Forex, seasonal factors may weigh on IHH in Q2

But RHB Research expects hospital operator’s income to be within expectations

PETALING JAYA: IHH Healthcare Bhd’s to-be-announced second quarter earnings for the period ended June 30 could be affected due to its foreign exchange (forex) exposure as well as seasonal factors.

In a report yesterday, RHB Research Institute said IHH was expected to announce its second quarter earnings on Aug 28.

It added that the company’s earnings before interest, tax, depreciation and amortisation (EBITDA) to be within expectations.

“Given various operating currencies, our sensitivity analysis suggests that every 1% change in the dollar, euro, yen and Singapore dollar against the ringgit would impact our 2018 net profit by 2.8%, 2.1%, 0.25%, and 0.05% respectively.”

Year-to-date, the research house pointed out that the Turkish lira has weakened by 20% against the dollar and 21% against the ringgit.

“IHH owns a 60% stake in Acibadem, its hospital operations in Turkey and the Central and Eastern Europe, Middle East and North Africa region.

“Acibadem accounted for 36% and 31% of IHH’s first quarter 2018 revenue and EBITDA but generated a net loss of RM99.5mil, mainly due to high finance costs and forex losses.

“Meanwhile, 50% (or RM3.4bil) of IHH’s RM6.9bil debt and 1.5% (RM91mil) of IHH’s RM6.2bil cash are attributable to Acibadem in the first quarter of 2018.”

RHB said its sensitivity analysis suggested that every 1% change in IHH’s operating currencies against its respective entities would impact its 2018 shareholders’ equity by 0.02% and net profit by 0.7%.

“Our sensitivity analysis also suggests that every 25-basis point change in interest rate for Acibadem’s debt would impact IHH’s 2018 net profit by 1.8%.”

Separately, RHB said the losses at Gleneagles Hong Kong (GHK) should narrow further during the quarter, as the ramp-up in its operations continues.

“We expect IHH’s core operations in Singapore, Malaysia, Turkey and India to maintain resilient inpatient volume and revenue although seasonally, the second quarter is a weaker quarter due to Ramadan and Aidil Fitri, which were celebrated during the quarter.

“Meanwhile, we expect the tax holiday from June to September 2018 in Malaysia to boost demand for private healthcare and provide a short-term lift to ebitda margin at its Malaysian operations due to lower cost for drugs and medicine.”

Last month, IHH announced that it was acquiring a controlling stake in Fortis Healthcare Ltd, a chain of specialist hospitals in India.

IHH reported a sharp drop in net profit to RM57.23mil in the first quarter ended March 31, 2018 against RM470.05mil recorded a year ago.

Revenue for the period rose 6% to RM2.85bil from RM2.68bil a year ago on sustained organic growth from existing operations and contribution from its two new hospitals – Gleneagles Hong Kong Hospital and Acibadem Altunizade Hospital – which opened in 2017.

Ebitda was up 8% to RM608.9mil on the stronger revenue performance.

Its earnings per share for the first quarter were 0.44 sen compared with 5.71 sen.