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Will International Healthway Corporation’s Unique Business Model Propel Growth?
Corporate Digest | 13 August 2013
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By: Ong Qiuying
Articles (131) Profile

Recently, Shares Investment had the opportunity to meet Dr Jong Hee Sun, chairman and chief executive officer of International Healthway Corporation (IHC) in an exclusive interview to find out more about this company that has made its way to the Catalist board on 8 July this year!

Spinning out from Healthway Medical Corporation, IHC is the former’s international arm, which provides healthcare services and facilities as well as develops medical real estate, healthcare-related assets and integrated mixed-use developments.

Sharing on the milestone IHC has reached from its listing, Dr Jong was pleased to say that the initial public offering (IPO) of IHC came at an opportune time as the company is expanding its presence and despite the uncertainty in the market, he is confident that the company’s business in the healthcare sector would be able to weather the market cycle.

Unique Business Model
Touching on the challenging environment that even a recession-proof industry faces – especially rising costs in terms of acquiring the right technology, equipment and securing medical talent for its hospitals – Dr Jong highlighted the company’s unique business model as its competitive edge.

“IHC’s twin engines of revenue growth comes from the healthcare services as well as asset creation,” Dr Jong noted, adding that healthcare services at nursing and maternity homes as well as hospitals help to drive IHC’s top line while asset creation through developing and managing mixed-use developments help create property appreciation gains. Notably, Dr Jong highlighted the importance of having to self-develop, own and operate the healthcare facilities.

“By developing the healthcare facilities from scratch, it not only ensures that IHC is able to control the quality, it also reduces uncertainty when it comes to leasing from existing facilities,” Dr Jong said. He went on to explain that in countries like China where healthcare facilities are limited, it is not easy to rent such facilities. Even if they secure such a location, the hospital may also face uncertainties of non-renewal possibilities as well as licensing issues. Owning the asset reduces such risks. To top it off, these facilities, which are usually recorded at book value of the land and building costs, brings forth potential property development gains given the robust property market currently.

Bringing the spotlight back to the rising costs experienced in the healthcare sector due to the need for high-technology equipment and medical talent, Dr Jong shared IHC’s interesting approach to mitigate this issue via integrated mixed-use developments comprising of medical facilities together with other commercial retail centres and service residences.

He noted that having commercial retail centres and serviced residences can help to diversify revenue streams with additional income coming from sales of residential properties and rental income from retail fronts. Not only that, it also provides the option for step-down healthcare services for its medical facilities. Citing an example of a medical facility to be built with serviced residences, he said that a patient can move from a hospital bed to the residences above the medical facility while recuperating. A step-down care system provided for a recovering patient will help reduce the expenses incurred for both the hospital and patient as it need not maintain a huge number of hospital beds.

Furthermore, he added that the company’s listed stature and ownership of large medical facilities help to boost the image of the company and in turn, makes it easier for them to attract medical talent and business opportunities.

A Sustainable Growth Model?
When quizzed on the sustainability of the business model and whether the company can continue raking in a healthy top and bottom line, Dr Jong is positive that the company’s active efforts to take on integrated developments to create assets will continue to boost property development gains in the mid-term. Diversifying its revenue streams from its mixed-use and integrated facilities will also enable IHC to recover its capital sooner.

Although there have been concerns on the overall net profit (excluding other operating income) declining 56.2 percent to $3.9 million in FY12, Dr Jong attributed the decline to the higher expenditure in increased labour costs and medical equipment in preparation for its upgrading of facilities as the company has been expanding aggressively with several projects currently underway.

Another concern raised was on the company’s high gearing as the listing’s proceeds will be used to fund its expansion plans in the Asia Pacific region. IHC raised $43.8 million in net proceeds, which will be utilised for the development and redevelopment of its existing projects, acquisition of its four pending projects as well as the purchase and upgrade of medical equipment for its developments in Malaysia, China and Japan.

Dr Jong shared that despite the seemingly high gearing, channelling the funds into expansion instead of financing its debt would help to create greater shareholder value. “If needed, we will also be able to cash in on the company’s properties to deleverage with the spin-off of a healthcare real estate investment trust, which will bring more returns to our shareholders,” he commented.

Undeniably, IHC looks set to ride on the robust healthcare developments with its expansion plans in Malaysia, China and Japan where the demand for it has been on the rise due to medical tourism, lack of private healthcare and an ageing population amidst a population with growing affluence. Dr Jong is also looking to replicate its company’s successes in more projects and even more territories in the Asia Pacific region where emerging markets are growing very quickly and demand for healthcare will catch up.

While IHC is clearly on a fast track growth as out of its initial portfolio comprising of 22 assets, four are still pending and three are pipeline projects, the company still faces risks from the development of the facilities till the properties become fully operational. Its success would also depend on the implementation of its expansion plans and strategy. Will IHC’s unique business model be the foundation for a strong showing? Only time will tell.

Qiuying oversees the construction and real estate investment trusts sectors at Shares Investment.

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OUE Lippo Healthcare  0.060 -- --   
Business: Invests & provides healthcare services in Asia Pacific. [FY18 Turnover] Healthcare assets (84.7%), heathcare operations (15.3%).

Insight: May-19, 1Q19 revenue slid 7.3% due to lower revenu... Read More

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