IHH Healthcare Berhad (IHH) Earnings Call Transcript & Summary

ladies and gentlemen, good evening, and welcome to the First Quarter 2021 Financial Results of IHH Healthcare Berhad Analyst Briefing conference call. [Operator Instructions] I must advise you that this conference is being recorded today, the 31st of May 2021. I would now like to hand the call over to your first speaker today, Ms. Penelope Koh, from Investor Relations at IHH. Please go ahead, Ms. Koh.

Thank you. Good evening, and welcome to IHH Healthcare First Quarter 2021 Earnings Call for the period ended March 31, 2021. Thank you for joining us today. I'm Penelope Koh, from Investor Relations. With me on the call are Dr. Kelvin Loh, Managing Director and CEO; Joerg Ayrle, our Group CFO. We also have our colleague, Evren, who is the Head of Strategic Planning and Investments from Acibadem with us on the call today. So for all of you, for those who are on the webcast, you will be able to view and download our presentation slides and press release. The materials are also available for download on the IHH website. As for the sequence of event, Dr. Loh will share with us the key highlights for the first quarter 2021, an update on the COVID-19-related initiatives and the operational performance for the group. Thereafter, Joerg will provide the financial performance before we have Dr. Low to wrap up by discussing the key outlook for the group. We will then have a Q&A session after the presentation. So with that, I'll turn the call over to Dr. Loh. Dr. Loh, please.

Good evening, everyone. Thank you for joining us again for this analyst briefing. And this time around for Q1 2021 results. I hope everyone is keeping well and staying safe at home. You would have read about the resurgence of COVID-19 in many parts of the world. And of course, this has led to move on the restrictions being implemented in some depth. In particular, amongst the markets we operate in, India is particularly hit with the recent large spike in COVID cases. Many of our colleagues know of a family member, relative or close one who is suffering from COVID-19 and may even have succumbed to it. It has been a stressful and painful time for our friends in our India hospitals who are battling the virus and trying to best cope with the situation. We want to assure them that they are not alone in this fight and all of us at IHH will stand by them and support them through these difficult times. I've said before and like to reiterate again that IHS will continue to play our part on the front line of this wall against COVID-19. Our front liners and colleagues throughout the group have been working tirelessly to serve our patients and communities in partnership with the government, driven by our vision to be the world's most trusted health care services network. I have no doubt, there will be challenges to our business that will come from the tightening of COVID-19 measures. But together, I'm confident that we'll pull through this crisis of our lifetime. We have not let up on our efforts against COVID-19. As you know, from the beginning, we were involved in preventive measures, further screening, doing testing. And of course, we have been treating patients as well during every spike of the pandemic. We will take in many more patients. Of course, since I last spoke with you, we have now commenced vaccination in basically all our home markets. You can see all the drives here ongoing in Malaysia, Singapore, Turkey and India. As we face up to the challenges of COVID-19, we have not lost sight of the need to provide quality services for our patients to earn and build on trust they have in us. In Slide 5, in GHK, we recently launched the first of its kind hybrid hypertension care program, which combines face-to-face and online consultations so that our patients can have holistic care via this telemedicine platform. In Malaysia, our laboratory also received accreditation from the College of American Pathologists, which is one of the gold standards for laboratory services. With that, I will pass on the session to our group CFO, Joerg, to take you through the Q1 financial performance.

Okay, thanks, Kelvin, for this. Let's jump right in. We are looking at a fairly strong performance with a lot of resilience and delivery of COVID-19 related services. Our revenue in Q1 has been MYR 3.9 billion, that's 11% upwards as Q1 '20. We are -- EBITDA with a slight reduction from Q4 '20, but a strong improvement compared to Q1 '20. In fact, we are ahead of 2019, MYR 961 million, 31% up versus Q1 net operating income. We have a little bit -- so we're changing the naming convention a little bit. It's net operating income is the, what we call, previously, the PATMI, excluding extraordinary items. So net operating income is MYR 336 million, up 77% versus Q1 '20. We are above 2019 Q1 as well, and what you can see here nicely on the chart is how we came out of the trough in Q2 '20 and performed here quite well ahead of even 2019 performance. Of course, a lot comes from COVID-19 services. We'll hear a little bit later in Singapore and in other markets around that, but we see a very strong earnings contribution. Net income, as reported, at MYR 376 million. That's 217% up from Q1 '20. But there were several one-off items in Q1 '20, MYR 400 million impairment of hospital in India, of MYR 60 million negative FX was from our Khubchandani investment and some negative effects out of our Turkey lira exposure. So overall, very strong recovery. However, we do want to caution. We are not through COVID. We see third and fourth waves going through countries. We have -- all of us have just been informed that from tomorrow, I think Malaysia goes on another motion control order. So I think we all have to be wary what is happening here going forward. We feel, at this stage, quite comfortable with the strength of our COVID-related services that we are providing. In this context, we are also happy seeing that in several markets, tourists are coming back. Turkey, is one example. The European business is doing very well, another example. So I think we are in a fairly good position there. If you go to the next page, 11, we have continued progress on our refreshed strategy. We are -- we have divested our Apollo Gleneagles Hospital in Kolkata. In April 2021, we'll report the capital gains out of this in our Q2 results. And look, at the same time, we are investing into priority markets like in Eastern Europe, that belongs to a strong Acibadem network. Here, we've invested in Serbia in a small little hospital that works very closely with the great infrastructure we have in Turkey to refer complex cases, but also is immediately earnings accretive and it adds to our foreign currency income. If you look at capital efficiency ratios, of course, this is all on the back of our strengthening EBIT performance and our net income performance. Return on equity in Q1 has reached 4.5%, so much for our ROE doubling journey. I think, as we said, and Kelvin is going to share a little bit later on this as well, it's a journey and the doubling is, of course, the waymark and not the end of the journey. Net debt-to-EBITDA has further improved. Net debt-to-equity has improved. And our return on capital employed is now at nearly 5%, also great. You see 2 lines here in the ROCE in the net debt-to-equity and net debt-to-equity revised. We are in the process of redefining our definition of net debt. Until now, debt did not include lease liabilities arising from IFRS 16. Accounting principles, we are correcting this and will include long-term lease liabilities into our definition of net debt or debt. And of course, we will also include then right-of-use interest into our interest calculations. But overall, very strong balance sheet, actually stronger even then in Q4. And looking forward with a very strong cash-generative nature of our business, a cash conversion rate that is nearly 1. We plan to continue on this healthy stream. If you look at earnings structure, if you look at the revenue on the next page, if you look at our revenue and EBITDA contribution of cost, Singapore still remains a very strong revenue contributor, still with 43% in Q1, the largest EBITDA contributor, and we plan to keep it that way, at least an absolute contribution, but we will see other markets. Here, you see Europe is now an equal revenue contributor, a little bit lower EBITDA margins in those markets. But you see a well-diversified earnings portfolio. And look, the small little dark negative line. We are working towards removing Hong Kong from this. As we discussed, Hong Kong will move into the above 0 line, China still remains below for some time. I think that's expected in ramp-up scenarios, but I think we see a much healthier earnings structure going forward. And with this, I give back to Kelvin for some operations updates.

Thanks, Joerg. So on Page 15, you can see that quarter-on-quarter, in patients admissions, 7 fully recovered across all countries. This is to be expected. There's still domestic electives that are still not necessarily fully back. And of course, in some markets, especially Singapore, there's a still significant impact of lack of medical travel. But as you can see here, the revenue intensity is strong as those electives that do come, really, the sicker patients which need bigger procedures. And of course, that gives higher revenue intensity. In Malaysia, Slide 16. So Malaysia's performance was impacted by the MCO implemented from January 2021. Revenue has improved 10% to $612 million due to the inclusion -- due in part to the inclusion of contribution of Prince Court Medical Center. And of course, there's also revenue increased significantly from our Pantai laboratories due to more COVID-19 tests performed. Inpatient admissions fell 30%, while revenue intensity grew 37.6%. Average occupancy, again, because of the MCO situation in Q1 was at 23%. On Slide 17, Singapore. So in Singapore, we saw a firm recovery. Domestic patients continue to recover. Foreign travel is not back, still a significant contribution from COVID-19 related services. So you can see here that quarter 1 '21 versus the same quarter last year, revenue actually grew 14% to MYR 1.16 billion. EBITDA is up 27% to $417.5 million. Inpatient admission decreased 3%, while revenue intensity fell 1.7%. Average occupancy was at 54%. So you can see that the -- despite the medical travel being not back, as I've said, there's been a fair bit of recovery on the domestic emissions. On Slide '18, Turkey and Europe, certainly a strong recovery in Q1. Revenue improved 11% to MYR 1.1 billion. EBITDA grew 29% to MYR 279.8 million. Inpatient admissions was marginally lower, but revenue intensity increased by 28.7% with more complex cases undertaken and, of course, some price adjustments roughly in line with inflation. Average occupancy was high at 75%. I would like now to discuss briefly our non-lira exposure on Acibadem. Since Q3 2019, Acibadem periodically entered into cross-currency swaps to convert EUR 180 million of bank loans into Turkish lira. These cross-currency swaps relating to EUR 9.8 million of bank loans was settled along with repayment of these loans in Q1 '21. So in Q1 '21, the group recognized about MYR 99 million of exchange loss on translation of the remaining non-Turkish lira balances, but these were more than offset by MYR 156 million fair value gain on the cross currency swaps. So as a result, there was a net gain of MYR 57 million recorded for Q1 '21 as compared to a net loss of MYR 80.9 million of Q1 '20. Moving to Slide '19 on India. So we saw recovery in India in Q1 on the back of rising -- the non-COVID services as well as COVID-related services. Our revenue grew 11% to $830.6 million. EBITDA rose 68% to MYR 116.4 million. Inpatients admissions decreased marginally by 2%. Revenue intensity increased 15.2% for the same reason I mentioned, patients with more serious and urgent ailments; and average occupancy was at 62%. Moving to Slide 20, Gleneagles Hong Kong. So Gleneagles Hong Kong continued to ramp up as we saw revenue increase 32% year-on-year to MYR 148 million. And EBITDA losses have narrowed by 42% to 24.8 million. Inpatient admissions increased healthy 16%. Revenue intensity also increased by 11%. Most of that really is driven by the increasing trust and the hospital improved ability to attract complex cases, and doctors doing more complex cases there. Occupancy was, for the quarter, at 56%. So to summarize, moving on to Slide 22, you can see that recovery has been continued since June. When we took -- June '20, when we took the brunt of the -- of COVID-19 when it started around March, April last year. There is a recent resurgence, as you know, and this will certainly present some near-term headwinds. Moving forward, we will continue to maintain discipline in executing our refreshed strategy. We will stay nimble. Our -- improved structure of our P&L, as been explained, will enable us to be more resilient even as there are bumps in this pandemic. We continue to proactively deliver on our strategic pillars. As you see here, they have served us well in the past year. And we also said, following on that strategy, now specific markets, we will fine tune and sharpen the strategy so that we can sustain our earnings growth, and we are led, as you know, to create new revenues, improved case mix, and we'll continue to do so. So with our strong financial position, at this point in the pandemic, we believe we are well placed to ride out the rest of the dynamic, and our long-term growth trajectory remains intact. Now before I take questions, I know there have been interest around our ROE target, and I just want to touch on that here on Slide 23. The question is how do we get to that target. You can call it -- you called it a along-the-way-target, I suppose, of that 5% doubling from where we were at the end of 2019. So here is a sense of how it's stacked up. The various building blocks, post COVID recovery, some of the domestic volume coming back, some of the travel coming back, reduced losses from entities, which were previously not performing so well. I think you can see that -- doing that in our operations in India, in Hong Kong, for example. Improved productivity, driving through the synergy that we have been talking about. And again, we did a fair bit of that already in '20. And then beyond the COVID recovery, continue to fill out the beds, so improve the occupancy of existing beds. That per se, of course, it's a capital-efficient way to grow. And beyond that, then, we look towards new revenue streams. The new revenue streams will be growth beyond our existing facilities, as I mentioned before, growing via our cluster strategy in our bricks-and-mortar part of our business, growing a very important book of business in our laboratory space, which, today, has been accelerated in other types of services as well, including digital health. So some examples. You can see on Page 24, in terms of what some revenue streams in COVID-19 times, we have now done more than 5.2 about -- we have done more than 5 million COVID tests across laboratories in all our markets. In fact, in May alone, Parkway Laboratories in Singapore past -- processed about 1 million PCR swab tests. All these important milestones, and it's a testament to our ability and continued support to countries that we operate in to fight this pandemic off. So the fight is not over yet. We will continue this good fight, continue doing testing, continue taking patients and, of course, helping the vaccination rollout journey. With that, I will hand -- open the floor to Q&A. Thank you very much.

Thank you, Dr. Loh. We'll now take your questions. Just a quick note before we start. We'll take questions from the participants on the conference call before moving to the questions from our webcast participants. [Operator Instructions] With that, operator, please proceed with the Q&A. Thank you.

[Operator Instructions] Your first question comes from Divya Gangahar from Morgan Stanley.

The 2 questions from me, the first is just a clarification on the one-off finance income that you booked in this quarter. Just wanted to get that number right that it was a net MYR 56 million gain that's sitting in the financial income, or is there anything else in the overall net finance cost that we need to execute. So that's the first question. And the second question is on the Malaysian business. I wanted to understand the margins in this quarter were a bit lower than the run rate that we've seen in the previous quarters. If it's only, like in other markets, the more urgent and elective cases that are -- I mean, more urgent cases that are coming in. Can you help us understand why the margins are lower? And also if you can just talk about what is the involvement of IHH hospitals in Malaysia compared to your involvement in Singapore, which is pretty high, or India. What's the involvement in Malaysia at the moment?

So let me just take the FX question or the one-off question. Yes, MYR 56 million is the net effect from cross-currency swaps on the Turkish lira, a couple of transactions inside, some gains, some losses, but the net effect is plus MYR 56 million, and that's the only one-off.

So in terms of the operations, I think there was a question around Malaysia's performance. So Malaysia, overall, the biggest loss impact is actually from inpatient admissions, right? So inpatient admissions is clearly not recovered to where we're at before on the domestic front. Foreign travel is affected. Foreign travel also has a high revenue intensity. There's a fair bit of other work in there right now. For example, some of it is COVID-related work, COVID testing. So I guess it's fair to say that most of the countries. But Malaysia gets the effect of that loss of domestic -- lost foreign travel as domestic because for the MCO situation in Q1 '21. And there isn't that much else that it can take out, by the way, our COVID services, right? You can do some tests, but there is relatively few COVID patients being treated in hospitals. So the result is that occupancy is low. So the COVID test per se, there's some dilution in terms of margins because it's largely supportive lending assets. And of course, as we cross 1 year to the other, there are some inflationary pressures on stock COGS, right, on the back of this relatively low inpatient volumes. Now what are we doing in Malaysia? I guess, when you asked this involvement, I guess, you mean to say in helping in this dynamic. So the situation Malaysia clearly has escalated. As we speak now, it's gone up to about 8,000 cases a day. So we are responding, we are helping. We've now set aside up to 250 of all beds up to the potential alternative beds to treat COVID patients. ICUs, we have committed up to 44 ICU beds within that 215. And of course, we are, as I mentioned, certainly continuing to help with testing, and now helping to rollout the vaccination drive as well. Does that answer the question?

Yes. Just 1 clarification. I mean, I'm just trying to understand the difference in the experience in, let's say, Singapore versus Malaysia, where the involvement in Singapore has been enough to offset the missing foreign medical patients, whereas now with COVID being a real problem in Malaysia as well. Somehow that's not getting, like, reflected in the commentary that your involvement in treating COVID patients or testing COVID patients can actually offset some of that lost revenue. So if you could just explain that a little bit and you also made a comment that the COVID test's somewhat dilutive to margins. Is that also a difference versus Singapore? If you can just help us understand the difference between the 2 experiences that would be useful.

So my comments around the ramp-up in terms of offering in certain bases, the capacity that we have set aside as of May, in fact, it was only on May 24. Here, we are reporting the results of Q1 '21. And up to then, while there was this movement control order already in Malaysia. But the truth is that we have very few COVID infections, right, at that time for -- during Q1 '21? It's very unlike, say, in Turkey and in India where the COVID volumes were going up. The hospitals were taking that. And we also saw, actually, very strong recovery in the non-COVID volumes. But neither have been in Malaysia in Q1 '21. In Singapore since -- the contrast in Singapore, there are many other COVID related services, border testing, lots of lab test, even setting up vaccination centers.

Right, and can I just clarify that in Malaysia, the payment is self-paid for COVID patients walking in, the government is not involved in subsidizing or paying for it?

That's correct.

Your next question comes from Swati Chopra from Bank of America Merrill Lynch.

Can I know how much of the revenue or EBITDA in Singapore was from COVID testing? And how much is the JSS support, if any?

So in Singapore, the contribution by way of revenue of COVID services in Q1 was 6%.

6% of Singapore revenue.

That's right. There was also this government grant in Singapore during Q1. I think that was for MYR 12.4 million, much lesser than it was in previous year and previous quarter.

And maybe just a follow-up question from the previous question, like, can you help us understand how Singapore operations did so well despite the fact that it had the highest medical tourist component? I think it was around 25% before COVID. So assuming most of it is not there anymore, how did Singapore manage to grow earnings so significantly?

So a couple of points. The first is that this Q1 included March -- March, the same. So March last year, there was already some tailing off in March last year. Secondly, the domestic, as I alluded to, the domestic side has largely recovered. In fact, I'd say that it probably fully recovered regards to inpatient volumes. And finally, there's a full suite of COVID-19 services that Singapore is doing tests before. So all are small compensators for the loss of foreign medical travel. And even that hasn't been totally lost. I think there's still a couple of percentage from medical travel. Because even though -- as a general rule, patients aren't traveling, but there have been exceptions being made for Singapore.

But I think I would add, on top of this cost-saving measures or, well, the result of -- and inability to hire more nurses in some areas, where they would be required, has likely added another couple of points to EBITDA margin. So I think it's really a mixture of different elements. And look, Singapore is a city state, and Malaysia is a fairly large country with many diverse effects. So I think it's not entirely comparable.

Your next question comes from Rachel Tan from DBS.

My first question is for Malaysia. What type of margins are you expecting from the COVID-19 patients treatment? And would you be worried, concerned about collection?

So the general answer to that is no. I mean, depending on condition, of course, it ranges, but we basically are charging according to -- on a service basis, right? The same we'll charge any other -- for any other condition in Malaysia. So I would say that the margins are very similar to, basically, other treatments that we offer in our hospitals.

And collection, you referred to collection and AR risks. Look, I guess, there are, of course, increased risks once you take patients from government hospitals once you help patients in need. Of course, there are risks. We have not experienced a material increase in fallout, and the team is managing this extremely well.

Okay. Got it. Just a follow-up question from the previous analyst. I think she asked for COVID-19 related services for Malaysia. I think that wasn't answered yet. Would you be able give us a percentage?

Are you -- sorry, Rachel, you're referring to the COVID-19 revenue contribution? Is it?

Yes.

In terms of the Malaysia, the contribution is about coming about 10% of revenue. And then if I can clarify, I think earlier, just now Dr. Loh was saying 6% for Singapore, but that's only COVID testing. It's not -- because I think we -- when we -- what you're asking now is COVID-19 related services, which comprises of, like I say, a different initiatives that we undertake. So for example, in Singapore, right? When we said 6%, it's specifically for COVID-19 testing. But if you're looking at COVID-19-related services, which includes border screening, on-arrival tests, vaccination projects. That's about nearly 17% of our Singapore revenue.

Okay. That makes sense...

To clarify, Singapore was 16.8%, Malaysia was about 10%.

Yes, correct.

Okay, that makes a lot of sense. Because I remember last quarter, it was about 11%, right? Is that only COVID-19 services or COVID-19 related services?

It's COVID-19 related services.

Okay. Got it. Yes. Yes. And my second question would be on Gleneagles, Hong Kong. I do note that there was some increase in the EBITDA losses in this quarter. But I remember last quarter, you said that you are expecting to break even in this year. Is that still on track? And given how the losses haven't seem to be -- where we -- and there's no grants from the government this year. How do you expect Gleneagles, Hong Kong to bring that?

So Gleneagles Hong Kong has been growing progressively. In fact, I mentioned before that through the whole year of COVID in 2020, we basically didn't see any drop in inpatient volumes instead of progressive growth. So that's continuing. We have also done a fair bit of productivity improvement, control staffing costs. That's no increases in staff costs even as we ramp-up at the hospital. So all that is helping up at the earnings line. You recognize that Gleneagles Hong Kong comes by way of -- the way there is a service date, and there are many obligations upon which the hospital will reopen. In fact, open at a much -- open immediately as a larger hospital than we normally do simply because of commitments that we have made for this project. But happy to inform that as time pass now slightly 3-plus years to 4, and the volume is now coming to a point that we are quite confident that we'll get the EBITDA pretty good so.

Okay. Are you expecting breakeven on the middle of the year or probably end of this year?

We have said that we are quite confident it will happen within this year. My aspiration is that it will be earlier within this year than later, but we'll see.

All right. It looks solid as a breakeven.

Our next question comes from Stephanie Cheah from CLSA.

Yes, if I could just follow-up from some of the preceding -- from the questions before this. Can I get your percentage of COVID related services for India and Acibadem as well? That's my first question.

So in India, it's about 16% for Q1. And I think Q1 because, well, I guess, the next quarter will be certainly different. For Turkey and Europe, so the whole Acibadem group, COVID related services in total was 8%.

8%, okay. My second question is on your percentage of revenue for patients in Acibadem, given -- I think previous quarter, it was quite strong. So I want to see if that has held up.

It has. It has. Running at most...

Is it at pre-COVID level?

It is. It's at 16% actually in Q1 '21. You're talking about foreign patients going into Turkey, right? 16%.

Yes, correct. 16%, is that right?

That's correct.

Okay. And my last question is on Singapore. I just want to understand in terms of the recent movement restrictions, so is it fair to assume some of the strength will taper off, whereby your large domestic volumes seen now, you will see some impact in the second quarter and perhaps third quarter as well?

Yes, there are some short-term headwinds, definitely. Every country, when it goes into an escalated lockdown, there's some tempering of the elective cases. But I'll just say that as we -- every successive wave, and we see that pattern in every country, the impact is less than the last one. And the recovery tends to come faster as well. So we are hopeful, fingers crossed. Our prime minister just spoke on TV and it looks like the restrictions should be lifted in about...

Okay. I'm sorry, just one more...

At the same token, it is clearly said that many of these tests, lab tests on -- spot tests will continue for a much more prolonged period of time, and that the country needs to prepare itself that COVID cases will exist. And I think out of this will develop new revenue streams and new business activities.

Got it. Okay. Sorry, can I just get 1 final question? In terms of your bed capacity set for COVID patients in Malaysia for 1 -- first quarter, because I think the 250 beds that you mentioned earlier was as of May. Can I know what it was in the first quarter please?

First -- no, we have set aside about 200 beds. But frankly, when we set that aside, the number of patients to be actually booked in was relatively low.

Was relatively low, did you say?

Your next question comes from Amanda Foo from Crédit Suisse.

Maybe I could ask a question on Malaysia a little bit more. I noticed that your revenue intensity had jumped quite significantly by about 38% year-on-year. Do you think you could share a little behind -- the reason behind the speed jump for Malaysia, please?

Yes, so you can see that amongst the countries that we operate in, if you look at the bed occupancy, it's the one that's been -- has had a relatively muted recovery. In fact, it's not quite recovered anywhere close to pre-COVID. You can see the yellow chart there. Now what that means is that the part that's gone away is, a, the medical travel, which is -- sorry, the part that's gone away is the not-so-sick patients, right? So the 43% led by the patients who are really the most acute and cannot defer their electives or find that they've reached a point they don't want to defer anymore, which means to say that these patients are sicker and already need more complex procedures. So because of that, the revenue intensity is much higher.

And just to clarify, this number does not include the severe COVID cases yet, right?

No.

Because as you mentioned, in the first quarter, your COVID bed occupancy was quite low. And I would have expected that to pick up in the last 1 to 2 months. Am I right in thinking that?

Yes. So that -- you're right. So that, in fact, you can go as far to say that the increase in revenue thus, there, has nothing to do with taking COVID patients. It's due for the reason that they're sick.

Okay, and if I can follow-up a little bit more in Malaysia. I read that can Pantai [ Kero ] and Klang has been designated as the vaccination centers. And so could you share a little bit how would this impact the operations in Malaysia? And do we know what the charges are like yet for maybe private vaccination services?

So firstly, the vaccination program that we have already undertaken, we're helping out with our role to help fight this pandemic. We're happy to do. So the patients are not charged for it, so we are basically contributing in terms of just organizing and power resources. In terms of the new initiative, which allows for a commercial offer of the vaccine. That not that's not been formalized yet. So that hasn't started.

I see. When, potentially, could we expect this to start?

We don't know.

I think we have to abide by the guidelines set by the MOH. So I think what Dr. Loh mentioned, actually, as of now, there's no charge to be imposed on the patient under the National COVID-19 Immunization Program since the vaccine are all provided by MOH.

Okay.

Yes.

Understood. And my next question would be on cost optimization, right? I was looking at your 2021 strategy across each market, and one common theme would be your cost control. So can you give us a little bit color as to how much cost savings have we achieved as a group? I mean, is that a target that we can look at for the year?

Not sure that there's a specific target. The direction is quite dynamic. I would say that by and large, the extent of overhead cost savings that we can do, I think has largely been done. In fact, we are now facing a situation where, as volumes come back up in many countries, for example, in India, in Turkey, in fact, to some extent, in Singapore, we're starting to see, as Joerg has mentioned, relative shortages. And We will expect ourselves to increase staffing counts. But of course, in terms of the group-wide synergy type initiatives that we have committed to, we continue, for example, procurement. We have publicly announced that we have a group-wide procurement savings target for MYR 100 million this year. And between Q1, we did about 20 million savings there.

I mean if you look at our P&L structure, you see that roughly 4 percentage points in functional cost reduction if you look at Q1 '20 to Q1 '21. Part of this 4% comes from India. There has been a large overhead cost reduction program in place. Part of it comes from Hong Kong. There has been a substantial amount of money taken out of the -- out of the cost structure. Part of it comes from things like here in Singapore. We can't hire nurses and more like an involuntary cost reduction. And part of it comes from this procurement program. So I think if you look at those 4 percentage points increase in EBIT that comes from cost reductions. I think we are now at a stage where it's not about further cost reductions, but where it's about how much of this can we retained. And if you look at a country like India, look, this is the absolutely wrong time to talk about cost reduction. It's about how do we take care of people, our own people, our patients and not about cost reduction. That's the last topic we discussed with management there. Same like in Malaysia. If you have a movement for all orders, if you have a lot of very difficult situations for the population, it's really not the right time to talk about cost cuts or cost reductions. I think we have achieved a lot, 4 percentage points compared to a year ago. Now it's about how much of this can we retain. And of course, we have a $25 million procurement target that we've communicated. We've achieved some part of it, and we'll work harder to get to the $25 million, and we invite every supplier, also those who feel very strong right now. But we invite every supplier to contribute to this, and it goes into affordable health care as well as managing our fees to patients.

Just to clarify, the target is MYR 100 million, right, which is USD 25 million?

Yes, sorry, MYR 100 million, yes. Yes, that's the...

Okay. And sorry, just let me squeeze one last question. I just wanted to make sure that I caught that was [ mentioned ] earlier. You mentioned that the number of tests that Parkway Lab in Singapore processed in May alone was about 1 million. Am I right? Just for that month alone?

Sorry, up to May.

Yes, up to May. It's an accumulated number. We started doing the number of test until this year in May, that we have got in 1 million...

Sorry, I said that wrongly.

Because as you can see on Slide 24 now, we are -- as of April, we were close to 900,000. So it may itself cross that 1 million mark. Yes, and as what Joerg mentioned earlier, I think as for what our PM has just mentioned, I think there will be more testing to be done.

I mean, let's look at our lab business overall. And I'm sure, going forward, we will disclose more and more about our diagnostics and lab activities. But if you just look year-over-year, and that doesn't include India. Look, we've increased our business by 60%, 70% year-over-year. That's quite amazing. We've doubled our business in Singapore, for example, if we just look year-over-year. So quite substantial improvements in and contribution from the laboratory business. And at this stage, it doesn't appear as if this will go away.

And this volume -- this increase is volume or revenue, that 60% to 70%. Sorry?

That's revenue.

Your next question comes from Nicole Goh from UBS.

Congratulations on your results. I just had 1 follow-up question on North Asia. I noticed that your North Asia EBITDA, on a Q-on-Q basis, actually increased quite substantially. So from minus 6% -- sorry, minus MYR 6 million in fourth quarter of 2020 to minus 36 million in this quarter, is that all attributed to Hong Kong? Or does it also include some of your businesses in China?

So Greater China is North Asia, as you said. It's the bulk of it. It's the China and Hong Kong together. Sorry, and the number you're referring to was the...

Revenue. Revenue growth.

No, the North Asia EBITDA, not the North Asian -- just North Asia.

You said the MYR 36.2 million, is it? That's a core...

Versus the MYR 6 million last quarter, fourth quarter 2020.

Yes. Okay, so yes, the difference, a lot of it can be attributed to, firstly, in Hong Kong. We are still getting government grants in Q4. So there were no more government grants once we crossed the year. Secondly, also, there is a significant variability in terms of -- when you look at Q4, seasonality from Q4 to Q1, because Greater China, both China and Hong Kong has a significant Chinese New Year effect. It's a typical type cycle in 2 reasons. Operationally, it hasn't really -- the numbers don't -- well, I wouldn't say that -- the number does not point to the significant operating changes for these 2 reasons I mentioned.

I see, okay. So Chengdu will be under Greater China new, right?

That's correct.

Yes. Okay, and now maybe you could just give us a quick update on Shanghai when you plan to open the hospital?

That's probably likely sometime 2022.

Our next question comes from Yoke Cheah from JPMorgan.

I have 2 questions. One is how would the removal of mitigation overhang change your focus on India? And second would be, is your Serbia acquisition a deviation from the overall strategy? And what's the threshold to make an announcement on the exchange?

Your first question is on the litigation on India, right? If you remove the overhang, how would that change our focus on India? Is that what you're asking?

Yes.

Sure, so overall, our direction hasn't changed. India is now one of our home markets. It's a very strong growth market, and that's why we got in there. As you know, we made that transformative acquisition via Fortis. So the plan always has been to grow. We already have done that through all the operating means, as you can see from our progressive improvement in Fortis results since acquisition. There -- of course, what -- there has been some restrictions with regards to growth beyond the operating means in terms of potential acquisitions. Base by which we can further improve its capital structure. So once -- and we're positive -- we are hopeful and positive that we have favorable outcome. And we have faith in the Indian judicial system. So once that is the case, then I guess that opens up avenues for expansion that is beyond just the operating means of growth. Then there was the second question, we missed that. Miss, can you repeat your second question?

Yes, on your Serbia acquisition, is that a deviation from your overall strategy? And what's the threshold to make an announcement to the exchange?

So no, it's not a deviation from our strategy. In this case, it was relatively small so it doesn't hit that materiality threshold. But it's not a deviation. In fact, you can see that one of our strategies was to grow the European beachhead that we had for Acibadem. We are quite pleased that the European operations has been growing strongly. The revenues are in euro hedged-type denomination. And in fact, while I mentioned that, 16% of revenues to Turkey, which is in hard currency, that is in Turkey, if I combine that with the European operations, that now takes there's a euro hedge -- euro denominations to Acibadem, I mean new euro or U.S. denomination. That's now working out to about 38%, because in large part because of the growth of the European operations. So the addition of Serbia to that cluster is just part of that. It's an immediately accretive acquisition. It's one of the best brands there with strong earnings.

Okay, sure. Yes. That's very helpful. And what's the threshold to make an announcement to the exchange for any part of the acquisition?

No, I think the -- so I think there are 2 things, right? There's a mandatory announcement threshold, that was 5% of net assets. But of course, we are free to announce anything we'd like to announce because it fits into our market communication. I think this announcement on Serbia -- so you should not misconstrue the announcement with an acquisition price. Don't -- I don't think we should take that calculation. We've announced this because we feel it fits right into the expansion strategy for Turkey and Europe. It's in Eastern Europe. It's a growth market as Kelvin has rightly shared. And it is earnings accretive so this is a great sign on how we recycle capital from assets that are not core like a minority stake in an Apollo-managed hospital in India into something that we will be managing going forward. And you will see similar types of announcements in Turkey -- in Europe, in India, in other markets where there is suitable and it fits our cluster strategy going forward. And this leads me back a little bit on the Indian overhang. Look, the overhang, on the one hand, will be lifted, and there will be a new reinvigorated growth strategy for India. But very immediate, very immediate steps out of this resolution of the Supreme Court topic, some -- certain corporate structuring steps inside Fortis that will immediately save tax expenses, things that we could not execute due to the stay order. And we believe there will be, in the first 6 to 9 months, very massive steps to improve underlying operational performance. So this gives us an opportunity to take this asset into a growth path, an earnings growth path that it deserves.

Your next question comes from Cezzane See from CIMB.

Congrats on a good set of numbers. A few of my questions were actually answered, but if I could just recap on the Malaysia side, and I contrast it to the India segment with regards to the COVID-19, the numbers for Malaysia do seem a bit more -- a lot more lower than the India side. But going into the second quarter, as mentioned, it could be a bit more -- a lot more higher. So would you say that it could come towards the sort of number that India's at right now? And how should we also look at India numbers going forward, given the 2 countries, the 2 geographical segments are actually in quite bad shape that is going through the second quarter here?

Thanks, Cezzane, good question. The dynamics in the countries are quite different. So in India, through the whole pandemic, what we are seeing is that there's been a continued and strong recovery of non-COVID patients. In fact, up to Q1, it's -- I dare say that's almost largely recovered. But that was not the case in Malaysia, right? So there's a lockdown -- not a lockdown but an MCO type situation that's significant, I guess, and are still in terms of the elective patients coming back, and that's why you can see the relative occupancy in Malaysia is low. That's 1 factor. The second factor is that in India, the number of COVID cases is really significantly larger, at any one time, never mind the current huge surge in crisis. But at any one time, the numbers are really much larger, and the number of patients, COVID patients who sick in the Indian hospitals are significantly larger than in Malaysia any time. And so that's just the way things are. Then you ask me going forward, then what's likely to happen. In India, I think it's quite fair to say that in Q2, we see a significant surge in the number of COVID patients going in. But because the impact is so great, it is likely that we have ring-fenced, set aside base for that. And therefore, the elective cases are likely to be affected, and they will drop. Of course, the effect i's so great, right? You can't just do it both going up at the same time. In Malaysia, we don't know, cannot predict for sure. But I would be surprised if the number of COVID admissions becomes that large. Hopefully, that remains relatively under control. It will be more than Q1, but certainly won't be the kind of magnitude that you see in India.

Got it. And just on the sense of capacities to cater towards -- to COVID-19 for both these geographies, could you provide some color on that? It does seem like -- because what I understand is, in India, there's a lack of capacity, per se, just say generally, right? But in Malaysia, so on the ground, I understand that's also the case. Is that because that's the number of allocated bids you have or it's something that will grow if you move that more than what you have now? How would that change that allocated bit space in a sense of Malaysia?

I mean even in Q1, that which were allocated was not as many -- quite, as I mentioned already, it was much fewer than that. As currently, of course, the number has gone up. I don't know if it'll come anywhere close to the increased capacity we have provided for it.

Okay. Got it. And my other question would be, looking at the testing right now. As we know, Singapore is -- sort of has been pushing the number for testing. If I look in terms of capacity-wise, would you say that you need to grow all the regions simultaneously? Or is it -- are there specific regions that you think, for testing capacity, only are the ones that you may focus on going forward?

Okay. Let me try to understand that. You're saying that do we have the growth in testing capacity in all the countries at the same time? No, we are growing according to the need, of course. It's hard for it to be at the same time, at the same pace. Is that what you meant?

Yes, and maybe which one would be your priority, I guess, looking at the sort of demand for testing.

I mean as of now, you can see by share numbers, India is far what they can -- all the other countries, even in Q1. I will not be surprised in Q2, it will -- that trend will only accelerate. It's a function of the size of the country and also the size of the spike in that country, right?

Okay. But right now, we're not close to any of the -- it's not -- would you say that none of the countries, maybe barring India, is close to something that you have to seriously think of increasing capacity?

We have been increasing capacity. We have been. We certainly have been. It doesn't take that much. It's not like a building a hospital base, right? You really -- you may need to add more machines to run. We certainly have been as the need arises.

Okay. And then I guess the question on CapEx for all these is not that extensive.

Yes, overall, it's contributes positively.

Before we take 1 more, in lieu of the time, I think we will take 1 more last question.

Your last question comes from Jeff Ng from JPMorgan.

On India, we saw some development on the Supreme Court recently or maybe just today. Going to into a little bit of technicality, because the takeover price was INR 170 in the past, share price has gone up. You have used 60 days historical. Not sure how we should read into the situation, whether you guys have to hike the offer price. And is this skewed -- I mean the geo is still the same, partial takeover and not a full takeover.

Yes, look, very, very, very choppy situation I think we have here. If you look at liquidity and if you look at the dynamics of the Fortis share price, there is clearly speculation. And I guess the question will be to what degree do we want to participate in that level of speculation. If you look at the underlying performance of the business, we think we -- it's very hard to see how share price has increased in the last 6 months as it did. Now we have an MTO outstanding for INR 170, and we really have to think to what degree do we want to participate in speculation and speculative price development or where do we actually see the underlying value of the asset? And I guess, in a range of INR 200, we felt there was something that was closer to where we believe an underlying value is. At the value where we are trading now, we need to think about how much has been overtaken by speculative investors. So I think we have no clear view yet as to whether we stick with INR 170 or whether we want to increase that. I think this will be a discussion much closer to the time. But what we can say is that where value is right now, we see there's quite a bit of speculation in the market.

Sorry, allow me to expand...

I'm not sure it clearly answers your question but...

No, I can see the predicament and I hear where you're coming from. The Indian market has definitely got a lot -- got excited over the potential overhang removal as the supreme court does rule in your favor. But of course, you're also bound by the exchange rules, right, which -- I don't know whether the offer price have to be ready based on the last 60 days or the last INR 170. So you know what, it doesn't really matter. But the question is this, right? You guys own 31% and has been such a hassle in the past. I see that you guys have sufficient balance sheet but is it sufficient with 31% in the current balance sheet to really direct Fortis to where you want it to be? Or do you think, eventually, you still want to own 51% to effectively have control?

Look, I think, eventually, we'd like to own more than what we own now. That's why we put the tender offer out in the first place. I think there was an intention, and there is an intention to get closer to 50%. I think that's clear. But look, everything needs to have a financial logic to it as well. And if people are speculating on the back of us potentially increasing here the tender offer price. We really don't want to participate in such rumors and such rumor-driven the value increase. We believe in businesses that have a substantial earnings improvement. And if there has been, then sure, we should then reflect this appropriately in a tender price. But at this stage, I think that has a little bit -- it has been a little bit of a disconnect between share price increase and underlying performance development.

Allow me to ask the final question. Switching back from Fortis bot to your own bot. Of course, the recent news took us by surprise of the M&A announcement, but just taking a step back, how's the bot dynamics like -- I mean, this thing could have been taken care of. Why are such things being watched in the public? I mean...

I'm not sure what M&A announcement you're referring to and what speculations they are, but there aren't any major M&A announcements that we...

There are no announcements, but the new report from Bloomberg, right? You spoke about Mitsui and I would like to...

No. We have had that speculation as well, and that's not something we are able to comment on.

No problem. At least I tried.

Look, it's great that shareholders see there's value in the company. That's great.

No, I totally agree. There is definitely value whenever a private equity want to take you guys private, right? I thought this could have been better communicated within the Board of IHH rather than through news.

Thanks, Jeff. I know we have some additional questions from the webcast participants, but in lieu of time, I think please allow IR to take it separately with you instead, all right? Thank you for your understanding. So we'll now conclude the IHH Healthcare first quarter 2021 financial results briefing. Thank you for joining us today. And if you have any other questions, please contact IR via e-mail at [email protected]. With that, we can conclude the call. Operator, please.

Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect.