Health Management International: Expansions continue to paint a rosy outlook August 30, 2018 832

PSR Recommendation: BUY Status: Maintained
Target Price: SGD0.83
  • FY18 Revenue and Core PATMI were in line with our expectations.
  • Higher outpatient loads and average bill sizes boosted earnings.
  • Continues as a medical tourism hotspot with foreign patient load growing faster than local patient load.
  • Proposed final dividend of RM1.0 Cent per share; total dividends of RM2.0 cents per share for FY18. (26% of FY18 Core EPS).
  • Maintain BUY with unchanged DCF-derived TP of S$0.83.

The Positives

+ Patient volume and average bill sizes ramped up both hospitals’ earnings. Mahkota (Mahkota Medical Centre) and Regency (Regency Specialist Hospital) saw a 7% YoY growth in total patient load to 461.8k in FY18. Foreign patient load grew faster than local patient load and accounted for 24% of the Group’s patients. Outpatient load was the main driver, while inpatient load remained relatively flat because of competition from heavily subsidised Malaysian public healthcare as well as a trend towards shorter lengths of stay. Average bill size continued to grow with higher revenue intensity and increasingly complex surgeries. Average inpatient and outpatient bill size rose 5.6% and 9.0% YoY respectively.

+ Day Surgery cases continue to lift margins. Day Surgery is gaining traction as we continue to see bed occupancy rate trending downward (c.58% in 4Q18, vs c.62% in 4Q17) and higher average outpatient bill size. Note that the bed occupancy rate tracks overnight-stay and Day Surgery cases are billed under outpatient Total number of operational beds remained stable at 437.

+ Better than expected EBITDA margins improvement. EBITDA margin improved +250bps YoY to 24.6% for FY18, driven by Regency’s margin (Regency is newer as compared to Mahkota, which is 25 years old) and effective cost management measures.

The Negative

– Finance costs increased +57.2% or RM3.23mn YoY. Borrowings increased RM32.6mn due a RM103mn mortgage loan taken by the Group for its StarMed acquisition, offset by repayment of term loans during the year. Total debt spiked +19.9% YoY to RM196.4mn as at 30 Jun-18, but net gearing increased slightly to 0.55x from 0.52x a year ago. However, we think that the Group’s higher leverage will be well contained by healthy operating cash flows to meet its debt obligation.


We remain positive on the outlook of the upgrading and expansion plans in Mahkota and Regency and expect it to be on track to meet the growing demand.

  • Mahkota has completed renovation works for Ward 9A and Paediatric Rehabilitation. But there will be continuous upgrading and refurbishing of older wards over the next 2 years. More clinical space for diagnostic radiology will be added.
  • Regency’s expansion plan is on track. The new extension block will more than double its existing capacity with additional – inpatient beds (mid-term target 380 beds, and eventually 500), clinical services, operating theatres and clinical suites. The hospital extension block is in process of approval, land preparation is ongoing and construction is expected to commence by end 2018. The extension is slated to commission in 2021.
  • Both hospitals continue to develop their Centres of Excellence and recruit skilled sub-specialists to broaden their service offerings especially in quality and safety.
  • We do not expect any significant impact on Malaysia’s Private Healthcare Facilities and Services Act arising from the change in government.
  • StarMed (StarMed Specialist Centre) acquisition was completed in May 2018 and the Group now owns 62.5% of this one-stop ambulatory care centre in Singapore. StarMed has completed renovations and received licenses from the Ministry of Health’s to operate. Main growth drivers for StarMed will be higher insurance-holding population, ageing population and medical tourism. StarMed is expected to incur gestation start-up losses from its operations and drag down margins for 2-3 years from its expected commencement in FY2019. We factored in RM1.6-2.2mn in EBIT loss p.a. for the first 3 years of operations.

Maintain BUY with unchanged DCF-derived TP of S$0.83.

We maintain our view that HMI will benefit from the socioeconomic tailwinds arising from (i) public and private initiatives to improve infrastructure and regional connectivity; (ii) increasing domestic insurance take-up rate; (iii) favourable demographics; and (iv) cost competitive pricing compared to regional peers.

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About the author

Profile photo of Tin Min Ying

Tin Min Ying
Research Analyst
Phillip Securities Research Pte Ltd

Min Ying covers the Banking and Finance sectors. She has experience in external audit and corporate tax roles.

She graduated with a Bachelor of Accountancy with a major in Finance from SMU.

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