IHH Healthcare Berhad (IHH) Earnings Call Transcript & Summary

Ladies and gentlemen, good morning, and welcome to Third Quarter and 9 Months 2023 Financial Results of IHH Healthcare's Analyst Briefing Conference Call. [Operator Instructions] I must advise you that this conference is being recorded today, 1 December, 2023. I'd 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 morning, and thank you for joining us. I'm Penelope Koh from IHH Investor Relations. Welcome to joining us for our third quarter and 9 months of 2023 results briefing, whereby we're doing it live, via a live video broadcast available on our webcast. With me today are Dr. Prem Nair, our Group Chief Executive Officer; Mr. Dilip Kadambi, our Interim Head of Finance; and Mr. Ashok Pandit, our Group Chief Strategy and Business Development Officer. I also have the pleasure to invite Mr. Evren Gence, Deputy COO of Acibadem. The results materials are also available for download on the IHH website. This quarter, we'll begin with an opening addressed by our Group CEO, Dr. Prem, followed by Dilip, our Interim Head of Finance, he will present the financial highlights. His report will also offer a clear view of our financial status and key performance indicators. And following that, Dr. Prem will give an update on operations across our various markets and then conclude with a brief outlook and key takeaways. We will then move on to Q&A to address specific queries and observations. And with that, I'll turn the call over to Dr. Prem. Dr. Prem, please.

Thank you, Penny, and thank you all for joining us today. Very good morning to all of you. Before I begin my maiden results briefing, I would like to thank Mr. Joe Sim, our ex-COO, and the rest of the management team for holding the fort during the CEO transition. As I will share later, this stellar set of results showed how IHH works as a team and that its growth plans remain robust. And I know many of you have asked, and I would like to share more about my views on how IHH will evolve and grow moving forward. Moving to Slide 3; there are 3 key takeaways that I would like to call out before we go further. First, this was a stellar quarter for us, exceeding even our own high expectations. We reported double-digit revenue and EBITDA growth across our home markets. Net income doubled. Second, our growth plans and trajectory remain intact. There's no radical change to the strategy that was laid out before. Rather, we are nuancing and accentuating certain key features of our strategy under the ACE framework, which I will share in the next slide. In aligning, challenging and empowering our people, hence, the acronym ACE, A-C-E, we will grow in a responsible, sustainable and profitable manner. And finally, I would like to assure you that our outlook remains very positive. As we execute on ACE, we expect firm, continued revenue growth and healthy returns. There are 5 anchor pillars to how we will grow moving forward, and they are shown here on the slide. I'll elaborate more in the ACE framework segment later. Moving to Slide 5; October was an exciting time. I spent a good part of my first month as Group CEO at IHH, meeting our talented teams in Malaysia, India and Greater China, familiarizing myself with the operations and the context there. What I saw and heard touched me deeply, especially how our people are dedicating themselves to touching lives and transforming care for our patients. I was also blown away by some of our hidden gems. For example, and not many of you may know this, our Gleneagles Global Health City, Chennai, and Global Hospitals Parel, Mumbai, are world leaders in rare multi-organ transplants. They were the first to successfully operate a bilateral hand transplant in India, as well as complex uterine and intertie transplants. You may also not know, that in the last 2 years, we have performed more than 1,300 transplants across our 5 Gleneagles Global Hospitals in India. These are world-class numbers. Wherever it was that I went, each market brings unique strength to a broader IHH tapestry. I see it as my duty to champion these strengths and empower our markets to succeed, by fostering a culture of collaboration and creating greater synergies and efficiencies across our vast network. So I'm truly excited about the possibilities ahead and look forward to working alongside our good people, partners and other stakeholders to provide care for good. I also want to assure you, our shareholders, that our commitment to our strategic goals and long-term vision remains unwavering. We have always believed in the strength of our core values and the resilience of our business. Our dedication to delivering value, innovation and sustainable growth to our stakeholders remains at the forefront of everything we do. Having taken in the feedback and the operational context from our markets during my visits, I believe the way forward for IHH can be encapsulated by a framework with the acronym ACE, which you can see here on Slide 6. Again, I stress this is not an overhaul, but a refinement. Our growth plan and strategy are fundamentally intact and robust. So what does A stand for? A, aligning on our shared aspiration to care for good. Continuing with our vision, our purpose and core values to grow. These are strong fundamentals that will continue to guide us forward as a unified global network. C, challenging ourselves, to transform and improve as individuals, as a team and as an organization, we will roll out projects and initiatives to enhance process efficiencies in markets and across the Group. Some examples, more efficient labs, e-ordering, improvement in our procurement process efficiency from PR to PO to delivery turnaround time. Empowering our teams, E; empowering them in all markets with stronger mandates to excel. I believe that every market is unique and to deliver quality patient care and healthcare is a local business. There's no one size that fits all approach. The cornerstone to success and excellence is to keep an open mind and work collaboratively, drawing on our scale and depth of expertise across the network to maximize performance and optimize operations. So align, challenge, and empower, ACE, this is our intent to build an ACE team to elevate IHH as we enter the next phase of our journey. Over here on Slide 7, as we align an anchor on our aspiration to care for good, this is how we will deliver profitable growth and healthy returns through 5 main pillars of growth. We will grow organically by expanding bed capacity expansion, nearly 1/3 in the next 5 years. We will grow inpatient volumes, invest to upgrade our infrastructure and equipment, so that we can provide better patient care, cater to demand and enhance revenue intensity. The capacity expansion could encompass facelifts and renovations to existing facilities, building of extensions, new constructions and relocating some of our complementary ancillary services to alternative sites near our hospitals, avail more space for inpatients. Overall, this is to improve patient care and outcomes. Example, LINAC and gamma knife radiosurgery equipment in Fortis, FMRI, our hospital in Delhi; Proton beam therapy machine in Mount E, Novena in Singapore; robotic surgery in Malaysia, all cutting-edge equipment to help us meet the demand for high equity care, which will in turn improve our intensity. For markets where bed capacity cannot be increased, we intend to decant lower acuity patients to alternate sites around our hospital, so that hospital beds can be used for high acuity treatment. These initiatives collectively will drive up revenue intensity. Secondly, we will expand across the healthcare continuum, selectively in markets such as Hong Kong and Singapore, where there is an urgent need to move beyond acute tertiary care. IHH will align with national healthcare agendas. For example, in Singapore, Healthy SG, and grow in areas such as ambulatory care and provide more comprehensive patient care. So for instance, we opened Parkway MediCentre Woodleigh in Singapore and added Wong Chuk Hang Clinic in Hong Kong. We are also increasing our primary care clinics in Singapore. Third, we will develop new growth engines, including our laboratory business and invest in digitalization and innovative med-tech and health tech solutions. Ultimately, our aim is to provide better patient care and drive operational efficiencies. For example, we have started conducting genomic testing in our labs business. Additionally, we are constantly evaluating earnings accretive opportunities across Asia and Europe that are in line with our cluster strategy. For example, the recent acquisition of Timberland Medical Center in Kuching, Sarawak, where we will also build a new 200-bed hospital in Central Kuching. This will create a strong foothold for us in East Malaysia and we can, of course, do so because of our healthy balance sheet. And finally, we will turn around underperforming assets to maximize their value potential, and this is well on track. So here on Slide 8, you can see where we will grow our bed capacity by nearly 1/3 in the next 5 years. On top of our existing 12,000 beds, we will be adding nearly 4,000 beds across Malaysia, India, Hong Kong, Turkiye and Europe. In Hong Kong, for example, we will be increasing our number of operational beds. Also, we are evaluating possible longer-term expansion around Turkiye and Eastern Europe. So this slide is not just to show you how significant our bed count growth will be. I also hope you have a sense of our unique differentiation as a truly international healthcare network. 10 countries, from Netherlands to Shanghai, this is how I have put it to my friends and peers. With more ambulatory care facilities progressively setting up in Singapore, aligning with national agenda, this will improve bed utilization of our hospital facilities as the lower acuity cases are decanted out. So let's move now to our Q3 results proper. With that, I will hand over to Dilip, our Interim Head of Finance, to provide more insights into our operational performance. Thank you, Dilip.

Thank you. Thank you, Dr. Prem, and good morning to you all. Slide 10 gives you a high-level overview of our third quarter results. Financial operations and performance was stellar, as Dr. Prem mentioned. The reported headline number stands at revenue growth of 27%, EBITDA growth of 42%, net income growth of 17% and net income growth of 111%. Operationally, our bed capacity stood at 70% in terms of bed utilization, which is our pre-pandemic level in operating levels. The inpatient admissions also increased by 7% year-on-year, standing at over 122,000 patients. Labs are already one of our leading -- within the labs, labs are leading within each of our markets. And in Q3, we saw 26 million lab tests done, which is 10% higher on a year-on-year basis. Dr. Prem and Ashok can elaborate about the labs in more detail as we go along. Here on Slide 11, I won't go into details as we have seen the numbers earlier. The results speak for themselves, whether including or excluding MFRS 129. The green box below excludes MFRS 129 and this, we believe, gives a more accurate representation of our core underlying performance. Overall, significant double-digit growth across all key matrices. As a Group, we remain steadfast in our commitment to operational excellence and financial prudence. A pivotal component of our strategy is margin expansion, which is evident in our recent financial performance, looking at Group's margin profile since 2019. EBITDA margins, the blue line was at 24.4% in Q3, an expansion of 2.6% from the prior year. Net operating income without MFRS, the yellow line, similarly stood at 10.4%, expanding 2.3% over prior year. Slide 13 shows an overview of our Q3 revenue, EBITDA contributions from across all major markets. Suffice to say, outstanding growth, solid double-digit expansion nearly across all markets, including our labs, if you account for non-COVID revenues. On Slide 14, we offer a snapshot of our capital efficiency ratio. The ROE remains a key focus for us to drive returns. It stood at 8.9% in Q3. Excluding MFRS 129, the ROE is at 9.9%, indicating steady progress towards double-digit range. It's important to note that without the MFRS 129 adjustment and excluding goodwill, the ROE would be at 15%, comparable to most industry peers. So all in all, we continue on track to perform our ROE trajectory and deliver profitable growth across the Group. Since beginning 2023, we have been working on setting up a treasury vehicle and have successfully established this platform, a single platform for treasury management solutions across the Group, to focus on improving capital efficiency for the Group. This platform allows us to standalone and standardize payments, enhance our usage of surplus liquidity, and create a multicurrency cash pool. This would enable IHH to utilize surplus internal liquidity, thus reducing external borrowing costs, clearly an illustration of better capital utilization. Through active surplus and internal liquidity management, we have paid down debt of over MYR 380 million during the quarter. We are proud to share that IHH competing against a backdrop of over 400 submissions, recently received the Adam Smith Award Asia 2023 under the category of Best Treasury Transformation Project. Adam Smith is an industry benchmark for corporate treasury. On slide -- on the next slide, here's a summary of our key financial highlights for Q3. Our solid revenue growth was mainly on higher patient volumes and improved case mix. There was a strong growth as well as -- both in local as well as foreign patients. The ramp-up of Gleneagles Hong Kong, commencement of operations in Acibadem Atasehir and contribution of Orthopedia Hospital and Kent Hospital in Turkiye also contributed to the increase. Revenue intensity increased across all key markets. EBITDA grew 42% year-on-year, with a double-digit growth seen across all our markets. Net income also doubled year-on-year and stands at MYR 532 million. Our ROE is at 8.9% as of September 2023. Excluding MFRS 129 adjustment, our ROE is at 9.9%, edging closer to double-digit range as we have seen in the ROE trajectory. We continue to maintain strong cash position and balance sheet. This financial resilience is the foundation upon which we will continue to build our future growth, as well as maintain prudent capital management strategy. With that, I hand back to Dr. Prem for the operational highlights.

Thank you, Dilip. Operations in Q3, as with financials, were very strong, as you can see on this slide. Looking at our inpatient numbers by home markets, robust growth, especially in Malaysia and Turkiye, this growth signifies a positive trend as we successfully attract and serve more local and foreign patients. At the same time, revenue intensity, which is inpatient revenue per admission, also increased across our key markets and this was primarily due to improved case mix. Just a note in Singapore, despite ongoing renovations taking place at Mount Elizabeth Hospital, one of our flagship hospitals in Orchard Road, overall inpatient admits still increased. Moving to Slide 19, Malaysia; to in-market performance starting with Malaysia, it continues to deliver strong performance in inpatient volume growth and revenue intensity growth. Revenue increased by 18% compared to the same quarter last year, due to higher contribution from hospitals, better recovery in both domestic and foreign admissions. EBITDA grew 10% and EBITDA margins is at 27%. Inpatient admissions increased 11% and revenue intensity increased 6%. And for the quarter, average occupancy improved to 74%, as compared to 70% a year ago. So these are some of the things that are happening in Malaysia. You can see on the left, Timberland Medical Center, the one that we acquired in Kuching. And just to note that we have a hospital in Penang that celebrated its 50th anniversary. Across our network, we have got very, very established hospitals in Penang, in Malaysia, Singapore and in many other countries. Moving on to Singapore; revenue increased 19% to MYR 1.5 billion, mainly driven by higher revenue intensity. IP admits increased, even with renovation at Mount Elizabeth Orchard, and the proportion of foreign patient revenue is stable at 22%. EBITDA increased sharply by 22% and EBITDA margins stand at 29%. Revenue intensity grew 17% due to case mix of more acute patients seeking treatment and average occupancy was at 62%, an improvement from a year ago. I'm also pleased to share that in Singapore, our nursing staff strength is fully resourced. As you know, there's a global shortage of nurses. We have a shortage of nurses in almost all our countries, and Singapore during COVID and post-COVID were suffering from a shortage of nurses. But it's now fully resourced, and we'll be opening all our blocked beds that were previously closed due to the shortage of nurses. Now in line with our growth strategy to expand across the healthcare continuum, we have expanded our ambulatory care services in Singapore. And why do we do that? Because of government initiatives, healthier SG. So we are moving into primary and ambulatory care. In addition to community-based ambulatory care centers, such as the one I mentioned earlier, Parkway Medical Center at Woodleigh Mall, we are also planning to have ambulatory centers next to our hospitals. And this really is to transfer patients with lower acuity out of the hospitals and optimize the bed availability for those requiring higher acuity care. For example, we recently secured a space near Mount Elizabeth Hospital Orchard to provide specialized hematology and stem cell transplant services for our patients. This is at Heeren. So in Singapore, of particular note, you will see on the top right, Parkway MediCentre, which is a large ambulatory center in the community at Bidadari and the right bottom, this is the new hematology and stem cell transplant center at Heeren. This was previously located in the hospital, but we can efficiently move it out and use that space for higher intensity work. Moving to Slide 23; IHH Turkiye in Europe, they saw a revenue increase of 37% to MYR 1.5 billion. This is due to an increase in volume driven by addition of new hospitals to the portfolio. On a constant currency basis, its revenue and EBITDA grew 73%. EBITDA increased 33%, margins is about 20%. Inpatient admissions increased by 8%, while the revenue intensity increased by 40% with price adjustment to counter inflation. And the average occupancy for the quarter was at 65%. We are starting to see some stabilization in terms of the Turkish lira against the euro. The lira was relatively stable in Q3, with a 4% depreciation against the euro. The next slide is to give you a sense of the foreign patient revenue in Turkiye and Europe. The ratio of foreign patient revenue to total grew to 20% from 17% in the first half of 2023. Revenue from European operations maintained at 28%. Contributions -- even with a 50% capacity reduction in Amsterdam's operating theaters due to renovation. So here on Slide 25, just a quick note. And thanks to those of you who joined on the Acibadem Unveiled trip to Turkiye. I wish I could have been there, but my schedules didn't allow it. But I do know from Evren and his team that it was an extraordinary and helpful trip. And most importantly, you were able to hear directly from Mr. Mehmet Ali Aydinlar on his thoughts of the healthcare sector in Turkiye, as well as Acibadem's operations and his aspirations for the business. Mr. Aydinlar, of course, the Founder and Chairman of Acibadem. Next, slide 26, now just to be clear, IHH India covers both Fortis Healthcare and Gleneagles India. So revenue increased by 11%, with EBITDA increasing by 46%. Excluding one-off items, EBITDA increased by 16% and margins grew by 100 basis points. Inpatient admissions grew 2%. Revenue intensity increased 8%, with most acute surgical cases undertaken and occupancy improved to 73%. Now the next slide is to give you an illustration of where our 2 assets in India are located. So I just want to spend a bit of time here. So the way we see it at IHH, we have not 1 but 2 growth engines in India, Fortis Healthcare and Gleneagles India. And this shows you the expanding footprint in India, the green areas representing Fortis, while the blue areas represent Gleneagles, they complement each other, mainly. And we believe that each of them have their own exciting prospects and growth plans. But together, they are very complementary and give IHH a truly unique pan-India footprint. You'll probably know already that Fortis is adding 1,800 new beds in the next 5 years. For Gleneagles India, now that we have a near 100% stake, rebranding to the Gleneagles brand is currently underway. You should see more rebranding exercise in the coming months. So this move reiterates our commitment to India as a pivotal and promising market. Now we have greater headroom to grow from these 2 engines. We're assessing Gleneagles India's infrastructure and medical equipment upgrades to cater for future growth. Each will also continue to constantly evaluate inorganic opportunities for expansion in India. So once again, we want to reaffirm our commitment to India as a key market, and that's an attractive market, where IHH aims to broaden its influence and solidify its operations. So here, again, we have some highlights. In particular, if you look at the second point, first in India, Fortis Gurugram launches a state-of-the-art PET CT, which is a very high technology machine. And they have also been selling some of the assets, in particular, recently Fortis Malar Hospital to MGM Healthcare. Gleneagles India, they have been upgrading. The 1 -- point #2 is the new very innovative space, new wing in Gleneagles Mumbai. And of course, they've been doing a lot of things in the liver health space. As I mentioned earlier, they are leaders in liver transplants. Gleneagles Hong Kong; so in Hong Kong, revenue increased 29% due to a strong ramp up in operations, EBITDA grew MYR 31 million, with margins standing at approximately 11%. EBITDA margins did dip slightly quarter-on-quarter due to increased staff costs from the ramping up operations in the hospital. Average occupancy stands at 64%, operational beds now stand at 280, and there's an increase in clinical services offered at the hospital. The slight dip in occupancy was due to the recent typhoon in Hong Kong, which impacted our operations and patient admits. So on Slide 31, I spoke earlier about the opening of the new ambulatory center at Wong Chuk Hang. And you can see that's point number 2. It's a very nice clinic with a blend of primary and specialty services. This clinic also establishes for us a firm foothold and cluster in the southern part of the territory where our hospital is located at. IHH laboratories; as you can see, Q3 revenue and EBITDA increased by 9% and 6% year-on-year, respectively. Our core business, which excludes COVID, registered a strong gain of 18% year-on-year in revenue. EBITDA margins are at 20%, a slight dip from last year, mainly due to costs incurred for the rebranding of the diagnostic business in India to Agilus, this was the former SRL. Excluding Agilus' rebranding exercise, the EBITDA would be at 19% versus Q3 2022. Margins should be at about 22.3%. But our test volumes continue to go up and increased by 10%, and I -- we will continue to grow high-end test menu further to drive profitability for the lab business. This slide shows you some of the activities at IHH Laboratories. So maybe some summary takeaways and outlook, which you can see on Slide 35. Our performance in the third quarter clearly demonstrated solid operational execution. We have witnessed a meaningful increase in inpatient volumes, which speaks to the robustness of our services and the trust that patients place in our care. So my focus is on elevating IHH as a Group. We are dedicated to achieving profitable growth and healthy return on equity, while upholding our commitment to do right by all our stakeholders. Our approach is encapsulated in our ACE framework, that will see us align, challenge and empower our people, our processes, our operations. So as we execute on ACE, I'm confident of our financial and operational outlook. We fully expect to continue delivering top line expansion, while delivering healthy returns to our shareholders. We will do so by focusing on the 5 pillars that I spoke about, and which you can see again here. Fundamentally, demand for quality private healthcare remains solid, with growing, aging and even super-aged populations in countries such as Singapore, comes a rise in complex chronic illnesses. IHH remains well placed to capture these opportunities, backed by our strong balance sheet, operational excellence and a clear growth strategy. So taken collectively, we will continue to drive profitable growth and create sustainable value for our stakeholders. With that, we're happy to take your questions. Penny please?

Thank you, Dr. Prem. Before we start, we'll first take questions from the participants on the call, before moving to the questions from the webcast participants. So I'd like to request for each participant to keep it to 2 questions first, and then you may rejoin the queue again. So with that, operator, please proceed with the Q&A. Thank you.

[Operator Instructions] This comes from the line of Nicole Goh from UBS.

Dr. Prem, thanks for the presentation. My first question is actually with regards to, I guess, your ACE framework as well as the 5 pillars that you're looking -- 5 pillars of growth that you're looking at. Can I just -- if you can try and quantify that, would you have any sort of specific ROE targets that you want to achieve with this program and this framework that you've put in place? That's my first question. And then I think my second question is with regards to -- noted on your strategy to actually grow organically and to actually increase beds by 1/3 the next 5 years. If you can give us some sense of which countries or which key markets do you see the most potential for growth, that would be good.

Thank you, Nicole. So maybe just to drill down on some of the points that I've already mentioned, with respect to the ACE strategy, right, I think there are lots of execution points. This is the strategy. This is the overview, all right, ACE. But it involves, I think, quite a lot of operational details. For example, align our operations to care for good, right, with our shared aspiration, actually means a number of things, one of which is obviously to put the patient at the center of everything we do, right? Patient experience, operational excellence, I think these are some of the things that we are already good at. And I've seen that in many of the hospitals that I've been to, right? So I think that is one key factor. There are a number of other things that over time that you will see, for example, we run very big brick-and-mortar facilities. I think digitalization in healthcare is a very key component and we have also embarked on that. There are a number of digitalization initiatives in all our countries. A lot of our patients can now access us through digital means for the appointments, for their results and various things. So these are some of the details that I think you will see coming out in the next few years. With respect to expansion, yes, I want to emphasize that in almost all our countries, in particular, places like Malaysia, Turkiye, India, we can do brownfield expansions. I think some of the details are in the deck. And we are acquiring land or we are expanding buildings into adjacent areas as well. So brownfield. We wouldn't rule out greenfield expansion as well. So that will also take place. But the 4,000 beds that we are talking about here are really so in countries like Malaysia, India, Turkiye, where we can within our existing facilities or in adjacent facilities, increase our capacity. And it's actually 1/3 more than what we have now, 4,000 compared to our existing 12,000. So that's on this slide here, right? Now how does this translate into financial results, of course, top line growth, EBITDA growth, right? ROE, we have stated previously several years ago that we intend to double our ROE. At that time, it was about 3% to 4%. I think we have already done that. Today, as Dilip mentioned, we are at 9% plus. Our target is double-digit ROE growth, and I think we are well placed to achieve that.

Our next question comes from the line of Pooja Bhatia from Morgan Stanley.

Two questions from my side. First is on EBITDA margins, what kind of synergies and efficiencies can you draw to improve current margins, given that we are already at 24.4%. And in the past, the guidance was to achieve 24% to 25%. So that's number one. And which markets would be contributing to this increased expansion from these levels? And second one would be on the China business, given that North Asia, you see overall EBITDA going down a lot, and most of it is driven by higher losses from China. So could you just give a little color on that?

Thanks, Pooja. I think on our margin expansion, the countries where we see a potential to improve our margins further, one is India, clearly, Dr. Prem and Dilip talked about this. So if we look at IHH Healthcare India, which was formerly Global, clearly, there is a potential to see margin expansion. And I think we are now investing in those -- in that assets, to make sure that we achieve our goals. And then Fortis as well, I think the strategy has been pretty clear, focused around operational excellence and also looking across the portfolio, to then evaluate what are the stronger assets and versus the assets that we would like to selectively dispose. So I think that portfolio management strategy is quite sort of important, as we drive towards higher margins. So those are the 2 areas where -- or 2 markets situation where we see clear margin expansion possibility. Then we come to Hong Kong, where we are starting to see our operations improve, and that's another country where we -- our operations where we see margin expansion and our expectation over the next 12 to 24 months. But coming back to the main theme, as we mentioned, I think operational margin and operational efficiency remains a focus on all our markets; Malaysia, Singapore, Turkiye, Europe, the effort is basically to see how margins can be improved through revenue growth and operational efficiency. I hope that answers your question.

Just wanted to know on Acibadem, I see margins this quarter were 19.8%. So we've seen a big dip on a sequential basis. So what's the outlook on this segment with regards to margins?

Maybe I just want to take a step back and remind you what I discussed about the third quarter results, during our second quarter analyst call. 2 things that I mentioned; first, typically, third quarter is -- has very high seasonality in our Turkish business, given the summer months. But one thing that I guided, if I want to remind you is, we will end up having a higher EBITDA margin in the third quarter than second quarter of this year. So if you recall, we had a very rough first half of the year, given many instances, earthquake in February, the local elections, both presidential and general elections in Turkiye back-to-back covering the whole month of May, that kind of affected our entire business, not only domestic volume, but also foreign patient volume. But now if I look at third quarter, if I want to name a theme for the third quarter, I would probably call it awakening, because the second factor I mentioned was about the economic administration. Post elections in May, we now have an economic team in place. They are very focused on doing the right policies, fiscal policies, going back to orthodox policies. And as Dr. Prem mentioned, we kind of started to see the impact of all these right policies, stabilizing macro. That's also helping us out. So to me, I'm quite hopeful, and then when I talk about the theme, the way I say about the fourth quarter would be escalation. So from awakening in the third quarter to escalation, which our October results and so far, November performance kind of reflects to that.

And my second question on China, given that losses have increased this quarter to MYR 22 billion, what's the outlook there?

So on China, I think we have recently gone, revisited, looked through our operations on the clinics and also PSH. And I think we are in the process now of seeing how we can strengthen our operational performance across clinics and the hospital as we go into 2024. I think we will -- you will see some changes to our strategies around the clinics, to make the clinics more efficient over the course of the next few quarters. And I think as we come back for the full year results in 2024, we should be able to give you some more color around how we see the trend improving and our sort of updated strategy in terms of our China business. Dr. Prem, I don't know whether you want to add something here?

Yes. I just want to say that I spent a bit of time in China recently. And I believe we have the potential to keep our clinic business, make it profitable with some operational branding, some of the changes that we intend to do. Also, we've got a hospital. We've got 3 clinics. There are not many healthcare groups that have both hospitals and clinics. So if we were to strengthen both of them, run them as an ecosystem with cross referrals between primary care, outpatient care to hospital and back to the clinics and run them as one entity, strengthen the local team, work with the authorities. In China, there's a lot of potential for working with the government authorities. So I see quite a bit of potential return around the business. So we will focus on that with our local team members there.

Our next question comes from the line of Rachel Tan from DBS.

Dr. Prem and team, can you hear me well?

Yes, we can.

Great. Yes, welcome to the -- congratulations on your appointment. My first question is really on EBITDA. I think this quarter, we had a sudden increase in EBITDA. But if I look across the countries, there's been a bit of slight mix in terms of the EBITDA margins. So if I look at India EBITDA margin jumped, GHK EBITDA margins tapered off, although revenue was quite stable. I think Acibadem, [ you explained ] just now. So I'm just wondering whether you could explain by the country sizes, margins jump or changes in the third quarter sustainable?

Yes. Thank you. Yes. Look, I think if you look at India, which you specifically kind of outlined, as Ashok mentioned, we have acquired 100% in Gleneagles India, and we continue to look at our operations and refine the operations. Likewise, as Ashok mentioned in Fortis as well, they continue to optimize their ops, and hence, we've seen a steady growth. It's not a one-off jump. We've seen a steady growth over a period of time in terms of margin expansion, both in Gleneagles, India as well as Fortis. So I think that team should continue going forward. And in terms of the other markets that you mentioned, whether it is Turkiye -- Turkiye, Evren just addressed, we've seen Q3 numbers, and we definitely think that is -- come Q4, and we definitely look at volume uptick, as Evren mentioned. So I think overall in markets, we are positive and we continue to optimize our costs and look at EBITDA margin as a team going forward as well.

If I could just follow up on the answer, I think for EBITDA is -- correct me if I am wrong, that means the EBITDA jump will [ mainly come from ] the Gleneagles this year? And so I would presume that the India EBITDA margin jump will be sustainable moving forward, is that right?

Yes. As we -- as I said, if you look at it over a period of time, we have constantly endeavored to expand the margin, and we think it is sustainable going forward.

Maybe, Rachel, I can just give a -- sorry. I just wanted to give a perspective on India that we have. By our reports, India is one of the fastest-growing healthcare markets in the world today, all right? And we actually see that when we go there, right? I think we were constrained in some ways, especially with the Gleneagles India for some years, but that now has been resolved. We are close to 100% owners of the entity. There's a lot of good work going on there, despite the facilities probably not having been invested in for a number of years. So now with our focus on elevating Gleneagles India, right, I think we would really be able to see a lot of growth, both in terms of revenue, margins, EBITDA growth, bottom line growth as well. So that's one vehicle, right, that we're going to focus on. The second Fortis, right? Now Fortis is if you just look at the past few years to where it has come, I think it has done very well, tremendous, right, and it continues to grow. The intensity, just one hospital that I visited, the Fortis Medical Research Institute in Gurugram, it is going to become, I would say, almost comprehensive cancer center, because they are having some of the best equipment in the world, diagnostics equipment and treatment. They've got PET-CETs. They're going to have a gamma knife to treat cancers. They're going to have an MRI LINAC. So they are really moving very rapidly up the technology ladder, all right, and improving on the things that I feel are already being done very impressively. So I think that's our outlook on India. So I think you can -- you'll probably note that India is a country that's actually going to grow quite a bit.

Okay. And maybe just one more follow-up question on GHK. I think margins actually tapered off this quarter. I was just wondering whether is this -- for this, any one-off in the quarter, yes?

So GHK, as Ashok mentioned just now, it was -- even though if you look at inpatient admission volumes over prior year, there has been very, very robust growth. right? However, I think what we did see is a certain drop off in slight intensity, and that's mainly because of the typhoon that impacted a few weeks for us, and we do see the intensity come back on pretty strong. The margin compression also was mainly because of the fact that we are ramping up. You must remember that GHK is ramping up. So we are staffing up for the increased beds that we're going to open to serve patients. So there is a little bit of element as we get ready to open more beds in GHK.

Got it. My second question is really on your ACE framework. I think you mentioned inorganic growth as well. So I just wanted to understand your thoughts about inorganic [ burning ]? You have been recalibrating your India operations, some acquisitions and some divestments. So across the board, how are you looking to -- in terms of inorganic, where are you looking to add, expand, acquire, and where are you looking to divest [indiscernible]?

Yes. Rachel, we've shown our growth plan on Slide 8, which actually lays out sort of next 5 years of bed expansion program. So I think we are now providing a lot more granularity to our analyst community and the investors to actually track where we plan to grow. And I think in 3 core markets, Malaysia, India, Turkiye and Europe, the numbers are large in terms of growth plans. So I think the organic growth is quite well mapped out. And I think what we're realizing is that these are markets in which we are already quite dominant. Our profitability is high and therefore, brownfield and greenfield expansion makes a lot of sense for us. In markets like Singapore, where we have constraints in terms of growing into another tertiary care, we are very focused around what we do around ambulatory care, primary care, digitalization. So in each of the markets, we are focused through ACE strategy that Dr. Prem outlined, to ensure profitable and sustainable growth. The second part is inorganic growth, and I think we mentioned this and I mentioned this in our previous discussions as well. Our primary focus remains our core markets, where we see profitable and accretive M&A transactions, we will be focused around that. It doesn't mean that we will not look at new markets or new opportunities, but that will be on a lot more selective basis.

Our next question comes from the line of Xuan Tan from Goldman Sachs.

My first question is on tax. I guess this has been pretty volatile so can you walk us through, how to think about this in terms of stabilized effective tax going forward?

So the tax element that you see this quarter is mainly because of MFRS 129, where because of the inflationary trend in Turkiye, there was a higher asset value and hence, it's a deferred tax that we've recognized this time.

In that case, what kind of stabilized cash tax should we think about then?

So I think if you remove the element -- historically, our tax has been fairly stable, and I think hopefully, once the inflationary situation settles down, I guess, we would kind of revert back to where we were. However, as I mentioned, it's a deferred tax liability based on the inflationary accounting that we adopted and the inflation in the asset values itself in Turkiye.

Okay. Got it. Second question is on capital management. I think although you mentioned that you're thinking about more efficiently managing capital across the Group. Can you share a bit more about what is effective interest rate now? What are the initiatives and how should we think about this going forward?

Sure. If you look at the overall cost of debt across the Group, and this is from -- all the way from -- as Prem mentioned, our operation as far as Amsterdam all the way to Shanghai, our average cost of debt is somewhere in the region of 5% to 5.25% as a Group, right? What we've actually done, and this is something that I highlighted in the slides as well, is we also realize that we are a cash-generative business, and hence, we want to utilize our cash very effectively and efficiently. And that's the reason why we focused on putting up this treasury structure, to pull cash and pay down debt in this high interest rate environment, as and when we can. So any surplus cash first goes towards paying down of debt and that is something that we've been doing quite efficiently. And if you look at year-to-date, we have paid down a fair bit of debt at the Group level, and only taken debt is required for growth purposes. Even that, many a times, we've been funding across country using our strong balance sheet and that's one of the reasons why you don't see -- despite the fact that we've done the acquisition in Gleneagles India, and a few other acquisitions, you would see that our debt has dramatically moved up, because we've been utilizing our internal cash very efficiently.

Any guidance on how should we think about interest rate going forward?

So look, I think if we -- as I said, first is effectively managing debt and paying down debt. Interest rate is an outcome of the market. We have a total -- out of the total portfolio, about 30% of our portfolio is on a fixed rate basis. The remaining 70% is floating. So there is some hedge. However, given that we are cash generative, the easiest way to manage debt cost, is by paying down debt, which is what we're doing.

Thanks, Xuan. I think given the interest of time, I think let's quickly move to some questions that we received on the webcast. So the first one that we've got from Chun Sung, RHB; Turkiye CPI numbers remain volatile in the near term. Turkish Central Bank has also increased interest rates by 500 basis points to 40% recently. How should we visualize Acibadem's outlook in 2024?

Sure. I guess it's not only 500 basis points, we come from 8.5% to 40% from May to November. So the way I look at it now, given that we're doing our economic administration is doing the right thing, there is a kind of stabilization in the market and interest rates. And we expect the inflation to progressively stay down throughout '24. The Central Bank has now a new guidance of inflation coming down from 65% levels by end of the year, to about 30% levels end of the year. So we see some kind of like a reduction in terms of the rising of the prices, which we will also be reflecting, as part of doing the price increases, making sure we have the right case mix, foreign patient revenue intact. So those are the things we're going to be focusing on throughout '24 to keep our margins intact.

Thanks, Evren. Can you share your health tourism segment performance in countries like Malaysia, Singapore and Turkiye? Does the stronger Sing dollar deter foreign patients from visiting Singapore?

Yes. So I think if you look at our foreign patient segment, it's been stable and growing in all the 3 countries that you've mentioned. In fact, in Singapore, if you look at on a quarter-on-quarter basis compared to previous year same quarter, we've actually seen revenue growth of about 6% from foreign patients. So that's been strong. And as Dr. Prem mentioned, our foreign patient revenue is steady at about 22%. So that's Singapore. In terms of Malaysia. Malaysia, we have seen significant growth. Malaysia, almost 72% growth for similar quarter prior year, so there's been pretty strong numbers as well as revenue growth in Malaysia from foreign patients. And again, in Turkiye, if you look at -- on a quarter-on-quarter basis, we have seen a 51% growth in revenue from foreign patients. So in all 3 countries, we do see a pretty strong foreign patient growth across the quarter.

Okay. Thanks, Dilip. I think Chun Sung, with regards to your question on Singapore, I believe Dr. Prem has answered with regards to nursing shortage, so I won't go into that. Probably about Malaysia, how should we think the growth driver for your business in Malaysia, particularly from the perspective of bed-to-patient ratio and also the trend of aging society? And of course, in India, what's the reason for restating Indian patient admission volume?

Yes. Actually, the first thing I wanted to comment on this is really, aging society. Now this is a phenomenon in almost all our countries, with the exception of maybe India, which I believe has got one of the lowest average age of the population, right? But in Singapore, we are going to be a super-aged society, that means we're really going to have a lot of elderly folks. Malaysia is not so bad. But actually, what this means is that we are going to have to focus a lot on non-communicable diseases, chronic diseases, diseases like cardiovascular disease, oncology, cancer, for which there are now very effective treatments, from targeted therapies, immunotherapies, proton beam, which you have in Singapore and which is really running at full capacity at the moment. So I think the trend of aging is something that we'll have to take note in almost all our countries, gear up for it, right? And with the rise in affluence and third-party payment in almost all our countries, insurance going up, I think we are very well placed to take care of this. Malaysia, you will note is a very interesting country. If you look at where we are located, we are predominantly in the West of Malaysia. East Malaysia, we have 1 hospital in Kota Kinabalu, one coming up in Sarawak, but these are huge states. Saba and Sarawak are some of the biggest states in Malaysia. East Coast, where we are not really represented at all. And even in a place like Klang Valley, where we have a cluster strategy of expanding is very highly dense. There's potential to put even more hospitals. So if you ask me, I think, other than what we have stated, brownfield expansion, expanding our current hospitals, adjacent land, we can expand into many other areas into Malaysia, either by acquisition or even looking at greenfield opportunities.

And with regards to India, I think there's a question around patient admission volume being restated. That's because of change in our system, wherein we moved to a system to start capturing daycare volume separately. And that's one of the reasons why you see the restatement there.

Thanks, Dilip. Perhaps we have time for one more last question on the webcast, because Dr. Prem and the rest needs to run off to the Board meeting. Perhaps a question from Sue from CLSA, would existing China be a consideration for India, some updates from the court case? And could we have some granularity on the evaluating Indian assets, what metrics considered to maintain or dispose them? Would you have a new EBITDA margin target since '24-'25 has been achieved?

Okay. So I think for the first -- at the point of time, we are, like I said, reevaluating our strategy in China, and our current thinking is to stay committed to China. That's one. Second, the court case in India is ongoing. As and when there is any material update, we will definitely come back and update you all. The third is, more details on evaluating India assets, I think we are trying to provide you with more details because it's a market that we think we want to grow and expand. In terms of metrics, our focus in India remains on -- like if you look through the map that -- Dr. Prem took you through as well, we are now in most parts of India and the cities or towns that we think we like and where we can grow. So I think we will remain focused on those and expand through brownfield, where possible. Inorganic opportunity is always something that we will continue to evaluate in India. In terms of disposal, Fortis has disposed off some of the assets in line of its strategy to streamline the portfolio. That is a continuing theme within Fortis and our operations of IHH Gleneagles. I would sort of leave Dilip to answer the last question around the margins.

So in terms of margin for the Group, our constant endeavor to actually expand margins as Dr. Prem mentioned and as we mentioned, our financial highlights, right? It's a constant endeavor, and we look at various opportunities to cost optimize and increase margins going forward, not just in one market, but in all our markets across the portfolio. So that's a constant endeavor, and we will continue to enhance and see what we can do in terms of margin expansion.

Okay. Thank you, Dilip. I'm not sure if I could just squeeze in one more last question before we actually end this call. I think it's just one question with regards to Daiichi, right, is that one way for us to move faster within our outstanding case at Fortis? Dr. Prem?

Well, that's -- the Daiichi matter is now the subject of some -- of litigation, right? And so I don't really want to comment too much on it. But I just want to say that we are very, very committed to Fortis, which is one of our key assets in India. And so we will continue to support, invest at Fortis, right? On Daiichi-Sankyo's statement on 22nd November after we filed the court case in Tokyo, I would say that we strongly disagree with their media statement. And NTK will definitely and most vigorously pursue its claim. It remains NTK's position in court that Daiichi Sankyo has interfered with NTK's business by obstructing NTK from proceeding with the MTO for the acquisition of additional equity shares from the public shareholders of Fortis Healthcare and Fortis Malar, among others. But we have been advised not to provide any further details at this time, right, because we wish to uphold the integrity of the legal proceedings. So I guess that's where it stands. Thank you.

Thank you, Dr. Prem. Thank you, everyone, for joining us on the call today. I know there are some more questions on the webcast. So the IR team will come back to you offline. But with that, thank you once again for your time, and we will now conclude the IHH Healthcare Third Quarter and 9 Months 2023 Financial Results briefing. Like I said, if you have any questions, just feel free to reach out to the IR team at [email protected]. And with that, we will end today's earnings results briefing. Thank you very much.

Thank you very much.

Thank you.

Thank you. That concludes today's conference call. Thank you for participating. You may now disconnect.