Just over two years ago, IHH Healthcare Bhd was locked in a battle for Singapore’s Parkway Group with the Singh Bothers of India’s Fortis Group.
Pantai Hospital Ampang in Kuala Lumpur is one of the many properties of IHH Healthcare, which has 2,100 beds in Malaysia.
The strategic chess match went on for weeks until IHH’s major shareholder, the Malaysian sovereign wealth fund Khazanah Nasional Bhd, put its muscle behind IHH.
The Parkway acquisition and the purchase of a 60% stake in Turkey’s Acibadem Group have made IHH the world’s second largest healthcare group, behind only US-based HCA Holdings Inc and ahead of Bangkok Dusit Medical Services Plc of Thailand.
But IHH is not without its critics and sceptics. As the government’s investment agency Khazanah’s every investment is watched and it has been accused of overpaying premiums for Parkway and Acibadem.
But it counters that it was investing for the future. It saw demand for quality healthcare services increasing with the rising ranks of the middle class. People want decent services and not long queues at government hospitals.
Today IHH has 4,800 beds in 30 hospitals across eight countries, with its main markets being Malaysia, Singapore and Turkey. The other operations are in China, India, Hong Kong, Brunei and Macedonia.
In Turkey it holds 60% in Acibadem Saglik Hizmetleri & Ticaret AS, the country’s largest hospital chain with 13 hospitals and nine medical centres and 1,572 beds. It has 730 beds in Singapore and 2,010 in Malaysia.
In India it owns 11.2% stake in Apollo Hospitals and has one supporting unit, International Medical University, a teaching university.
In July it was listed on the Malaysian and Singapore stock exchanges and raised US$2.1 billion, part of which was used to pare debts.
For a new player it did well in getting 22 cornerstone investors, and its international investors include BlackRock Inc, Capital Investment Inc, Kuwait Investment Authority and the Government of Singapore Corp Pte.
A month later it was included as a key component on Bursa Malaysia and in September it was added to the Singapore index.
More analysts are initiating coverage on the stock and, unlike Facebook, its shares did not tank after listing. The shares are currently trading around 3.20 ringgit, against July’s PO price of 2.80, but some analysts do not expect dramatic leaps and believe any rise “would be at a measured pace”, with a 12-month target of RM3.40 share.
The company’s net profit in the first half of this year shot up to RM527.4 million from RM178.5 million in the same period last year, on turnover that rose to RM4 billion from RM1.7 billion.
For the full year analysts’ estimates are for a net profit of RM611 million (7.6 sen a share) on turnover of RM6 billion.
The Singapore operations will remain main earnings driver.
“IHH is in a good industry and its growth prospects are good and the aggressive plan to increase hospital beds should sustain the healthcare group’s earnings growth,” wrote one analyst.
Apart from the three major markets, its other international operations are small but this could provide IHH with its next growth area, and acquisitions cannot be ruled out.
To grow organically it plans to have 3,300 hospital beds over the next five years.
IHH managing director Lim Cheok Peng had earlier said that IHH may consider smaller acquisitions in the near future after Acibadem.
“Further acquisitions must be in markets where IHH can continue to grow, and be accretive to earnings,” he said, emphasising that there was no point in putting a hospital in a place with no good population base.
IHH is also on the lookout for more hospital management agreements within the region, in addition to those it already has in China, India, Vietnam and the Middle East.
It would bSe tough for IHH to reach the scale and size of HCA, which currently manages 163 hospitals and operates 110 freestanding surgery centres in the United States and United Kingdom. But as it expands, IHH is well positioned as the biggest operator in Asia and second globally.
But there are challenges too. It has to ensure that it can execute its aggressive plans while competition intensifies and global economic weakness could affect demand for health services.
At the same time, say analysts, it has to come out with a clear dividend policy soon in order to keep the investors flocking to its shares.