Health Management International - CIMB Research 2017-05-08: Doing Ward Rounds At Regency and Mahkota

HEALTH MANAGEMENT INTL LTD 588.SI

Health Management International - Doing ward rounds at Regency and Mahkota

We recently visited HMI’s hospitals (Regency Specialist Hospital and Mahkota Medical Centre) and also their neighbouring hospitals.
Ownership of private medical suites, well-equipped facilities and well-trained support staff are key to attracting and retaining good specialists at HMI, in our view.

Potential to grow its medical tourism market share, premised on development of more CoEs and sub-specialties, as well as deepening of local ties via 17 rep offices.
Healthy local patient demand underpinned by growing affluence, increasing insurance penetration and positive developments in Johor and Malacca.
Reiterate Add on HMI with a S$0.81 target price (DCF, 7% WACC).

We recently joined HMI’s management on a visit to its key hospital assets in Malaysia – Regency Specialist Hospital (RSH) in Johor and Mahkota Medical Centre (MMC) in Malacca, during which we also stopped by its competitor hospitals, namely KPJ Johor Specialist Hospital (KPJ MK, Hold), Gleneagles Medini and Pantai Hospital Ayer Keroh (IHH MK, Add).
We were impressed with HMI’s healthcare facilities (better than KPJ’s), patient footfall (ahead of Parkway Pantai’s), and overall strategy.

There was visibly greater patient volume at RSH when we visited last Friday, vs our last visit in Dec 16, while a new hospital extension is underway to meet higher demand by 2020.
Given its proximity to Singapore and the presence of more neighbouring hospitals, recruitment for qualified staff is highly competitive for RSH.
Apart from offering specialists to own their private suites, HMI’s edge in attracting and retaining doctors also lies in creating a well-equipped workplace supported by well-trained staff.

Backed by its comprehensive offering of disciplines (1st and only private hospital in Malacca with PET-CT scan and IVF centre), MMC is one of the leading medical tourism players in Malaysia, with a c.10% market share.
We see potential for rising contribution from medical tourism as both hospitals leverage on HMI’s extensive regional network of 17 patient rep offices, and organise more local outreach programmes and professional exchanges, a practice that has been similarly adopted by other peers in recent times.

We also saw the development of Melaka Gateway and some residential/commercial projects in the vicinity. These ongoing developments (including Iskandar Malaysia) could benefit Johor and Malacca in the long-term, as they improve existing infrastructure, attract MNCs and international schools etc., thereby translating into a bigger catchment of patients.
We also think that
1. growing affluence in Malaysia, and
2. increasing penetration of insurance coverage,
will continue to drive local patient demand for HMI.

HMI is expected to release its 3Q17 results after market close on 11 May.
We estimate one-off items arising from professional fees related to minority interests’ consolidation to be a drag on 3Q17 headline earnings, while the absence of substantial MI would be more visible in 4Q17F onwards.
Maintain Add on HMI with a DCF-based target price of S$0.81 (7% WACC, 3% LTG) as we see it as a cheaper hospital play (at 14.1x CY17 EV/EBITDA vs industry average of 22.3x) in the region with favourable structural trends.

NGOH Yi Sin CIMB Research | William TNG CFA CIMB Research | http://research.itradecimb.com/ 2017-05-08

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