Health Management International (HMI SP) - UOB Kay Hian 2017-11-15: 1QFY18 Earnings In Line; Strategic Partnership To Facilitate Regional Expansion

Health Management International (HMI SP) - UOB Kay Hian 2017-11-15: 1QFY18 Earnings In Line; Strategic Partnership To Facilitate Regional Expansion HEALTH MANAGEMENT INTL LTD 588.SI

Health Management International (HMI SP) - 1QFY18 Earnings In Line; Strategic Partnership To Facilitate Regional Expansion

  • Health Management International’s (HMI)1QFY18 core earnings of RM15.9m (+117% yoy) are in line with our estimate. The group continued to deliver resilient revenue growth of 7% yoy, driven by higher patient load and revenue intensity. 
  • Notably, HMI announced an S$11m placement to strategic investor Heliconia, which we view as a positive, as it signals the group’s commitment to regional growth. 
  • Maintain BUY and target price of S$0.83.


1QFY18 core earnings in line with our estimate. 

  • Health Management International’s (HMI) 1QFY18 earnings benefitted from the consolidation exercise. Core earnings of RM15.9m (+117% yoy) were in line with expectations, coming in at 26% of our full-year estimate. Meanwhile, earnings were driven by revenue increase of 6.9% yoy on the back of higher patient load and revenue intensity growth.

Details of placement to strategic investor Heliconia. 

  • HMI announced a share placement to strategic shareholder, Heliconia Capital Management, an investment firm and wholly owned subsidiary of Singapore investment company, Temasek Holdings. 
  • HMI agreed to issue to Heliconia 16.9m new shares (2% of enlarged share capital) at S$0.65/share, raising S$11m gross proceeds. The issue price represents a discount of 0.8% to HMI’s closing price on 13 November, and a premium of 0.9% to the volume weighted average closing price on a 30-day period ending 13 November. 
  • The placement is not expected to have a material effect on HMI’s net income for FY18.

Partnership signals strong commitment to regional expansion. 

  • We view the strategic partnership with Heliconia positively as it signals strong intention and commitment by HMI to grow regionally. Heliconia has invested in Singapore enterprises and helped to further expand and internationalise their business operations. Through the partnership, HMI is well positioned to leverage Heliconia’s network and resources to facilitate its regional expansion, which we understand is focused on Southeast Asia. 
  • The placement is subject to SGX’s approval and is expected to complete by end-November.

Foreign patient load growth continued to outpace local patients. 

  • Of note, 1QFY18 foreign:local mix saw a marked shift to 24:76 (1QFY17: 20:80) as foreign patient load growth continues to outpace that of the local patient load. We reckon this as a positive sign that the group’s continued efforts to develop centres of excellence as well as multidisciplines at both hospitals are bearing results. 
  • Furthermore, the cheaper average bill sizes at HMI’s hospitals (at one-third of Singapore’s private healthcare costs) remain as one of the key pull factors for more price-sensitive Indonesian patients.

Average bill size inched upwards. 

  • Corresponding to the growth in the number of foreign patients, who typically command higher revenue intensity due to complexity of case mix, HMI also saw its average bill size expand in 1QFY18. 
  • As an indication, average outpatient bill size increased 12.2% yoy to RM217, while average inpatient bill size grew 3.6% yoy to RM7,644.

On track to pay down 50% of acquisition debt. 

  • As of 1QFY18, the group had net debt of RM66.3m due to additional debt facility post consolidation of ownerships.
  • Nevertheless, we anticipate leverage to be well managed, considering the group remains on track in its plans to pay down 50% of acquisition debt by Dec 17 with internally generated cash. As at 30 Sep 17, the group had paid down some of its debt, which saw gearing decline to 0.3x from 0.5x as at 30 Jun 17.

Continued development of centres of excellence at Mahkota. 

  • During the quarter, Mahkota continued to develop its Centres of Excellence, with the introduction of new paediatric rehabilitation services catering to special-needs children, as well as new subspecialties such as neonatology, rheumatology, trauma and spine surgery. 
  • Meanwhile, we expect bed capacity to increase to 300 beds in FY18 (from 266).

Regency Hospital extension on track for completion in FY21. 

  • We expect construction of the new hospital extension to commence in FY18 and will likely start operation in FY21.
  • The new block will add more inpatient beds, clinic services, operating theatres as well as clinic suites for sale or for rental to doctors. Regency will then become a 380-bed tertiary hospital with capacity to expand to 500 beds.


  • No change to earnings. We project a 3-year (FY18-20) EPS CAGR of 21%.


  • Maintain BUY and DCF-based target price of S$0.83. 
  • Our target price is based on the following factors: explicit 2018-22F free cash flow forecast, terminal growth of 2.5% (in line with Malaysia’s 10-year long-term inflation rate) and WACC of 7.0%. 
  • We remain positive on HMI’s growth outlook, given the strong medical tourism prospects in Malaysia as well as the group’s expansion plans.

Thai Wei Ying UOB Kay Hian | Andrew Chow CFA UOB Kay Hian | http://research.uobkayhian.com/ 2017-11-15
UOB Kay Hian SGX Stock Analyst Report BUY Maintain BUY 0.830 Same 0.830