Health Management International: In the pink of health May 10, 2018 683

PSR Recommendation: BUY Status: Maintained
Target Price: SGD0.83
  • 9M18 Revenue/Core PATMI met 73%/76% of our full year estimations
  • Remains a medical tourism hotspot; 9M18 Foreign patient load +15% YoY
  • Improving operating efficiencies, with higher Day Surgery cases and benefitting from its cost-saving initiatives; FY18e EBITDA margin could +2pps YoY to c.25%
  • Maintain BUY with unchanged DCF-derived TP of S$0.83

The Positives

  • Both hospitals ramping up patient volume and average bill sizes. Mahkota (Mahkota Medical Centre) and Regency (Regency Specialist Hospital) saw 2.7% YoY growth in both inpatients and outpatients load. 9M18 foreign patient load grew 15% YoY, faster than local patient load growth at 4%, and accounts for 23% of the Group’s patients (vs 21% in 9M17).

Average bill size continued to grow with higher revenue intensity and increasingly complex surgeries. Average outpatient bill size and average inpatient bill size rose 9% and 3.8% YoY, respectively.

  • Higher Day Surgery cases to lift margins. As advocated in our previous report, Day Surgery is gaining traction as we continue to see bed occupancy rate trending downward (c.59% in 9M18, vs c.63% in 9M17) and higher average outpatient bill size. Note that the bed occupancy rate tracks overnight-stay and Day Surgery cases are billed under outpatient category. Total number of operational beds remained stable at 437.
  • EBITDA margins improving; FY18e EBITDA margin could reach c.25% (c.2 percentage points higher than FY17’s). Operating efficiencies improved with Day Surgery getting traction, driving up revenue intensity, alongside Group’s effort in streamlining procurement processes.

The Negative

  • Finance costs more than doubled or increased RM0.87mn YoY. Recall that the Group drawdown a S$53.0mn from its term loan facility in Mar-17 to partially fund the acquisition of non-controlling interest of its two hospitals. Nonetheless, the Group’s commitment to pare down debt has strengthened its balance sheet. Within a year, the Group has repaid 62.7% of the loan. Total debt declined 41.4% YoY to MYR 95.9mn as at 31 Mar-18 with net gearing improved to 0.1x from 0.6x a year ago.

Coupled with the S$11.0mn net proceeds from the Placement Shares to Heliconia Capital Management, which has not yet been utilised, the Group now has greater financial flexibility to pursue any business or investment opportunities.

Outlook

Positive outlook with upgrading and expansion plans in Mahkota and Regency on track to meet the growing demand.

  • Mahkota has opened its new ward (i.e. ward 9B with 36 beds), allowing it to refurbish older wards over the next 2 years. It is also currently undergoing a small extension to the East Wing for more clinical space for diagnostic radiology and other departments.
  • Regency’s expansion plan is on track. The new extension block will more than double its existing capacity with additional inpatient beds (from 218-bed to 380, and eventually 500), clinical services, operating theatres and clinical suites. The hospital extension block in approval process, land preparation is ongoing, and construction is expected to commence in 2018. It is slated to commission in 2021.
  • Meanwhile, both hospitals continue to develop their Centres of Excellence and recruit skilled sub-specialists to broaden their service offerings.
  • Intensifying competition in Melaka and Johor is a concern, but we believe HMI’s first mover advantage and established track record would enable it to gain a foothold in these areas, while the new competing hospitals ramp up their operations.
  • We do not expect any significant impact on Malaysia’s Private Healthcare Facilities and Services Act arising from the change in government.

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.  

 

Important Information

This report is prepared and/or distributed by Phillip Securities Research Pte Ltd ("Phillip Securities Research"), which is a holder of a financial adviser’s licence under the Financial Advisers Act, Chapter 110 in Singapore.

By receiving or reading this report, you agree to be bound by the terms and limitations set out below. Any failure to comply with these terms and limitations may constitute a violation of law. This report has been provided to you for personal use only and shall not be reproduced, distributed or published by you in whole or in part, for any purpose. If you have received this report by mistake, please delete or destroy it, and notify the sender immediately.

The information and any analysis, forecasts, projections, expectations and opinions (collectively, the “Research”) contained in this report has been obtained from public sources which Phillip Securities Research believes to be reliable. However, Phillip Securities Research does not make any representation or warranty, express or implied that such information or Research is accurate, complete or appropriate or should be relied upon as such. Any such information or Research contained in this report is subject to change, and Phillip Securities Research shall not have any responsibility to maintain or update the information or Research made available or to supply any corrections, updates or releases in connection therewith.

Any opinions, forecasts, assumptions, estimates, valuations and prices contained in this report are as of the date indicated and are subject to change at any time without prior notice. Past performance of any product referred to in this report is not indicative of future results.

This report does not constitute, and should not be used as a substitute for, tax, legal or investment advice. This report should not be relied upon exclusively or as authoritative, without further being subject to the recipient’s own independent verification and exercise of judgment. The fact that this report has been made available constitutes neither a recommendation to enter into a particular transaction, nor a representation that any product described in this report is suitable or appropriate for the recipient. Recipients should be aware that many of the products, which may be described in this report involve significant risks and may not be suitable for all investors, and that any decision to enter into transactions involving such products should not be made, unless all such risks are understood and an independent determination has been made that such transactions would be appropriate. Any discussion of the risks contained herein with respect to any product should not be considered to be a disclosure of all risks or a complete discussion of such risks.

Nothing in this report shall be construed to be an offer or solicitation for the purchase or sale of any product. Any decision to purchase any product mentioned in this report should take into account existing public information, including any registered prospectus in respect of such product.

Phillip Securities Research, or persons associated with or connected to Phillip Securities Research, including but not limited to its officers, directors, employees or persons involved in the issuance of this report, may provide an array of financial services to a large number of corporations in Singapore and worldwide, including but not limited to commercial / investment banking activities (including sponsorship, financial advisory or underwriting activities), brokerage or securities trading activities. Phillip Securities Research, or persons associated with or connected to Phillip Securities Research, including but not limited to its officers, directors, employees or persons involved in the issuance of this report, may have participated in or invested in transactions with the issuer(s) of the securities mentioned in this report, and may have performed services for or solicited business from such issuers. Additionally, Phillip Securities Research, or persons associated with or connected to Phillip Securities Research, including but not limited to its officers, directors, employees or persons involved in the issuance of this report, may have provided advice or investment services to such companies and investments or related investments, as may be mentioned in this report.

Phillip Securities Research or persons associated with or connected to Phillip Securities Research, including but not limited to its officers, directors, employees or persons involved in the issuance of this report may, from time to time maintain a long or short position in securities referred to herein, or in related futures or options, purchase or sell, make a market in, or engage in any other transaction involving such securities, and earn brokerage or other compensation in respect of the foregoing. Investments will be denominated in various currencies including US dollars and Euro and thus will be subject to any fluctuation in exchange rates between US dollars and Euro or foreign currencies and the currency of your own jurisdiction. Such fluctuations may have an adverse effect on the value, price or income return of the investment.

To the extent permitted by law, Phillip Securities Research, or persons associated with or connected to Phillip Securities Research, including but not limited to its officers, directors, employees or persons involved in the issuance of this report, may at any time engage in any of the above activities as set out above or otherwise hold an interest, whether material or not, in respect of companies and investments or related investments, which may be mentioned in this report. Accordingly, information may be available to Phillip Securities Research, or persons associated with or connected to Phillip Securities Research, including but not limited to its officers, directors, employees or persons involved in the issuance of this report, which is not reflected in this report, and Phillip Securities Research, or persons associated with or connected to Phillip Securities Research, including but not limited to its officers, directors, employees or persons involved in the issuance of this report, may, to the extent permitted by law, have acted upon or used the information prior to or immediately following its publication. Phillip Securities Research, or persons associated with or connected to Phillip Securities Research, including but not limited its officers, directors, employees or persons involved in the issuance of this report, may have issued other material that is inconsistent with, or reach different conclusions from, the contents of this report.

The information, tools and material presented herein are not directed, intended for distribution to or use by, any person or entity in any jurisdiction or country where such distribution, publication, availability or use would be contrary to the applicable law or regulation or which would subject Phillip Securities Research to any registration or licensing or other requirement, or penalty for contravention of such requirements within such jurisdiction.

This report is intended for general circulation only and does not take into account the specific investment objectives, financial situation or particular needs of any particular person. The products mentioned in this report may not be suitable for all investors and a person receiving or reading this report should seek advice from a professional and financial adviser regarding the legal, business, financial, tax and other aspects including the suitability of such products, taking into account the specific investment objectives, financial situation or particular needs of that person, before making a commitment to invest in any of such products.

This report is not intended for distribution, publication to or use by any person in any jurisdiction outside of Singapore or any other jurisdiction as Phillip Securities Research may determine in its absolute discretion.

IMPORTANT DISCLOSURES FOR INCLUDED RESEARCH ANALYSES OR REPORTS OF FOREIGN RESEARCH HOUSE

Where the report contains research analyses or reports from a foreign research house, please note:

  1. recipients of the analyses or reports are to contact Phillip Securities Research (and not the relevant foreign research house) in Singapore at 250 North Bridge Road, #06-00 Raffles City Tower, Singapore 179101, telephone number +65 6533 6001, in respect of any matters arising from, or in connection with, the analyses or reports; and
  2. to the extent that the analyses or reports are delivered to and intended to be received by any person in Singapore who is not an accredited investor, expert investor or institutional investor, Phillip Securities Research accepts legal responsibility for the contents of the analyses or reports.
Subscribe
Notify of
guest
0 Comments
Inline Feedbacks
View all comments

About the author

Profile photo of Soh Lin Sin

Soh Lin Sin
Investment Analyst
Phillip Securities Research Pte Ltd

Lin Sin has been an investment analyst in Phillip Securities Research since June 2014, where she started as an economist, focusing on China and ASEAN macroeconomics. Currently, she covers primarily the Consumers and Healthcare sectors in Singapore equities market.

She graduated with a Bachelor of Science in Mathematics and Economics from NTU.

Get access to all the latest market news, reports, technical analysis
by signing up for a free account today!