Health Management Int’l (HMI SP) - Maybank Kim Eng 2017-11-14: Healthy Growth; Strategic Share Placement A Plus

Health Management Int’l (HMI SP) - Maybank Kim Eng 2017-11-14: Healthy Growth; Strategic Share Placement A Plus HEALTH MANAGEMENT INTL LTD 588.SI

Health Management Int’l (HMI SP) - Healthy Growth; Strategic Share Placement A Plus

Results in line; strategic share placement to Heliconia 

  • Maintain BUY and DCF-based TP of SGD0.80; like the sustainable midteens earnings growth driven by a unique independent operating model.
  • 1Q18 core earnings were in line, at 27% of ours and consensus FY18E, up 117% YoY due to the full consolidation of minority interests from both of HMI’s hospitals. 
  • A share placement was also announced to Heliconia (subsidiary of Temasek) for a 2% stake at an issuance price of SGD0.65 per share (vs last closing price of SGD0.655). 
  • The SGD11m net proceeds will be used mainly for inorganic expansion and HMI could tap into Heliconia’s network and resources for more inorganic leads. The dilution impact from the share placement will be offset by the increase in cash balances, which is accounted for in our DCF valuation.

Operational growth remains healthy 

  • Excluding the consolidation impact, growth remained healthy in 1Q18. Revenue and gross profit increased 7% YoY. 
  • Patient load rose 5.4% YoY and foreign patients’ growth outpaced local patients (24% of total patients in 1Q18 vs 20% in 1Q17). Average inpatient and outpatient bill size grew 12.2% and 3.6% YoY, respectively. 
  • EBITDA after adjusting for forex and additional financing costs for the consolidation exercise increased 11% YoY. Also, EBITDA margin increased 1.1ppt, a sign that HMI is generating operating leverage. 
  • On the other hand, HMI is on track to reduce 50% of acquisition debt by Dec 2017, thanks to its robust operating cash flow.
  • Compared to 4Q17, its net debt in 1Q18 has fallen by MYR22m.

Continued expansion for both hospitals 

  • Mahkota continued to develop its centre of excellence; its screening procedures have helped to lift outpatient bill size and it has introduced four new sub-specialties. Also, it targets to increase bed capacity from 266 beds to 300 beds in FY18 and the direct flight routes from Malacca airport to Jakarta, Guangzhou and Vietnam should commence by end- 2018. Separately, 
  • Regency has introduced resident medical officers to improve critical care capabilities and this has received positive feedback. It’s still waiting for local authorities to approve its hospital extension application. For FY18, it also aims to increase its operating beds, from 166 beds to 200 beds.

Swing Factors


  • M&A of synergistic businesses, HMI is actively exploring M&A targets to scale up its operations; it is studying nearby markets, including Malaysia and Indonesia.
  • Better-than-expected revenue and earnings growth from higher patient volume, pricing and operating leverage.
  • Better-than-expected revenue from medical tourists, due to weaker MYR relative to other currencies.


  • Competition from nearby hospitals in Johor and Malacca.
  • HMI could be competing for good doctors and patients.
  • Also, Johor has several new hospitals coming up.
  • Regulatory changes to cap the medical-related fees and relax the practice requirement of foreign doctors could impact private hospitals.
  • Pursuing M&A at unfavourable terms, such as overpaying and acquisition of value-destroying businesses.

John Cheong CFA Maybank Kim Eng | 2017-11-14
Maybank Kim Eng SGX Stock Analyst Report BUY Maintain BUY 0.800 Same 0.800