This article first appeared in The Edge Malaysia Weekly on March 14, 2022 - March 20, 2022

IHH Healthcare Bhd managing director and CEO Dr Kelvin Loh Chi-Keon is clearly striking while the iron is hot. Fresh from delivering strong numbers for financial year 2021, the company is looking to build on the momentum by revving up what Loh calls five growth engines — recovering from Covid-19; achieving organic growth; acquiring strategic assets; developing its laboratory business; and driving innovation and digital transformation.

Despite its strong financials and the recognisable brand presence of its hospitals, achieving revenue growth will not be automatic for the behemoth healthcare group, which has prime hospitals in five major markets: Singapore, Malaysia, Turkey, India and China.

“With our five growth engines, I wouldn’t say it’s cruise control. There will be a fair bit of heavy lifting as we climb these five peaks. Of course, coming out of the pandemic and getting some of our deferred electives back will be part of the recovering from Covid-19 [growth engine], but we won’t stop there.

“We still have beds to fill, which will be part of our organic growth strategy. We will make strategic acquisitions and, for our laboratory business, we expect to have double-digit growth in the top line as we find synergies for this business to grow as our platform; and, finally, we will transform our business model so that we have an entire healthcare ecosystem in which we connect patients in our digital world seamlessly,” Loh, 48, tells The Edge in a recent interview.

Loh, a Singaporean, is no stranger to crafting strategies for IHH. When he took over the helm as CEO in 2019, he announced a “refreshed strategy” for the group, which involved pursuing a geographical cluster strategy for growth by expanding its cluster of hospitals in metro areas to achieve greater economies of scale while delivering better patient services; reviewing its asset portfolio and capital deployment, which includes the divestment of underperforming assets; and leveraging its international scale to achieve stronger synergies.

On the hits and misses of that refreshed strategy thus far, Loh says that, on the whole, things have gone as planned despite the pandemic, which had in a way slowed down the pace of execution. Never­theless, there have been hits aplenty.

“Overall, we have executed the refreshed strategy well, with the value of trust [being at the forefront]. When the Covid-19 pandemic broke out, we were among the first healthcare groups to take in Covid-19 patients and we made sure our staff were protected.

“Despite the pandemic, we were able to deliver on operating synergies. Our return on equity has gone up (from 2.8% in March 2020 to 8.4% in December 2021). We said at the beginning of 2020 that we were looking to double our ROE in five years, but we have managed to do it in two.

“Last year was an all-time high for us in terms of revenue and net income, despite the fact that the pandemic affected volumes and medical tourism for us. We were able to make acquisitions [in line with our cluster strategy] such as that of Prince Court Medical Centre in Kuala Lumpur, and we have commenced our digital transformation journey.”

Growing across its geographical markets

For FY2021, IHH reported a net profit of RM1.86 billion, which was more than six times its net profit of RM288.9 million a year ago, while revenue grew 28% year on year to RM17.13 billion. FY2020 was a low base for the group, owing to major lockdowns in various markets that it operates in since April 2020. During this period, patients postponed non-urgent and non-essential treatment and visits to hospitals and healthcare facilities.

IHH’s balance sheet in FY2021 remained strong, with net cash of RM3.5 billion generated from operating activities and an overall cash balance of RM5 billion. Its net gearing fell to 1.37 times in FY2021, from 2.59 times as at Dec 31, 2020.

India, where the group has a 31.17% stake in Fortis Healthcare Ltd, was its third-largest revenue contributor last year with 22%. While the group’s purchase of Fortis came with its fair share of legal issues, Loh says the group is committed to growing its operations in the subcontinent.

“India has fairly strong regulations on pricing and is also a very competitive market. Therefore, one has to run very efficient operations there, and that’s what we have been doing. Fortis has been a great example of that because, when we bought it at the end of 2018, it was Patmi (profit after tax and minority interests) negative. But, by the end of 2019, just 12 months into post-merger integration, it was already Patmi positive.

“So, it’s an example of how we bring those operating synergies and know-how [into motion], by doing things like improving productivity, physician engagement and the supply chain.”

As for its presence in Turkey through Acibadem Holdings, which contributed 25% to FY2021 revenue, he says the group is looking to improve its medical tourism numbers.

Loh says: “Our Acibadem brand is very strong in Turkey, as it attracts not just top-end local patients but international ones as well. In fact, it is our Acibadem brand in Turkey that is starting to make the country a Mecca of medical tourism.

“When I took over as CEO, Acibadem was generating 16% to 17% of revenue from medical tourism. Today, they are doing 23%, and that is going to grow, as their reputation is strong and they deliver stellar clinical care. So, patients from the Balkans, Middle East, Iraq and Iran who used to frequent countries such as Germany or London for medical tourism are now going to Turkey.”

A challenge that the group does face in Turkey, however, is the depreciating lira and high inflation. According to CNBC, inflation in the country rose to a fresh 20-year high of 54.44%, exacerbated by a weak lira and rising energy prices.

“Inflation is certainly high, but how we have managed the situation with the lira is to fund our operations in the currency itself. We also avoid borrowing in foreign currencies for our Turkish operations, so this helps us hedge against currency risks.

“We also have an operational hedge with the 23% contribution in medical tourism. Furthermore, we have also expanded to Europe — to countries such as Bulgaria, Macedonia and the Netherlands — and our European operations are doing well, contributing 18% of [Turkish] revenue. So, combined with medical tourism, about 40% of our Turkish revenue contributions are in hard currency.

“As for the remaining 60%, the domestic volumes have been strong, and we have been able to pass through the inflationary costs because of Acibadem’s strong brand presence. We also pay our staff according to the inflation there but, overall, we have defended ourselves quite well [despite the challenges],” says Loh.

The group’s China operations, which were loss-making in FY2021, will need time to turn around because of the greenfield nature of its growth there.

He explains: “China is a small nascent market for us in that we had a couple of clinics there for some years. We have just started a hospital in Chengdu. So, naturally, we are loss-making, as it is still in the start-up stage.”

As for its Singapore and Malaysian markets, IHH will concentrate on its business-as-usual activities, but the group will also be focusing on new medical technologies.

“We are bringing out better technologies, which will help us treat conditions in less invasive ways and give our patients a better quality of life.

“For example, in Singapore, we are launching CAR T-cell therapy, which basically shapes the body’s own white blood cells to seek out and destroy cancer cells. So, it is a much more targeted treatment than chemotherapy. For cancer treatment, we are also building a proton beam centre in Singapore, which we seek to launch next year.

“In Malaysia, we will be one of the first for Gamma Knife Radiosurgery, which can be used to treat brain tumours,” he says.

Asked whether the group is looking to sell International Medical University (IMU), its education arm, Loh says: “It is fair to say that, in any part of business, we may ask questions about whether we are the best owner and in the best position to bring about synergies.

“But, at this point in time, we have nothing to announce [on the matter].”

In a Feb 24 note, RHB Research maintained its “buy” call on IHH with a target price of RM7.35. It reckons that the group’s recovery trajectory remains on track, further complemented by its appetite for acquiring strategic assets and developing its high-margin diagnostics business.

CGS-CIMB Research, in a Feb 24, maintained its “add” call on the stock, with a target price of RM8.33, as it says IHH’s growth in FY2023 and FY2024 will be underpinned by the recovery of patient volume and cost savings, as well as existing and potential acquisitions.

Down 13% year-to-date, IHH shares closed at RM6.41 last Friday (March 11), giving the company a market capitalisation of RM56 billion.

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