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IHH Healthcare Bhd Had a Mixed Second Quarter of 2018

Singapore’s largest healthcare operator, IHH Healthcare Bhd (SGX:Q0F), released its earnings update for the second quarter of 2018 at the end of August. The group operates 49 hospitals and 30 medical centres around the world, including household local brands such as Gleneagles, Mount Elizabeth and Parkway. Here are 10 key things to take away from its earnings update:

1. Revenue for the second quarter of the year was down 4% on year to RM2.66 billion. Profit before tax plunged 59% to RM166.4 million from RM407.5 million. Profit after tax and minority interest was 48% lower.

2. The lower net profit was largely due to an absence of one-off gain from the sale of equity stake in Apollo Hospitals recorded in the corresponding period last year. Profit excluding this and other exceptional items rose 197% compared to a year ago.

3. In the six-month period ended 30 June 2018, the group recorded a 1% increase in revenue and a 72% decrease in profit attributable to shareholders. Excluding last-year’s one-off disposal gain and other exceptional items, profit attributable to shareholders was 31% higher at RM377 million.

4. The table below summarises key metrics for the 2018 second-quarter:

Source: Author’s compilation of data from earnings update

5. The table below summarises the key results for the first half of the year:

Source: Author’s compilation of data from earnings update

6. It is worth noting that in the second quarter, on a constant currency basis, revenue and EBITDA (earnings before interest, tax, depreciation and amortisation) increased 14% and 13% respectively.

7. As of 30 June, the group had RM7.2 billion in total debt and RM6.2 billion in cash, giving it a net debt position of RM1.05 billion. It had a comfortable net-debt-to-equity ratio of 4%. The group generated RM951.5 million from its operations and spent RM522.6 million on capital expenditure during the last quarter. As such, it generated RM428.5 million in free cash flow during the period.

8. The group recorded higher year-on-year average revenue per inpatient admission in all its markets. Inpatient admission volume was higher in its Acibadem hospitals (Turkey) and in Singapore, but lower in India and Malaysia.

9. There are eight more hospital expansion and greenfield projects due for completion in the next few years. The figure below highlights all the upcoming projects:

Source: IHH Healthcare Bhd 2018Q2 earnings presentation

10. On its prospects, management said:

“While the Group expects the pre-operating costs and start-up costs of new operations to partially erode its profitability during the initial stages, the Group seeks to mitigate the effects by ramping up patient volumes in tandem with phasing in opening of wards at these new facilities in order to achieve optimal operating leverage.”

It also had this to say on rising staff costs:

“The Group expects higher costs of operations arising from wage inflation as a result of increased competition for trained healthcare personnel in its home markets. While such sustained cos pressures may potentially reduce the Group’s EBITDA and margins, the Group expects to mitigate these effects through improvements in case mix and tight cost control.”

At the time of writing, IHH Healthcare Bhd shares are changing hands at S$1.83 per piece. This gives a price-to-book ratio of 1.9 and a price-to-earnings multiple of 71.7.

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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 Jeremy Chia doesn't own shares in any companies mentioned.