Health Management International - CIMB Research 2017-11-14: 1QFY18 Booster Dose From Heliconia

Health Management International - CIMB Research 2017-11-14: 1QFY18 Booster Dose From Heliconia HEALTH MANAGEMENT INTL LTD 588.SI

Health Management International - 1QFY18 Booster Dose From Heliconia

  • HMI's S$11m new share placement to Heliconia not only boosts shareholder base but also offers fresh funds and new partnerships, possibly expediting inorganic growth.
  • 1QFY6/18 core EPS of 1.9cts (+56% yoy) was in line, thanks to topline growth, EBITDA margin expansion and full consolidation of MI.
  • Stronger medical tourism drove total patient load growth (+5.4% yoy) and higher average bill sizes (inpatient +3.6% yoy, outpatient +12.2% yoy).
  • 1Q18 net gearing improved to 0.3x as HMI pared down acquisition debt.
  • Our Add call and DCF-based TP of S$0.83 (7% WACC) are unchanged.

1QFY18 core EPS +56% yoy 

  • HMI reported 1QFY18 revenue of RM117m, up 6.9% yoy and 4.8% qoq, led by higher patient loads (+5.4% yoy) and average bill sizes across both Mahkota Medical Centre (MMC) and Regency Specialist Hospital (RSH). EBITDA margin also gained 0.9% pts from 1Q17’s 23.6% on the back of rising revenue intensity and better cost management.
  • Despite higher financing costs and enlarged share base from the full consolidation of MI, 1Q18 core EPS expanded 56% yoy, forming 27% of our/consensus full-year forecasts.

Foreign patient load growth outpaced local patient load 

  • Operational statistics for both hospitals remain healthy. Of the 118.5k patients recorded in 1Q18, we saw stronger growth from foreign patient load (mainly Indonesians), which accounted for 24% of total patient mix (1Q17: 20%, 4Q17: 23%), thanks to increased marketing efforts by rep offices and favourable medical tourism outlook for Malaysia. 
  • With the upcoming launch of AirAsia’s direct flights connecting Guangzhou, Vietnam and Jakarta, we see upside potential for MMC given its reputation and operating history.

Development of CoEs to further drive average bill sizes 

  • HMI also benefitted from higher average bill sizes, as more complex surgeries resulted in 3.6% yoy growth in average inpatient bill size. Average outpatient bill size rose 12.2% yoy due to more diagnostics services and lab tests conducted. 
  • We note that utilisation of the PET-CT scan machine at MMC has improved since its soft opening in Jul 17, while development of more centres of excellence (CoEs) at both hospitals (MMC: 10 currently, RSH: 5) will continue to drive bill sizes and EBITDA margin expansion.

Improved balance sheet strength 

  • 1Q18’s financing expenses of RM2.1m were higher than 1Q17’s RM0.5m, due to the S$53m drawdown of term loan facility for minority interest (MI) acquisition; but down from 4Q17’s RM4.0m as management delivered on its commitment to pare down debt. 
  • Net gearing position fell to 0.3x (vs 0.5x as of end FY17), supported by stronger operating cashflow of RM31m in 1Q18 (1Q17: RM22m).

S$11m firepower from Temasek 

  • HMI also announced a S$11m new share placement to Heliconia Capital Management, a wholly-owned subsidiary of Temasek Holdings, at S$0.65/share which is 0.9% premium to the 30-day VWAP. Apart from strengthening its shareholder base, we believe this S$11m capital injection and new partnership could help expedite HMI’s regional expansion plans, of which we do not rule out a ‘hub and spoke’ model for the group.

Add call and S$0.83 TP intact 

  • We keep our FY18-20F assumptions unchanged, but our EPS is lowered by 1-2% on a bigger share base from recent share placement. 
  • Maintain Add with a DCF-based target price of S$0.83 (7% WACC). 
  • Key catalysts include synergistic M&As, while unfavourable FX movements and intensifying competition could pose downside risks to our Add call. 

NGOH Yi Sin CIMB Research | http://research.itradecimb.com/ 2017-11-14
CIMB Research SGX Stock Analyst Report ADD Maintain ADD 0.830 Same 0.830