Higher deferred tax, forex losses drag IHH's 3Q net profit down by 54%

KUALA LUMPUR (Nov 29): IHH Healthcare Bhd registered a 54.2% drop in its net profit for the third quarter ended Sept 30, 2022 (3QFY2022) to RM251.76 million or 2.78 sen per share from RM550 million or 6.01 sen per share in the previous year's corresponding quarter.

This was due to a 7% decrease in earnings before interest, taxes, depreciation and amortisation (Ebitda) during the quarter from the corresponding quarter in 2021, to RM1.02 billion, which led to an 11% decrease in profit after tax and minority interest, before exceptional items, to RM315.4 million.

The lower net profits were also due to higher net finance costs and a debit adjustment of RM58.8 million in 3QFY2022 relating to the application of MFRS 129, which mainly resulted from higher depreciation and amortisation on reindexation, said the group.

"Net operating income decreased 11% to RM315.4 million due to lower Ebitda, higher finance costs and higher depreciation and amortisation from MFRS 129-related adjustments. Excluding the effects of MFRS 129-related adjustments, net operating income increased 6% to RM374.2 million," said IHH in a Bursa Malaysia filing.

Quarterly revenue, meanwhile, rose 3.38% to RM4.6 billion from RM4.44 billion amid strong recovery from core non-Covid-19 revenues as both local and foreign patients returned to seek treatment at the group's hospitals.

The continuous ramp-up of operations at GHK Hospital, as well as the acquisitions of DDRC SRL Diagnostics Private Ltd and General Hospital Acibadem Bel Medic in 2021 and Ortopedia Özel Saglik Hizmetleri Anonim Sirketi in August this year also contributed to the increase.

For the cumulative nine months ended Sept 30, 2022, IHH's net profit slipped 3.68% to RM1.36 billion from RM1.41 billion despite revenue rising 3.72% to RM13.13 billion from RM12.66 billion.

As the group moves into a post-Covid-19 phase, it expects non-Covid-19 business to grow with improvements in patient volume and bed occupancy rates. Foreign patient volume has recovered close to pre-pandemic levels, thus mitigating the effects of lower revenues from Covid-19-related services, which have largely dissipated.

IHH stressed that the healthcare industry continues to face near-term macroeconomic headwinds, adding that most costs are expected to increase with global rising inflation.

"The group will maintain a tight rein on costs and leverage synergies from its international network to achieve cost savings. The group expects its net finance cost to increase with the repayment of its perpetual securities (an equity instrument) from existing cash balances and loans drawdown, and a rising interest rate environment," it commented on its prospects.

As IHH pivots its strategy towards growth, it continues to seek opportunities to acquire strategic assets, focusing on improving its returns on equity, improving group-wide synergies and operational efficiencies, and building distinct platforms where it sees strong growth potential, such as its laboratory businesses.

IHH's share price finished down five sen or 0.83% at RM5.95 at Tuesday's (Nov 29) closing bell, giving it a market capitalisation of RM52.4 billion.