Health Management International - CIMB Research 2017-08-24: 4Q17 Beneficiary Of Medical Tourism

HEALTH MANAGEMENT INTL LTD 588.SI

Health Management International - 4Q17: Beneficiary Of Medical Tourism

Health Management International (HMI)'s FY6/17 core PATMI (+68% yoy) met ours/consensus numbers, despite the dual occurrence of Hari Raya. Higher financing costs and net gearing could be temporal.
Apart from its quality hospital assets, we see HMI as a beneficiary of medical tourism, given its foreign patient load growth outpaced that of local patient load in FY17.
Patient volume grew across Mahkota Medical Centre (MMC) and Regency Specialist Hospital (RSH), while MMC also benefited from stronger EBITDA margin and average bill size growth.

Hospital bed expansion and more centres of excellence (COEs) are underway for both hospitals. Risks are FX-related and intensifying competition among hospitals.

HMI posted 4QFY17 core PATMI of RM10.5m (+90% yoy) largely due to the completed consolidation of non-controlling interests in 3Q17.
FY17 topline improved 9.5% yoy thanks to stable revenue intensity and healthy patient load growth across both hospitals, despite Hari Raya falling twice in its financial year.
Excluding one-offs from FX losses and professional fees, FY17 core PATMI of RM32m (+68% yoy) met our estimate and Bloomberg consensus. EBITDA margin was slightly better at 22.1% vs. 21.1% in FY16.

Recall that HMI previously announced its drawdown of S$53m from the term loan facility (5.25%) to facilitate the MI (minority interest) acquisitions of Mahkota Medical Centre (MMC) and Regency Specialist Hospital (RSH). We saw this translate into higher financing costs of RM4.0m in 4Q17 (3Q17: RM0.7m), but are unfazed as management is committed to paring down 50% of such debt by end-2017 with its strong internally generated cashflow, hence improving its current net gearing ratio of 52%.

MMC continues to exhibit patient load growth in FY17 and EBITDA margin expansion to FY17’s 28.8% (FY16: 27.5%). With the recent addition of PET CT to its cancer centre and upcoming launch of Airasia direct flights connecting Guangzhou, Vietnam and Jakarta, we see potential for MMC to lift its margin and tap demand from medical tourism.
At 62% bed occupancy (even higher during mid-day), management plans to add c.34 beds in FY18 with eventual capacity of 340 beds.

Being the younger hospital (vs. MMC’s operating history of 23 years), RSH continues to benefit from robust patient volume (inpatient +19% yoy, outpatient +29% yoy), partly due to its proximity to the industrial area.
We think the slight dip in average bill size could be temporary, while recruitment for support staff weighed on the EBITDA margin (FY16: 19.8%, FY17: 19.1%).
As RSH develops more centres of excellence (e.g. neurosurgery) and raises bed capacity to 200 in FY18, it will become a key earnings driver for HMI.

HMI is an Add given its quality hospital assets in Malaysia and earnings growth prospects. We view it as a beneficiary of rising medical tourism, where growth in foreign patient load is now c.2x that of local patient load, accounting for 23% of its total patient pool (previously 22%) in FY17.
We tweak our FY18-19F numbers slightly to adjust for higher financing charges, which led to 0.7-0.9% EPS cuts.
Our DCF-based target price is intact at S$0.83 (7% WACC) as we rollover to end-FY18F and introduce FY20 forecasts.

NGOH Yi Sin CIMB Research | http://research.itradecimb.com/ 2017-08-24

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