Dr Kelvin Loh, managing director and CEO of IHH Healthcare, vividly remembers the night of March 18, 2020. It was when Singapore shut its borders at the stroke of midnight in a bid to stem the community spread of Covid-19.

With four hospitals in Singapore and many staff commuting daily between Singapore and Johor Baru, the closure would make a serious dent in its operations immediately.

One of the IHH staff affected was Kamala Kuppusamy. When faced with the decision to stay put at home with her two children or head back to Singapore to work without knowing when she will see them again, she chose the latter.

As the clock ticked towards the deadline for the lockdown, a big traffic jam at the Causeway formed. “She put on her backpack and walked across,” recalls Loh in an interview with The Edge Singapore.

Kamala was not the only IHH staff who made the same decision. Around 190 colleagues were similarly affected.

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“It really speaks of the calling that our healthcare staff have and we owe a big debt to the 55,000 staff that we have. We want to create an environment that they can do even better. If we can do that, our staff will be able to connect with every patient so they will trust us more,” he says.

Stakeholders and shareholders

Indeed, as CEO, 47-year-old Loh has to win the trust of many different parties. First and foremost, he has to look after the needs and well-being of IHH patients who are his customers. Loh also has to look after the interest of salaried IHH healthcare workers who provide a whole range of essential services. As a medical doctor himself, many of his fellow professionals are tenants renting space at IHH’s hospitals. Last but not not least, he has IHH shareholders demanding better returns from their investment.

Loh says the interests of these various parties do not have to be in conflict with one another. He believes that by making sure colleagues like Kamala are motivated enough to take good care of the patients, the business side of things will naturally improve. “The right thing to do for a patient is also the right thing for the business, there is no disjoint,” he claims.

Meanwhile, he is actively improving the efficiency of hospital operations to keep the spectre of runaway medical inflation in check. To this end, he sees IHH’s size as an advantage.

Loh, previously CEO at Columbia Asia Group, was appointed to the top job at IHH in July 2019. But he is no stranger to this company as he was already part of the senior management team at IHH for nearly a decade before leaving for Columbia, which operated 28 hospitals in four countries.

Loh first joined IHH back in 2008 and in 2016, he was appointed CEO of IHH’s Singapore operations. These included managing the crown jewels of IHH here: Mount Elizabeth Hospital and Gleneagles Hospital, as well as Parkway East Hospital and also, Mount Elizabeth Novena.

“When I was asked to come back, it was something I really couldn’t turn down. This is such a tremendous healthcare platform. And I saw even bigger opportunities to do some of the things I’ve always wanted to do in healthcare,” he explains.

Loh reasons that with a total of 80 hospitals across 10 countries, IHH, one of the largest healthcare groups in Asia, can achieve the aim of keeping healthcare costs down. “I see us needing a bigger leadership in delivering actually better value. I don’t think it’s fair to say that we cannot actually change the direction. I think we can at least reduce that trajectory,” he adds.

IHH’s economy of scale is already put to good use by Loh as he tries to keep medical bills low. When it launched a global tender for angioplasty machines recently, it managed to achieve savings of 20–30% via group purchase instead of having each hospital buy their own. “Healthcare is complex. Delivering great care often means you need advanced technology or medical equipment. But because of the scale that we have, we can afford to invest in them and amortise that cost,” he says.

Even if costs cannot come down, IHH can still be transparent about how money is spent so patients can better understand the value they are getting. “That’s how we build trust with patients. If we can do that, they will return,” says Loh.

In another example, IHH is deploying AI in various areas, including improving billing accuracy when giving patients a cost estimate even before their admission. This reduces the risk of bill shocks and builds better trust between the patient and hospital. “It’s ironic that as advanced as the healthcare industry is, when you step into a hospital, you’re not sure of what the outcome of the treatment is and what price you have to pay,” says Loh, adding that the AI software used in Singapore have up to 80% predictive accuracy.

Turnaround from 2Q

Despite Loh’s best intentions, IHH’s growth strategy still hit a speed bump earlier last year. Contrary to the assumption that hospitals should do well in a health crisis, IHH saw a dramatic drop in the number of patients instead. Worried about the risk of catching Covid-19, the sick stayed away from hospitals and medical procedures were aborted. As a result, IHH’s bottom line took a hit.

For 2QFY2020 ended June, which bore the brunt of the “circuit breaker” lockdown in April and May, revenue dropped 30% to RM2.57 billion ($854 million) from a year ago while IHH sunk into losses of RM120.6 million from earnings of RM185 million a year ago. Instead of sitting around to wait for things to improve, Loh and his managers went about creating new revenue streams. One was to provide Covid-19-related testing services via its laboratories. Thus far, more than 1.5 million tests have been done across the network. With normal travel curbed, IHH also stepped up the pace of introducing telemedicine.

On Nov 26, IHH reported earnings of RM310 million for the 3QFY2020, up 31% from a year ago. In fact, when IHH reported its 2QFY2020 numbers, it was already seeing a pick-up in June. According to Loh, this was because initial fears of catching Covid-19 during a hospital visit had subsided and elective patients were returning in a big way. “I dare say that domestic patient volumes recovered by a great extent to nearly normal,” he says.

IHH shareholders may still have some reservations though. Late last March, when the market was at its recent lows, IHH shares, which are dual-listed in Malaysia and Singapore, hit a low of $1.55. Since then, it has gained 21.9% to close at $1.89 on Jan 28. In contrast, the broader Straits Times Index gained about a third over the same period. At this level, IHH is valued at RM46.1 billion.

The underperformance of IHH share price is probably due to the absence of one key earnings driver: Revenue contribution from medical tourists. With international travel largely halted, the number of foreign patients seeking treatment is still far below the level IHH hospitals in Singapore are used to seeing.

Prior to the pandemic, IHH’s Singapore operations generated around a quarter of the revenue from medical tourism, while Malaysia generated about 5%.

Loh believes the medical tourism business in Singapore can still grow, but at a gentler pace. On the other hand, there is “clearly a big opportunity” for that business in Malaysia, he adds.

He is also unfazed that Malaysia will draw patients away from Singapore as they serve different segments and the patients come from different sources. “There’s a market for both Malaysia and Singapore,” he maintains.

Loh believes IHH can hold its own against other regional competitors too, like Thailand. “I don’t actually think that there is a systemic change in the demand from foreign medical tourists. The demand for our brand of healthcare will be strong. As soon as the borders open, we will continue to grow,” he says confidently.

India and Turkey

In any case, IHH’s medical tourism business is not limited to Singapore and Malaysia. IHH also has operations in Turkey and Central and Eastern Europe, where it operates about two dozen hospitals and various other medical facilities under the Acibadem brand, which is the second largest contributor to both operating profit and revenue. In 3QFY2020, the region was responsible for 27% of IHH’s total revenue and operating profit.

Besides being popular with locals, the Acibadem hospitals are also popular destinations for medical tourists from Russia, South Africa, the Middle East, Central and Eastern Europe and also the Balkans. And the good news is that since June, these tourists are coming back in a big way to seek medical treatment.

In India, IHH’s operations have been more eventful. On Nov 13, 2018, IHH invested US$1.1 billion for a 31.1% stake in the Fortis hospital chain in India. That triggered a mandatory takeover offer to acquire up to 26% of the expanded capital from existing shareholders.

IHH had deposited a sum of RM2 billion in an escrow account to fund the acquisition but it could not move forward with the open offer due to an order by India’s Supreme Court. Apparently, Japanese drugmaker Daiichi Sankyo had filed a plea to enforce a US$390 million arbitration award it won in a Singapore tribunal against Fortis’ previous controlling shareholders, brothers Malvinder and Shivinder Singh, for supposedly suppressing and misrepresenting facts when they sold their Ranbaxy Laboratories to the Japanese firm.

Loh is not losing any sleep over the matter though. “We have faith in India’s legal system,” he says. In any case, the numbers out from India point in the right direction. For 2QFY2020, IHH made an operating loss of RM73.5 million in India, but in 3QFY2020, it made an operating profit of RM89.7 million. Revenue grew 67% from RM416.8 million in 2QFY2020 to RM694.4 million in 3QFY2020. “As far as we’re concerned, we’ve taken over the operations and we’ve turned it around by bringing over our best practices and selected operating capabilities. And the previous controlling shareholders are no longer involved,” says Loh.

On Aug 14, IHH announced a proposal to rebrand the Fortis hospitals into “Parkway”, in line with the brand used in Singapore and Malaysia, although Fortis remains a “great” brand, says Loh. “It signals our intent even more clearly that we want to bring across, share best practices and monetise our content delivered across synergy as a healthcare operating system,” he says.

Interestingly, not long after IHH bought the stake in Fortis, two of its biggest shareholders swapped places on its board. Khazanah Nasional, Malaysia’s sovereign wealth fund which used to control IHH, sold a 16% stake in IHH to Japanese trading firm Mitsui, which is now the largest shareholder with a 32.9% stake. “They both are very good shareholders. They’ve been with us for a long time. Yes, they’ve swapped but the overall direction hasn’t changed. They are committed long-term shareholders. And they firmly believe in the vision that I talked about, that we want to create: long term, strong sustainable growth, and build the world’s most trusted network,” says Loh.

Cluster strategy

More developments were to come from Khazanah. On Sept 1, 2020, IHH completed the RM1.02 billion acquisition of the Prince Court Medical Centre in Kuala Lumpur from Khazanah. Loh dismisses suggestions Khazanah was trying to cash in by offloading this asset on IHH shareholders. He says the deal was reviewed independently and Khazanah, being an interested party, was not involved in the decision-making.

The way Loh sees it, Prince Court, located next to the Royal Selangor Golf Club within an area dubbed the Golden Triangle, fits right into the so-called cluster strategy which he is deploying to generate better operational efficiency. IHH already operates two other hospitals in the vicinity: Pantai Hospital Ampang and Gleneagles Kuala Lumpur. And Prince Court has a mountain of overheads which it has to bear on its own. “If I pull it into my Klang Valley cluster, straightaway, there are costs I can amortise. I already have a Malaysian office which is already centralising many of these operations. In addition, there are also efficiencies that can be generated when it comes to procurement. There’s a tremendous synergy,” he explains.

Under IHH’s cluster strategy, each hospital, including Prince Court, can focus on a few specialities and refer patients to one another. “Our bigger base creates efficiency,” explains Loh.

Capital recycling

Apart from trying to generate more revenue from patients and new assets, Loh is trying to be efficient in the way he manages capital too. Following the footsteps of asset-heavy property groups, IHH now actively recycles its capital as well. Last November, IHH announced it was exiting Apollo Gleneagles Hospital in Kolkata, a 50-50 joint venture in India, by selling its stake to partner Apollo Hospitals Enterprise for RM227.08 million cash or $74.7 million.

“For the bricks-and-mortar assets, we will use a cluster strategy. It means that we invest in our growth by either growing our existing clusters or forming new ones, which will grow into bigger ones. So instead of having just one hospital in any one place, the goal should be four or five hospitals,” he says.

The converse is true as well. When IHH finds a market it can no longer grow efficiently, it will consider divesting those assets and redeploying the capital in a more efficient way, he says.

Over the next five years, Loh plans to double IHH’s ROE even as he continues growing IHH’s global footprint. The goal was first announced during the FY2019 results announcement when its ROE fell to 2.5% from 2.9% in FY2018. “When we make investments, we should look towards that target,” he says.

As at Sept 30, 2020, IHH’s balance sheet has cash and cash equivalent of nearly RM4.2 billion, but that includes the RM2 billion in escrow for Fortis. Presumably, Loh should be able to find better use of making this cash hoard.

The Covid-19 pandemic might have shifted IHH’s priorities, but growth is always on Loh’s mind. “Can we make better use of that? Of course, we always look for opportunities,” he says.



ParkwayLife REIT keeps higher DPU track record; no sign of Mount Elizabeth Novena acquisition yet

Since its listing back in 2007, ParkwayLife REIT (PLife REIT) had been expanding via a string of modest acquisitions of nursing homes in Japan. Its cornerstone assets remain Mount Elizabeth, Gleneagles and Parkway East — the three of the four hospitals run by IHH in Singapore. A fourth hospital, Mount Elizabeth Novena, remains in the books of IHH Healthcare.

PLife REIT unitholders are probably keen to know that IHH has in place an active capital-recycling strategy. In June 2020, unitholders gave the REIT the mandate to issue more shares. Market observers believe this is to lay the groundwork for the REIT, which is 35.25% controlled by IHH, to acquire Mount Elizabeth Novena Hospital, which is valued at RM3.9 billion ($1.28 billion) in its books as at December 2019.

Will IHH subscribe for its rights entitlement, if and when the REIT undergoes such an exercise? “We always review all options. There’s no firm decision around that,” says Dr Kelvin Loh, IHH’s managing director and CEO.

Of interest to PLife REIT unitholders is also the renewal of the 15-year master lease of the hospitals between the REIT and IHH, which is expiring in August 2022, with an option to extend for another 15 years. “We are looking forward to the discussions,” says Loh.

For now, PLife REIT remains a steady dividend generator for its unitholders. On Jan 25, PLife REIT announced a DPU of 3.57 cents for the 4QFY2020 ended December, up 6.7% y-o-y. For the whole of FY2020, unitholders can collect a total DPU of 13.79 cents, versus 13.19 cents in FY2019.