+ 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.
– 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.
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.