IHH seeks to double return on equity

by BERNAMA/ pic by TMR FILE

IHH Healthcare Bhd, Asia’s most valuable hospital group, plans to halt its geographic expansion and focus on existing markets as it sets a target of doubling the return on equity (ROE) over the next five years.

The Malaysian company, which operates 80 hospitals from Turkey to Sri Lanka, generates an ROE of 3% currently, one of the lowest among its peers in Asia Pacific, data compiled by Bloomberg show.

Bangkok Dusit Medical Services pcl, for example, has a return of 12% and the measure for Apollo Hospitals Enterprise Ltd is at 7%.

IHH has been on a buying spree in the past few years, snapping up Fortis Healthcare Ltd after acquisitions in Bulgaria and China.

As its Fortis deal faces legal hurdles in India, IHH is shifting directions under a new captain, MD and CEO Kelvin Loh Chi-Keon said in his first interview with foreign media.

He plans to step up expertise at existing hospitals, buy equipment in bulk and use technology for better customer service.

In Singapore, it’s using artificial intelligence to better estimate hospital bills before admission. “This means we can give the patient greater peace of mind,” Loh said.

IHH isn’t eliminating the possibility of expanding geographically.

“We would, but the point is that if we do so then the idea is to develop it into a strong cluster” in terms of maximising its hospitals in specific geographic areas, he added.

The coronavirus will result in a short-term downturn for IHH as the outbreak impacts the global economy and slows medical tourism as patients delay non-emergency treatments.

The company will review its portfolio and consider divestments of “relatively few” assets.

IHH said it’s hopeful for the India court case’s outcome as the company’s done all the due diligence and proper procedure, and Fortis’ operations have improved since the acquisition.

IHH shares have gained 2.9% so far this year, after a 1.5% gain in 2019. That’s compared to a 6% drop in the benchmark FTSE Bursa Malaysia KLCI in 2020 and a 6% decline last year.

Meanwhile, DBS Bank Ltd analyst Rachel Tan rates IHH Healthcare a ‘Buy’. Tan’s price target of RM6.45 implies another 16% return and is 3% above the consensus average of RM6.28. Analyst price targets range from RM4.70 to RM7.