Health Management International (HMI SP) - Maybank Kim Eng 2016-08-29: Under-the-radar hospital group

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HEALTH MANAGEMENT INTL LTD 588.SI

Health Management Int'l (HMI SP) - Under-the-radar hospital group

Unique hospital operator & established track record 

• Listed in SGX since 1998, HMI operates two tertiary hospitals in Malaysia.
• It is the only hospital group in Malaysia that offers Singapore’s independent practice model, which has historically worked well in attracting and retaining top doctors. In 1998, it acquired Mahkota Medical Centre based in the Malacca state. 
• HMI turned around the loss-making hospital in three years after trimming costs and improving operations. Seeing potential in the Johor state, HMI subsequently acquired Regency Specialist Hospital in 2009. Similar to its first hospital, patient load grew rapidly and Regency achieved profitability in 2014, five years after it started operations.

Accelerating growth & healthy balance sheet 

• Under the stewardship of Singapore’s management and operating model, HMI has achieved notable financial performance. 
• Core earnings and operating cash flow grew at a 3-yr CAGR of 57% and 44%, much better than the 3-yr revenue CAGR of 17%, due to turnaround of Regency and operating leverage from scaling up. 
• Also, HMI turned net cash and declared a dividend in FY16, the first time in five years.

Continued expansions to sustain growth 

• Regency will be adding a new hospital building to cater to the strong demand. Expected to complete in mid-2019, this could double its capacity. In the meantime, management shared that Regency still has room to grow, as it only operates 166 out of the 218 beds. 
• For the more mature Mahkota, it will increase the complexity of treatments and free up space by shifting the back office departments out of the hospital. 
• On the other hand, management is also evaluating various inorganic options.

34% discount to peers despite better ROE 

• HMI trades at 27x forward P/E (based on management’s target of at least 10% YoY growth) vs peers’ average of 41x, implying a 34% discount. 
• Also, we note that HMI trades at a 13-57% discount to KPJ and IHH, its competitors in Malaysia, trading at 31x and 63x FY16 P/E. 
• Both peers are expected to grow at a 3-year EPS CAGR of 12-13% vs HMI’s target of at least 10%. Also, both peers generate ROE of 5-11% vs HMI’s c.20%.

NOT RATED

John Cheong CFA Maybank Kim Eng | http://www.maybank-ke.com.sg/ 2016-08-29

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