4.20 for every MYR100 of equity funds invested in the company. By comparison Thailand’s Bangkok Dusit generated THB15.70 for every THB100 of shareholder equity, while Healthscope and Raffles Medical’s Return on Equity were 11.2% and 11.9%, respectively.

IHH’s Net Income Margin is not exactly unattractive, though. At 11.1% it implies that the hospital operator generated MYR11.10 on every MYR100 of revenue. It is notably lower than that of Raffles Medical and Bangkok’s Dusit but almost twice that of Australia’s Healthscope.

But IHH’s Asset Turnover leaves little to be desired. At 0.26, it implies that it only generated MYR26 of revenue on every MYR100 of asset at its disposal. It also suggests that IHH, which has operations in countries that include Singapore, Malaysia, China and Japan, is only half as efficient in the use of its assets as its rivals.

IHH doesn’t make use of excessive borrowings. It had total liabilities of MYR11.1 billion and Total Assets of MYR35.5 billion. That equates to a Leverage Ratio of 1.45, which is not far off the median for the Malaysian market.

By taking a scalpel to IHH healthcare Berhad’s Return on Equity, it is easy to see why it is low. Its RoE of 4.2% is the product of a respectable Net Income Margin of 11.1%; a very low Asset Turnover of 0.26 and a modest dosage of Leverage Ratio of 1.45.

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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 Director David Kuo doesn’t own shares in any companies mentioned.