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IHH Healthcare strengthens its foothold in China

Premium hospital operator building Shanghai facility as part of $1.2bn long-term investment

IHH officials and partners break ground for the Gleneagles Shanghai Hospital on Friday.

KUALA LUMPUR -- IHH Healthcare began construction Friday of a new hospital in Shanghai, as part of an 8 billion yuan ($1.2 billion) investment to turn China into its fifth key market.

The Kuala Lumpur and Singapore-listed premium hospital operator is building the 450-bed Gleneagles Shanghai to provide integrated health care for the Yangtze River Delta region.

When completed in 2020 with capital spending of 1.36 billion yuan, it will offer health care services in seven key specialties: cardiology, cardiac surgery, gastroenterology, urology, minimally invasive surgery, general surgery and internal medicine.

The hospital, located on 35,754 sq. meter site in Shanghai New Hongqiao International Medical Center, near an international airport, is a 70:30 joint venture with state-controlled Shanghai Hongxin Medical Investment Holding.

IHH's investment in China is carried out through 70.1%-owned Taikang Insurance Group. Beijing-based Taikang is also involved in asset management and early care. Both companies will jointly fund future projects in China in proportion to their shareholdings.

IHH, which is controlled by Malaysian state investment fund Khazanah Nasional, said the Shanghai hospital is a part of its long-term ambition to turn China into a key market after Malaysia, Singapore, Turkey and India.

"We are confident of our prospects, given the rising demand for quality health care here," said Tan See Leng, IHH's CEO in a press release. He added that private sector investment into China is easier now since the recent liberalization of the health care sector, including insurance coverage.

Apart from Gleneagles Shanghai, the group will open a 350-bed general hospital in Chengdu in 2018 and a 70-bed specialist hospital in Nanjing in 2019.

Though it operates over 10,000 licensed beds in 50 hospitals, including the newly opened Gleneagles Hong Kong, IHH recently warned of high cost pressure on its operations due to the strengthening of the U.S. dollar.

Without one-off gains, net profit declined 15% year on year to 201.8 million ringgit ($47 million) on revenue of 2.68 billion ringgit in the first quarter of 2017.

Startup costs of preoperational and new hospitals, including the 500-bed Gleneagles Hong Kong, will continue weigh on margins, said Kenanga Investment Bank in a recent research note. But it also noted that operations in Hong Kong are improving with better utilization of operating theaters.

Nomura expects occupancy at the hospital to rise starting in the third quarter once it signs panel and insurance partnerships.

IHH is Asia's largest hospital chain operator by market capitalization.

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