Health Management International - CIMB Research 2018-01-07: Affordable Care Goes A Long Way

Health Management International - CIMB Research 2018-01-07: Affordable Care Goes A Long Way HEALTH MANAGEMENT INTL LTD 588.SI

Health Management International - Affordable Care Goes A Long Way

  • Improving medical tourism and development of CoEs to drive earnings growth.
  • Unlike its bigger cap peers, HMI does not face any near-term gestation costs, and capacity is not a limiting factor.
  • Maintain Add with DCF-based TP of S$0.83. 
  • Key catalyst is synergistic M&As.

Beneficiary of growing medical tourism in Malaysia

  • Health Management International (HMI) owns 2 hospitals in Malaysia, namely the Mahkota Medical Centre (MMC) in Malacca and Regency Specialist Hospital (RSH) in Johor. With a combined licensed bed capacity of 506, HMI is one of the top 5 private hospital operators in Malaysia with approximately 10% market share of the nation’s medical tourism.
  • Backed by its 20-year operating history and the affordability of medical treatments relative to neighbouring countries, we believe the improving connectivity links by new AirAsia direct flights would drive higher patient load for the hospitals.
  • The RM30m allocation in Malaysia’s 2018 Budget and additional initiatives to promote medical tourism by the Malaysia Healthcare Travel Council (MHTC) also bode well for the group, in our view. Foreign patients currently represent c.24% of its total patient mix.

Capacity not a constraint for both hospitals

  • Mahkota Medical Centre (MMC) currently has 266 operational beds (licensed capacity of 288) and will add 30+ beds in FY18 to cope with higher patient demand, by reallocating space from nonclinical services. Mahkota Medical Centre also has available land bank that could possibly be developed for hospital extension.
  • Meanwhile, there are 166 operational beds at Regency Specialist Hospital (RSH), with plans to increase the capacity to 200 in FY18. Development for an extension block (RM160m capex) is also underway, which will eventually make Regency Specialist Hospital a 500-licensed bed hospital upon completion in FY21.

Patient load and average bill sizes on upward trend

  • Mahkota Medical Centre and Regency Specialist Hospital continue to attract strong patient volumes, both local and foreign (mainly Indonesians), recording 5.4% yoy growth in 1QFY18.
  • We also saw higher average inpatient and outpatient bill sizes in 1QFY18, increasing 3.6% and 12.2% yoy respectively, thanks to more complex surgeries, diagnostics services and lab tests. 
  • We expect the development of more centres of excellence (CoEs) to lead to growth in bill sizes and better margins.

Improved shareholder base, but trading liquidity still an issue

  • In 2017, HMI welcomed a new shareholder, Heliconia Capital Management (a subsidiary of Temasek) via a S$11m new share placement. Apart from a stronger shareholder base, we think this partnership could accelerate the group’s regional expansion plans.
  • We continue to like the stock for its quality assets, growth potential and cheaper valuation of 14.9x CY18 EV/EBITDA (vs. industry average of 18.8x). Maintain Add with a DCF-based target price of S$0.83.
  • Downside risks include unfavourable FX movements, intensifying competition and low trading liquidity. 
  • We see synergistic M&As and market share gains in Malaysia’s medical tourism as re-rating catalysts.

NGOH Yi Sin CIMB Research | http://research.itradecimb.com/ 2018-01-07
CIMB Research SGX Stock Analyst Report ADD Maintain ADD 0.830 Same 0.830