Health Management International - Phillip Securities 2017-12-18: Hotspot For Medical Tourism

Health Management International - Phillip Securities 2017-12-18: Hotspot For Medical Tourism HEALTH MANAGEMENT INTL LTD 588.SI

Health Management International - Hotspot For Medical Tourism

  • A proxy to Malaysia’s booming medical tourism industry.
  • Expanding capacity to cope with increasing demand and enhance the range of services.
  • to drive revenue intensity.
  • Maintain Buy with unchanged DCF-derived TP of S$0.83.



BACKGROUND

  • Health Management International Ltd (HMI) has two tertiary hospitals in Malaysia, the 288- bed capacity Mahkota Medical Centre in Malacca and the 218-bed capacity Regency Specialist Hospital in Johor. 
  • The Group also owns and operates the HMI Institute of Health Sciences in Singapore.


INVESTMENT MERITS / OUTLOOK 


1. Enhance range of specialist and sub-specialists, facilities and services to boost demand and revenue intensity. 

  • Continue to expand its team of specialists and sub-specialists in Mahkota, as well as establish new COEs (Centres of Excellence) in Regency. 
  • Currently, Mahkota and Regency have 10 and 5 COEs respectively.

2. Introducing new technologies and being ahead of the game.

  • Introduction of the first and only PET-CT Scan in Melaka (in Mahkota, Nov-16), and the first ECMO (Extracorporeal Membrane Oxygenation) Therapy in Southern region of Malaysia (in Regency, Oct-17). 
  • The Group also shared that it has launched the first EUS (Endoscopic Ultrasound Scan) in Melaka and plans to bring the service to Regency.

3. Expansion plans on track to meet the increasing medical demand in the region. 

  • Both Mahkota and Regency will add 34 operational beds each (or +15.7%), leading to a total bed capacity of 500 by end-FY2018. 
  • Meanwhile, the new hospital extension block at Regency will transform it from a 218-bed tertiary hospital to a 380-bed hospital. Construction is expected to commence in FY18 after obtaining necessary approvals and is slated to commission in FY21. 
  • The Group targets to reach 840 aggregate bed capacity eventually – Mahkota (340 beds) and Regency (500 beds).

4. Beneficiary from Malaysia’s healthy medical tourism. 

  • Malaysia has competitive pricing edge as compared to its regional peers. 
  • In 2016, Malaysia’s medical tourism growth jumped by 23%, as compared to its average growth rate of 15% in 2011-2015. In addition, Malaysia’s 2018 Budget allocated RM30mn to further spur the growth of medical tourism industry. 
  • More flights and the proposed upgrading of the Malacca International Airport will provide a leg up for medical tourism in Melaka. Recall that foreign patients are revenue booster. 
  • The average hospital bill size of a foreign patient is historically 1.4-1.5x of a local patient’s. With the additional capacity, Mahkota is well-positioned to capture growth opportunities for medical tourism.

5. Healthy financials to support its growth strategy. 

  • On track to pare down 50% of acquisition debt by Dec-17. Management is committed to its aggressive debt repayment schedule:
    1. it has already paid down c.35% of its acquisition debt as at end Sep-17;
    2. the remaining RM25mn repayment in Dec-17 should be supported by its strong operating cash flows (RM31mn net operating cash flow in 1Q18).


RECOMMENDATION

  • Maintain BUY with DCF-derived target price of S$0.83. Favorable socioeconomic tailwinds arising from
    1. public and private initiatives to improve infrastructure and regional connectivity;
    2. increasing domestic insurance take-up rate;
    3. ageing population; and
    4. cost competitive pricing compared to regional peers, should underpin HMI’s long-term growth.




Soh Lin Sin Phillip Securities | http://www.poems.com.sg/ 2017-12-18
Phillip Securities SGX Stock Analyst Report BUY Maintain BUY 0.830 Same 0.830



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