Earnings Call: Q2 2021

Aug 27, 2021

Ladies and gentlemen, good morning and welcome to the 2nd Quarter and First Half twenty twenty one Financial Results of IH Health Care Burheart Analyst Briefing Conference Call. At this time, all participants are in a listen only mode. There will be a presentation followed by a question and answer session. I must advise you that this conference is being recorded today, 27th August, 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 morning, and welcome to IHH Healthcare's 2nd quarter and first half twenty twenty one earnings call for the period ended 30th June 2021. Thank you for joining us today. I'm Penelope Koh from Investor Relations. With me on the call today are Doctor. Kelvin Low, Managing Director and CEO Joerg Arle, our Group CFO we also have our colleague, Evren, who is the Head of Strategic Planning and Investments from Archibaldum. So for those of you on the web, you'll be able to view and download our presentation slides as well as the press release. The materials are also available for download on the IHH website. As for the sequence of events, Doctor. Luo will share with us the key highlights for the Q2 and an update on the COVID-nineteen contribution for the group. Thereafter, York will provide the financial and operational performance before Doctor. Luo wraps up by discussing the sustainability journey and the outlook for the group. We'll have a Q and A session after the presentation. So with that, I'll turn over the call to Doctor. Lu. Doctor. Lu P. Thanks, Penny. So before we start with the results, I would like to take the opportunity to say a big thank you to our frontline health workers for staying resilient, managing the COVID-nineteen situation, taking best care of our patients. The good news is that the COVID-nineteen restrictions have recently been more relaxed in some of the countries we operate in, especially for fully vaccinated people and social restrictions are lesser now, Daily reported cases and deaths going down in many places that we operate. But of course, no room for complacency. The Delta variant has is still rife and making things complicated. And so the pandemic war is far from over. India and Malaysia and Turkey still has 5 digit cases daily, and our colleagues continue to battle this every day and cope with the situation. I understand how stressed they can be from this prolonged crisis, and so we are doing all we can to look after them. We are conducting vaccination camps. We're helping out with mental health and wellness, taking care of their loved ones as best as we can as well during this time. These are challenging times, and there's no doubt about that. But we will get through this, and we'll get through this by working together. We continue to ramp up our COVID-nineteen support efforts, and there is no better time than now to demonstrate our commitment as a health care provider and deepen our trust with patients, government and our community. In Malaysia, for example, we continue to conduct COVID-nineteen lab testing and treat non COVID patients decanted from government hospitals so that we can help them manage this load. In fact, more than 600 COVID patients have been treated in Q2 in Malaysia. On vaccination front, we are running 19 vaccination centers through our various through our vaccination service. In Singapore, we continue to do lots of COVID prevention services, including border screening, on arrival testing and lots of test as well. In Turkey, in India, similarly continuing with lab testing and treating COVID even in patients and of course helping with vaccination drives too. So going on to Slide 4, I'd like to give you a sense clinically on our operations. In Malaysia, PCMC conducted its 101st kidney transplant and also marked its 12th year in clinical excellence since opening. Pantai Hospital Penang became the 1st hospital in the northern region of Malaysia to conduct a drive through vaccination service. I'm also very proud of our 5 nurses who received the Nurses Day Merit Award awarded by Singapore's Ministry of Health for outstanding performance. In Turkey, Achibadam was rewarded with the Golden Award for Health Institutions at the Social Media Awards Turkey. In Europe, our Tokuda Hospital passed with honors in an international quality assessment for COVID-nineteen diagnostics and Archibadam Sistina opened up a premium physical therapy sports center. So turning on to Page 6. On revenue, revenue grew 66%, albeit from a lower base in Q2 2020 when the lockdown of COVID-nineteen started. This was further boosted by COVID-nineteen services that we have been rendering such as testing, screening and vaccination services. There was also a smaller contribution from the consolidation of DDRC SRL since April 21 and also our acquisition of BCMC in September 20. Correspondingly, EBITDA has increased to RMB1.1 billion. Net operating income increased to rmb463.6 million. Net income itself grew to rmb483,000,000 on the back of stronger EBITDA as more patients return to our hospitals and from COVID-nineteen support services provided. Importantly, cost savings has contributed to this in India and in Glengus, Hong Kong. Glengus, Hong Kong, in fact, achieved EBITDA breakeven in May 2021 and has been on a positive trajectory since. This net income also includes the re measurement of fair value of our interest in DDRC SRL, disposal gains from Apollo Glanninger's Hospital, which were of course then offset by a substantive write down of our Parkway Yangon Hospital and Glanninger's Chengdu Hospital. If you turn with me to Slide 7, we have put together this new slide to show you our performance in the last 8 quarters, so you can see the trend. You'll see in Q4 2019 and Q1 2020 an overall dip, which was due to COVID-nineteen. But we have seen that progressive sustained recovery as we move towards the right hand of the chart, which is where we are today. In fact, in Q2 2021, we recorded our highest EBITDA and net income over the past 8 quarters and even above pre COVID levels, which is encouraging. Moving to Slide 8, I'm happy to report that IHH has shown a strong performance across all markets in Q2 on a year on year basis. However, I'd like to qualify that Q2 2020 last year was, of course, a low base because of major lockdowns and restrictions due to COVID-nineteen. Patient volumes have picked up. We have introduced a lot more COVID-nineteen related services as the pandemic continues. With that, let me now pass the time over to Georg to speak on the returns and capital efficiency on the next slide. Yes. Thanks a lot, Kelvin, and welcome everybody this morning. Let's turn to Page 9, capital efficiency ratios. And look, it's pretty obvious on this page, we've achieved 7.2% return on equity. I guess, if you do the math, you will see that this is likely a little bit higher than where we would see a run rate ROE range. But what you do notice on this page, there has been a structural shift in terms of equity performance. We show steady returns since the height of COVID in Q2 2020, strong recovery. In fact, if you look at this second quarter, we've surpassed the initial targets we've set for ourselves. And it highlights the doubling ROE from a low last year was a way market, was a stepping stone to then think about where should actually our long term ROE and ROCE target be our net debt ratio. The debt ratios have improved, which shows extremely strong cash generation during this period. And I want to thank all our hospitals and all our operators out there for being diligent in terms of working capital buildup, in terms of inventory buildup and in terms of CapEx spending and be really prudent and spend what is needed, but to keep themselves in check-in terms of what would be, of course, desired. So that's a really strong thing. One comment here, we've changed the net debt definition to include lease liabilities. I think that's more market standard in terms of this. In the next page, a quick picture on how are we diversified in terms of markets, revenue contribution. Singapore, of course, in revenue and EBITDA remains the strongest contributor. We see Malaysia with a strong nearly 20%. We see Turkey and Europe, which basically gives us a nearly 30% profit contribution. India is now clearly in a strong position of contribution in terms of EBITDA and revenue. So really nice 4 pillar picture. And you will see later on in Turkey, really happy to see a very strong EBITDA performance that has led the business to be net income positive and return bottom line contribution to the company. And let me pass back to Kelvin to look for further operational highlights. Thank you, Yop. Please turn me to Slide 12, where I'll take you through some of these operational highlights. From last month in July, we extended our strategic collaboration with P Life REIT to extend our lease agreements for our 3 hospitals in Singapore. As you know, these 3 hospitals are located in the prime locations of Singapore and are the top performers for the group. So we are very pleased to be able to extend these agreements as it means business continuity and of course operational stability. The rent is well in line with prevailing market rates and we do not foresee any material financial impact to our profit. Are also getting SGD150 1,000,000 in upgrades to our facilities, which will be provided by the landlord and it will help us enhance the already top notch service offerings we are known for. If you can turn with me to Slide 13. I would like to take this time to briefly introduce our IH lab business, which may not necessarily be familiar to all. And we want to develop this really large business to be one of the world's most trusted medical laboratory services network. You can see our lab services already in the countries that we operate, leadership positions in many of these countries by revenue. And in fact, for the first half of twenty twenty one, the lab revenue from this entity was at RMB975 1,000,000 Ownership in SRL Diagnostics, of course, is indirect via Fortis. Now the reason why I like to highlight this, because labs are really at the forefront of our fight against COVID. On Slide 14, you can see that we have provided more than 7,000,000 COVID-nineteen related tests since 2020. This is going to be an essential and important service moving forward for us with all the testing that's required across the markets we operate in. And we believe that beyond this COVID-nineteen success, our lab business has a high trajectory of growth going forward as well. I will now pass the call to Joerg to run through the operational performance. Let me just quickly comment back on the lab business. Look, this is a very strongly growing operation that we have and this is not just COVID related. We see the teams invest a lot in new test methods in CapEx to really grow the underlying core business. And look, we had a 1,000,000,000 ringgit in revenue contribution in H1, and we have not made the step yet to a full segment disclosure. But I guess starting next year, you'll see us disclose a lot more about the lab business. Margins well, well north of 25% average for our hospitals. So a very attractive comparatively lower CapEx business. So a real focus area for us and you'll hear us talk about this a lot more. On Page 15, you'll see that inpatient admissions have increased year over year basically across the board. However, we are not back to a pre COVID period. And I think this guides a little bit the watch out that I would like to put on the second half year. We are clearly, if you look at the inpatient operations behind where we have been pre COVID now, that's, of course, good news because it can create additional growth once patients return back. So we really do have a runway there. But at the same time, I think we need to be cautious in the near term in terms of cost buildup, in terms of potential headwinds that come. So we are a little bit we are, of course, optimistic with a great quarter, but we are a little bit cautious on the second half year. I think you should not just take H1 and multiply it by 2. That may leave us a little bit too much on the high side. Foreign patient volume in key markets such as Singapore and Malaysia remain low. We have just come off a call with our Malaysian CEO. The situation is not easy with our friends and colleagues there. And we really support everyone on the ground to fight through this. But coming back to medical tourism and patient volumes, I think we need to be realistic. This will take a little bit longer time for recovery. It requires global vaccination programs to really take effect and international travel to resume so that foreign patients can return back. In the Q2, revenue intensity has continued to rise. And look, we've all understood this by now, a lot of this is, of course, a mix effect. You have high intensity cases staying with us during this period at this stage and lower difficulty cases. They just don't show up at the hospital, and that is then leading to an increase in check size. I think we should not interpret too much into that. If we go on the next phase in Malaysia, despite the MCO, which Malaysia has implemented from January, We deliver better performance with a low base in Q2 2020. Of course, revenues improved 53% to JY662,000,000 ringgit. We've included here now Prince George Medical Center and we've increased the contribution from our COVID testing, vaccination programs And the team is really doing a fantastic job in managing all this while being really careful and cautious on cost management topics. On the next page, in Singapore, very strong business, continuously strong, a +94% in EBITDA, of course, Q2 last year was really a difficult quarter, but also EBITDA margins, plus 6.6% at 34 percentage points. Inpatient admissions increased 22%, revenue intensity grew, continued to grow. Revenue is now at $1,300,000,000 in the quarter with strong bottom line contribution. If we go to the next page, Turkey and Europe, and this is where I really want to put a call out on the team in Europe and Turkey, very strong recovery after the Q2 last year. And you see this already in Q1. We saw a strong return of international patients, while we had very strong COVID related activities. So we saw revenues improve 72% to now EUR 1,100,000,000 So welcome to the above EUR 1,000,000,000 club per quarter. That's fantastic. EBITDA increased to EUR 300,000,000. Inpatient admissions increased 49%. And look at the bed occupancy rate here at 78%. These are pre COVID levels. So really strong performance and we are all hands out to the team there for doing a fantastic job. And look, I mean, as a corporate, it's always good to see a large division return bottom line contribution. So that's really great. The currency topic has been an overhang for a long time. The team has hedged almost all of the foreign currency loan exposures. So that part is behind us, but the team has done a lot more than that and has been able to grow the international business contribution. We are showing here 3 parts of the business. 1 is the domestic patients, which of course still is the largest part of the business there. But then if we look at foreign patients in Turkey, which is foreign currency business, and if you look at the European operations, which is also foreign currency business. So out of the overall revenue from, let's say, 2017, 75% being basically Turkish lira denominated business. We are now at 40% foreign currency denominated business, and this trend continues to grow with the expansion plans that the team has in Europe. So really a strong natural hedge that we are building up here. While and we should not forget this, while a large part of cost base is still in Turkish lira. And I think this is where the real performance improvement is then coming from. If we go to India, strong recovery already in Q1, Q2 continue now with nearly 70% bed occupancy rate. Revenue grew 133 percent to nearly €1,000,000,000 on contribution. Of course, India also went through a difficult COVID period. And yes, there were a lot of COVID related activities and services that the operations have provided. EBITDA rose to RM 188,000,000, inpatient admissions rose 46% and revenue intensity increased 48% as patients with more serious and urgent ailments sought treatments at our hospitals. And look, you see the Fortis market performance, which is, of course, fantastic. We love to see this as shareholders, to see your business do so well. So really happy on that development. And then another great news on the next page, Hong Kong has achieved EBITDA breakeven in May as per plan. We have increased since then. And we see the team shifting the discussion from an EBITDA breakeven business review theme to a net income breakeven review theme. So we started to set up plans and how can we get now from an EBITDA breakeven, which we have achieved, how can we continue this growth trajectory and get to a net income increase. So we're super excited. The Hong Kong team did really well. The business continues to ramp up. We saw revenue increase 46%. EBITDA losses narrowed. And as I said in May, we were EBITDA positive. So really great performance there. Let me give, of course, one comment on something else that you saw in our financials. We have, of course, looked at the assets in China. And the key message there is China is a super attractive market. It's a great market also for private hospitals and for private health care providers. But we have to be realistic. It is a market that takes a lot more longevity and a lot more breadth to really ramp up the operation slowly. We do see improvements in our clinics. We see some improvements in our hospital in Chengdu. We see progress in the hospital construction in Shanghai. However, we, of course, work with our auditors. We have hard nosed accountants in the team, and they have advised us to look at this a little bit more carefully, and we've decided to take an impairment hit on some of the assets that we have there. I think it's just prudent in terms of managing our balance sheet and balance sheet risk going forward. And with that, I pass back to Kelvin for sustainability. Thanks, Yaw. So on Slide 23, you can see here IHH 3 pronged sustainability strategy covering critical areas involving opportunities for growth and learning for IH to achieve economic, environmental and social sustainability. On Slide 24, you can see MSCI has improved IH rating from BBB to A. Going forward, we won't stop here. There's more we can do in the sustainability space. There will be we will step up our efforts to lock in our long term sustainable business. Our ESG drive will be aligned very much to, of course, our presence as a global healthcare player. We are already pushing forward and leading some of the topics around value to patients, for example, making sure that clinical outcomes upgrade at the same time, making sure that it is delivered to our patients at the right and best possible value for them, for example. So to wrap up, what we have discussed, it's here on Slide 26. We have been on a strong recovery trend since June of last year actually, maybe took the brunt of the impact in Q2 last year. And then there's been recent resurgences in cases resurgent cases in the markets we operate. And so therefore, there could be some near term headwinds. But we will maintain a discipline in executing our refresh strategy. We will stay nimble during these times as the pandemic evolves. We will continue to actively deliver on our core strategic pillars that I've talked about before. We have now set along those strategic pillars, targeted strategies for each market to ensure and sustain our earnings growth. Further, we will create new revenue streams, as we have mentioned, for example, around our diagnostic services, particularly our laboratory business. We look forward also to developing other sustainable platforms, especially the digital platform, where we will create a seamless online to offline service to our patients. That also helps us to, of course, respond to this new post pandemic world. So with a healthy balance sheet, strong cash generation, we are well positioned to ride out the pandemic, short term headwinds, and we believe our long term growth trajectory remains very much intact. With that, thank you so much, and I'll pass the call back to Penny. Thank you, Doctor. Loh and Ryok. We'll now take your questions. Just a quick note before we start. We'll first take questions from the participants on the conference call, then before moving to the questions raised from our webcast participants. And I would like to kindly request for each participant to keep the 2 questions. And with that, operator, can you please proceed with the Q and A? Thank you. Thank you. We will now begin the question and answer session. Your first question comes from Rachel Tan of DBS Research. Please ask your question. Hi, good morning, Doctor. Kevin Lo, Joak and Penny. Congratulations on a very good result. And finally, we have seen many growth Hong Kong has achieved EBITDA breakeven. Probably just two questions from me. I think in the presentation, you have mentioned that you are a little bit more cautious on the second half of the year. I was just wondering, given now we are almost the end of Q3, what are some of the things that are probably was very strong in the first half, but probably not so sustainable in the second half that warrants the cautiousness as I think COVID-nineteen related services would likely remain in the second half? Thanks, Rachel. Very good point. Look, I mean, besides being generally cautious, I think there are a couple of points that we should be realistic about. We have had and we have seen cost favorability in the first half year that we don't think can be maintained in the long run. We have had difficulties in hiring sufficient staff here in Singapore. The labor competition with actions by the government to increase pay is also something we have to respond to. We need to be fair to our frontline workers. So there is cost coming back into the system that was not there in the first half. I think that's one part. I think the second part is that we see, especially in India, a very sharp drop in COVID related services and a rebalancing back to a more normalized business, but without the international tourists. I think there's a little bit caution that we want to have there as well. And I think overall, even though you're right, we believe that COVID service, testing service, and maybe soon we have to call them differently, no longer COVID service, but more like general mobility support or something. They will continue, that's clear. Now will they continue at the growth rates and will they continue in the magnitude that we saw in the first half? I think we have to see that. So we do give a little bit of a cautious watch out for the second half. I mean, look, don't misunderstand me. We're not going to fall off a cliff. That's absolutely not what's going to happen. But I just caution a little bit to take the first half and multiply it by 2. I think that would be a bit too simplistic. Got it. Thank you. That's very clear. My second question is on I think you've given some color on your lab business and it seems like it's a very interesting business. Any thoughts of spinning off the lab business as an individual entity? Thanks, Rachel. I think pretty much for us to comment on that. For now, we just wanted to mention that for us, we have a very firstly, a very large laboratory network already as shown on the slide. And secondly, we intend to drive that business because there's a different growth dynamics, there's a superior return on equity dynamics, and therefore, we see looking and driving that business growth in a whole new way going forward. Okay. Okay. And maybe if I could follow-up, what are some of the consideration of having it as internal or filling off separate business? Yes. Actually for most of our markets, our home markets actually, internally, it is already a separate business entity. So for example, in Singapore, it's called Parkway Laboratory Services. In Malaysia, it's called Pantai Premium Pathology. In Turkey, it's called LabMed. And these companies are in effect, they are not serving only our hospitals, they are also serving the external market as well, which continues to grow. Okay, great. Yes, thank you. I'll go back to the queue then. Thanks. Thanks, Rachel. Next question. Your next question comes from Shyam Srinivasan of Goldman Sachs. Please ask your question. Hi, good morning. Thank you to Doctor. So the first question is just on the recovery of the non COVID part of the business in the hospitals. I think Joerg mentioned, I think, Achibagan seems to be already back to pre COVID. But just want to understand the rest of the geographies where we are and given the kind of cautious tone on admissions I thought, not necessarily the entire business, What is the COVID occupancy in our hospitals, which might probably come off in the second half so that we can get a sense of what is the non COVID versus COVID occupancies? Sure, Shyam. Thanks so much for your question. Good to hear from you as always. So let me give you a sense. It's somewhat different in different markets. So the first part of your question that relates to how's the rebound been in terms of non COVID services. Turkey, you saw come certainly both the foreign patients as well as domestic patients has come back largely. That's also in Singapore, the domestic market has largely returned to pre COVID levels. In India, it fluctuates because the situation there is really is actually much more volatile whenever there's a big COVID spike, the non COVID patients go down. But when there is the COVID spike goes off, then the domestic volume signs back dramatically. I wouldn't say that it's back to pre COVID yet, but I dare say that the domestic market has substantially come close to pre COVID. In Malaysia, in a situation where you see the COVID outbreak sort of still not in its completely controlled situation such as Malaysia, then you can expect that the non COVID volumes are not fully returned. With regards to what is the COVID occupancy, it is fair to say, and I think that's what Joak was alluding to, in terms of COVID occupancy in Q2, we certainly saw a big boost for India. But again, I'd say that as soon as that melted off, we saw a very quick return in non COVID cases in India. Other than that, we didn't have much COVID invasion admissions in, say, for example, Malaysia, Singapore. The overall COVID related revenues, I think we had it on one of the slides. That was on yes, that was on my first slide actually. So you can sort of get a sense from that. Does that help answer your question? Yes. Look, that doesn't split out lab versus hospital, which is where the challenges are. I'll bring largely to the hospitals in my comments. With regards labs, it's fair to say that labs are continuing their non COVID work. The non COVID part of the business, of course, in a way goes up and down to some extent with what you would see in the hospitals. But the COVID work in the labs have grown and continue to grow throughout all this time and I'm generalizing that for our markets. So we don't see that going up and down so much because obviously the labs are still very much involved in testing, right? Testing doesn't go away just because the search has come down and that will be true in all our markets. Got it. Okay. 2nd question, just I think you also alluded to the share price of Fortis, how it's done. In the next month, I think Fortis management has indicated the final Supreme Court order is going to be out. So how are we looking at our stake there? I'm asking a hypothetical question in case the open offer gets released by the Supreme Court. That was at 173 years back. Stock today is 280. What do we think about taking a stake up to say historical levels we have seen in the Indian hospitals like Global and Continental that we have had? So firstly, indeed, the Supreme Court has concluded its hearing as of May 2, but I think we cannot predict when the MTO will begin. Of course, we are hopeful for a positive outcome soon. For our legal advice, we actually have no obligation to revise the MTO price. We will, of course, await the outcome for the SC order, and we will consider the options from there. I think it's worth noting that we currently already hold 31 point 1 percent stake, and we, of course, already have majority control of the Board, and we are consolidating. We are very happy with how sauces has performed so far, continuing to grow well. Thank you. Got it. And all the best. Thank you. Thanks. Thanks, Sean. Next question please. Your next question comes from Divya Gangahan of Morgan Stanley. Please ask your question. Thank you for the opportunity. Good morning. I have two questions. The first is on Singapore. I wanted to understand what is the contribution of border screening and on arrival testing to the entire COVID revenue that you've given on the slide. Just wanted to understand what the portion coming from border screening and on arrival testing specifically is because I guess that's going to be more sticky compared to the COVID treatments and vaccination. So that's my first question. I don't think we have a split out here specifically with regards well, overall Singapore 24% of Q2 'twenty okay, Q2 'twenty one revenues, 24% of that was COVID related. I'd say that the border screening and on arrival test probably make up about half of the COVID revenues. Okay, got it. That's very helpful. My second question is just on Turkey and Hong Kong margins. So in Turkey and Europe, we've seen that the margin in this quarter had gone up quite nicely. The EBITDA margin is over 28%, which is sort of the highest we've seen in recent quarters. Just wanted to understand what's driven the margin improvement there? Is it just operating leverage and scale coming through or the way you commented on the first half not being a good representative for the second half as costs come through? Could you comment on Turkey in particular whether these margins are a bit more sticky? My answer is overall, I think so. Maybe I'll ask Evan to help out. Evan, are you on the line? Yes, sure. Calvin, good morning from Istanbul. I think the response lies with the performance in 2 fold in this quarter. If you look at the first half, particularly in April, we have relatively higher COVID exposure, which kind of started to melt down towards the end of the quarter. I'll give you a specific example. 14% of our April revenues came from COVID versus our COVID contribution was only 4% in June. And then we were still able to deliver the similar EBITDA margin in the same month versus April, which is a very good example of we have more of a more sustainable margin. And the reason that's coming from multiple factors, obviously, domestic patients coming back, but we also very strong recovery and improvement in our foreign patient volumes during the quarter, and it's been increasing consistently. So that also helps out in more streamlined margins. Could I clarify that when you made the comment on COVID, is it that COVID is typically lower margin and despite the lower margin in April, the margins were the same? Like, I'm just trying to understand the contribution of COVID, how that impacts margin? So COVID in Turkey is relatively higher margin than non COVID. And then in April, we had 14% of our revenues coming from that business line. But even though that COVID business scaled back in June, we were able to deliver similar margins because of the reasons that I just explained to you. I see. Yes. Okay. That sounds good. Did that answer your question? Yes. That's very clear. Thank you. And just on the Hong Kong merger, just wanted to get a comment on, you said you're focusing on net profit contribution going forward. Any new timelines you can give plus how you've seen the business ramp up? I mean, is Hong Kong going to be more like a I mean, when do we get to like Singapore or Malaysia style margins? I mean, what kind of time period are we looking at? Thanks. I think let's just say that we believe the Glen Eagle Hong Kong business, the early period of gestation and I would say the heavy lifting part that builds the brand, get doctors and patients in, I think that's largely over beyond a phase where we expect the trajectory to be more on an upward inclined, Might be premature for us to give guidance with regards to when, but it is certainly quite positive with regards to its growth trajectory from here. As you know, hospitals work in such a way that the overhead costs sort of come pretty far upfront. And once you get past that, then a big part of most of the revenue is just contribution margin, right, which is 70% range. So we are excited about this business. We expect it to move forward strongly. Of course, there could be some near term headwinds with regards to COVID and the degree of social movement restrictions in Hong Kong that may hold back its ability to charge forward. But otherwise, I think it's come off age. Right. And just to just ask on that, I mean, occupancies are already at 61%. Typically, hospitals reach over 60%, 70% occupancy, you start making good money. So just based on past experience, like how long does it take to get to normalized levels once you've brokered even? Is it 3 years, 4 years, 5 years, just to get a sense based on past experience? The bed occupancy we have been reporting is as a percentage of open base, which is currently standard for Q2 is 61 percent on 194 bit. It's not so useful to read that, per se, in isolation because we keep opening base in Hong Kong as we find that it starts to build up capacity, we keep opening base. So you'll find that the bed occupancy may not be a the bed occupancy percentage may not appear to grow, but in terms of average daily census, that's going to grow. Great. Okay. Thank you. Thanks, Divya. Next question please. Your next question comes from Sean Chu of RHB. Please ask your question. Hi, thanks for taking my questions. Can you hear me? Yes, we can. Go ahead. Yes. So firstly, mainly on Malaysia, would you be able to provide a little bit more color on Malaysia's quarter on quarter growth despite the imposition of lockdown during that period? Was it mainly driven by cost containment measures or was it patient flows being undeterred by the restrictions? Thanks. So most of the growth in Malaysia quarter on quarter meaning from Q1 2021 to Q2 are referring to previous year quarter? Yes, Q1 to Q2 for the year 2021. So there's been largely continued growth in patient volume. So what we see in Malaysia since the impact of COVID is that we're seeing quarter after quarter of progressive improvement in volume growth. I would say, as I mentioned earlier, it's not fully back to pre COVID times in terms of the non COVID volumes, but the growth has been progressive, albeit, I guess, somewhat affected by the recovering COVID situation in Malaysia. Got it. Just to follow-up, what was the percentage of inpatient volume for the Q2 is actually contributed from the contact patients from public hospitals? Relatively small because you would I think the admissions of COVID patients to the private hospitals started pretty late in the quarter. So overall the impact of the quarter I think was quite small in terms of actual inpatient. But would you expect this contribution to grow in the Q3 given that? It appears to be because we started taking more patients into hospitals. We have announced that we have set aside about 2 50 beds for COVID to help out as we speak, probably about half of those beds are in use. Okay. All right. Thanks. Maybe perhaps final question on India. Just wondering if there's any potentially receivable risk or late payments coming from the COVID situation? No, not really. Our collections actually have been doing quite well. Okay. Thanks. Thanks, Sean. Next question? So we'll read I mean, just to the topic on receivables. Of course, this is always a risk in such crisis periods. And we have, together with the country CFOs and the country operations teams, established a much more rigorous review on accounts receivables, on critical overview situations. And while you do see the one or the other small case that happens, there's no trend that there's any delinquencies or an increase in overdues or any risk in that area. So the teams are doing a really good job to keep AR under control. Thank you. Your next question comes from Amanda Fu of Credit Suisse. Please ask your question. Hi, good morning. Thanks for the call and congratulations on the good set of results. I have a few questions in my end. I think first of all, Joerg, if I could find out a little bit on your ROE. I know that you've cautioned during the presentation that second quarter is slightly higher than the current than the normal run rate. Can I check then under the normal run rate, would that have already crossed or surpassed the initial target of 5% to 6%? And given the recent developments, is that a refresh target for management to work towards? And what could the longer term ROE kind of look like for the group? I think very good observation. I think structurally, we are above the 5%, and that is mostly a function of really CapEx prudence and the underlying earnings improvement in our business. So I think we are in the range of above 5%, 5% to 6% structurally. We've not discussed a long term target, a new long term target yet. I think it's a little bit too early to think about that. But of course, if we can, at one stage, consider something double digit, that will be great. But I think it's a little bit too early to talk about that. Okay. So I guess if you can take it that going forward, 5% to 6% ROE should be achievable barring unforeseen circumstances, right? Yes. Okay. And I wanted to find out a little bit more on your labs business. Which markets are the larger contributors right now? Would test volumes be a fair indication in terms of their contribution? And also I believe during the Q and A or the presentation, Doctor. Lo did mention that the existing labs are also servicing the external market. So what would the rough split be for the internal and external market? So I mean, test volume, of course, is a good indicator, but you quickly recognize that the of course, there's a currency effect, different absolute price points, if they can come currency effect in different markets. In terms of the percentage split, I think suffice to say that in all our markets, we are now looking forward to I think it's fair to say that in general, especially our core markets such as Malaysia, Singapore and even Turkey, I think it's fair to say that for now, a larger chart or a bigger predominant of the lab business is from our own businesses or hospitals, but that is certainly growing quite rapidly. Thank you. And if I could follow-up on that, would it then be fair to assume that probably Singapore will be one of the larger contributors to your Labs business? Yes. I think you said it later. Okay. So they are probably the largest at this point, right? I think if you look at revenue, you would have SRL in India with a much broader footprint is revenue wise certainly largest and then Singapore would be the 2nd largest. But look, let's focus more on the total lab business disclosures and at this stage, not so much at the individual dissecting of where this comes from. I think we're super happy that we've come to a point where we want to disclose our lab business. We've contributed a 1,000,000,000 ringgit in the first half year. EBITDA margins are well, well north of 25% average for our other hospitals. So I think this is a really great business. Got it. Thank you, Joerg. And that's all for me. Thanks again. Thanks, Amanda. Maybe we quickly take the questions from our webcast. And it's coming from Nicole, UBS. So first question, what was the Prince Chord's contribution to Malaysia's revenue and EBITDA in Q2 2021? So Prince Cart quarterly revenue contribution is about ringgit65 1,000,000. And then I can move on to question number 2. What is Q3 looking like? Are you seeing return on non COVID patients, especially in Singapore and India? So the quick answer to that is yes. And I took pains to explain just now that we do see growth of noncore patients across all market. It's just that the rate at which that bounces back, we see that differently. And in India, we see that really strong dynamic. It comes back really fast whenever the COVID surge goes down, the non COVID patient bounces back really fast. In Singapore, we see that progressively coming back. In Singapore, our domestic volume has already returned to the non to the pre COVID times. It's just that the foreign patients have not come back, of course. When do I expect Medical Tourism to return to Singapore? Which is, we don't know. I think it's suffice to say that borders reopening will be there'll be a cautious stance towards that. And who knows, hopefully, sometime next year. I'm not so sure if it will happen within this second half. Thank you, Doctor. Luo. Operator, we can turn back to the questions from the audience on the call. Thank you. Your next question comes from Rachel Tan of DBS Research. Please ask your question. Hello. Hi. Sorry, I have a few more questions. Just maybe just to understand on the Graniteo Hong Kong's ramp up. I think occupancy has been quite stable at 60% and you are likely going to open more space. I just wonder moving forward in terms of your plans to open more base, will it push EBITDA back to losses of gain or there will be minor contribution from EBITDA profit until Vanigas Hong Kong becomes more stabilized? The answer is option B. That's the way we try to run our office is we try not to make it lumpy. So we try to ramp up in Paribasu with the growth. Okay. So contributions will start off low first line and then slowly will move up a little bit more profit as in EBITDA Yes, we expect EBITDA to grow from here, not to take recurrent or dive, that's the question. Okay, got it. Yes. And my second question is on the European business. I think at this time, you've seen that European business has been growing. Is there a target for to grow how the European business bigger? And with that target, are you looking to expand more in Europe rather than in Turkey? So there isn't a fixed target per se, but let's just say when we talk about the European business, I guess, we can think of in 2 components, right? One is the foreign market that comes into Turkey. We, of course, want to grow that. It is growing well. Archibaldan, very strong brand, drawing foreign patients from Europe as well as outside Europe. So definitely, we want to grow that. In terms of the V shaped that the brand has launched into the European markets, I. E, operations in those countries itself, we progressively grow that in a capital efficient way as we gain more and more experience in operating there. I think we want to continue to grow. We have done very we've done so very successfully, gone as far as that or one of the newest hospital that we opened in Amsterdam that has done very well. In fact, we're looking to expand that hospital now. And we also, as part of that whole cluster there, just acquired a hospital in Serbia as well. Okay. Just on Turkey, just a follow-up on Turkey. I noticed that on the net profit level, they seem to be contributing already. I'm just wondering whether your finance costs and with the limited ForEx fluctuations exposure now, should we is this like consider a normalized level for you for the Turkey business? So we're looking and reviewing the finance costs for Turkey. It's, of course, high. Turkish lira denominated at this stage. And we're looking at this, how we can improve from here. And you'll see those discussions come through in the next couple of quarters. Okay. Sorry, maybe just one last one for me. Just on the Chengdu impairment, could you give more color on the impairment? And would there be opportunities to write back those impairment once Chengdu is back on its feet? Yes, look, write back is fantastic. If that would be a possibility, then accounting wise, let's look at that once the business comes back. I think it's really more a mathematical function of looking at the UCF model in our impairment tests and coming to the realization that the ramp upstream, it just simply takes longer. We do believe in this business, it's a good business, but it takes longer to build a brand of patients, get doctors. Look at Hong Kong. Once we started to get really good doctors and build a reputation for ourselves, offer services, suddenly you do see it becomes like a magnet. But this takes time. And in China, our experience is it will take a little bit longer time there. So we just said, look, from an accounting prudence perspective, we cut off the DCF model at one stage. And if it then doesn't carry, then let's write this off. It's an opportunity to write it back. Well, let's take this quarter by quarter. Okay. Maybe based on your estimation, would you be able to give us like roughly a timeline in terms of how much more expansion on ramp up for Chunti have you estimated in your number? In terms of how many years for recovery? Yes. Look, I think you're not talking in quarters, you're talking in years, right? So if you look at other hospitals and we've done some benchmark studies, People do talk about 4, 5 years to breakeven and in some cases longer. This is a big hospital. I think we need to be realistic. So I think we should not be overly aggressive in assuming that there's any magic stick happening and then there's a pop, yes, this will likely take quite a long time. Okay, great. Yes, thanks for answering all my questions. Thank you very much. Thanks, Rachel. I see quite a few questions that's coming in from the webcast, and I think let us address some of the questions on the webcast, and then I think we're running out of time. And I think with the rest, we can take it the discussion with IR directly. So to the first other question on the webcast. Hi, Doctor. Kelvin and team, which is from Alan RHB. May I know what is the driver behind the improvement in ESG rating from A to A from BBB? And how has COVID-nineteen changed the landscape of ESG for IH? I think I can quickly jump into the first one, and then Doctor. Lu can take over the second question. I think in terms of for the MSCI rating, where we saw the improvement was, maybe think of us that they improved in terms of the data security disclosure and anti corruption measures that IHH had disclosed and obviously that was first to drive the upgrade. Secondly, obviously, I think as the MSCI team continue to look at our product offering, I think that's where we continue to showcase a very good product offering as well as continue to up hold our clinical governance and standards. So that's another factor that drove the increase. So I think that answers question number 1. So how has the COVID-nineteen changed the landscape for ESG by change? Long term trajectory, I don't think so. We are very much committed to driving value for our patients, helping out communities and of course, topics around waste management, all very important topics for us. I'd say that the biggest acceleration that's come about is really the public private partnership. Personally, I am excited about that opportunity. COVID-nineteen accelerated that given us in the press record chance to partner the public sector better, help with this huge fight in healthcare demand brought upon by benefit in 2019. No one sector by itself, whether public or private can cope with kind of huge demand, but that kind of collaboration that come about, I think, brings a lot of value to the market. Okay. The next question from Carmei from CIMB. There is a RMB224.8 million income from India. Can share with us where does this come from? Maybe let us address with you directly because I'm trying to determine where is that $224,800,000 income that you're referring to. So let us come to you on that question separately, all right? And then we'll jump to the last question from Lee Chong Yap from Morgan Stanley. From the earlier answer on Turkey, COVID margin are higher than non COVID. Is that the same for Malaysia and India? We would like to understand how the change in Malaysia and India easing of COVID affect margins in second half? Yes. I think very good observation. And I think the way to look at this is that a lot of the COVID business is an incremental marginal contribution without adding a lot of overhead costs to other staff costs. So there's some increase in or some dedicated staff costs, but a lot of times the COVID activities and business is using existing infrastructure. So your marginal contribution is indeed higher than the hospital business. This is case in India. Malaysia, not as much. In Malaysia, it is more separated. So I don't think in Malaysia, you will see a major difference. But in India, for sure, there is some of that similar effect. And look, you've heard me talk about the second half year. We're very excited about the second half year. We think there's a lot we have going in our direction, but we need to be cautious. We need to remain cautious. We're in the middle of a pandemic. And I think it's good to assume that some of the favorability that comes through this business may not be there in the long run. Thanks, Jorg. Maybe I can quickly address the question that Camille had given earlier, asking us where the income of DKK424 1,000,000 came from. I think I believe she could be referring to the under the exceptional item list where there is an DKK85,800,000 from re measurement of the fair value of interest in a joint venture. I think that refers to the VDRCSRL remeasurement of fair value. And the second one is a gain on disposal on of a joint venture of SEK 139.1 billion. So that refers to the disposal gain of Apollo Glen Eagles, all right? I think that we are running out of time. So I would like to thank everyone for joining us on the call today. And if you have any further questions, feel free to reach out to us at irviair@irihhhealthcare.com. So with that, I will now conclude the IH Health Care second quarter and first half twenty twenty one financial results call. And thank you for joining us today. Operator, you may disconnect. Thank you. Thanks, everyone. Thank you.