Health Management International - CGS-CIMB 2018-05-10: 3QFY18 In Better Shape

Health Management International - CGS-CIMB 2018-05-10: 3qfy18 In Better Shape HEALTH MANAGEMENT INTL LTD SGX: 588

Health Management International - 3QFY18 In Better Shape

  • Health Management International (HMI)’s 3QFY18 core net profit (+15.8% y-o-y) was in line; PATMI rose 117% y-o-y.
  • Key positives are increasing bill sizes for both inpatient and outpatient, as well as patient volume growth across both hospitals.
  • We see competitors’ expansion plans as a possible threat, but improving insurance access and favourable demographics could also benefit the group.
  • Synergistic M&As likely a stock catalyst, supported by its strong financial position.
  • Maintain ADD with lower Target Price of S$0.80 on higher capex assumptions.

3Q18 core net profit in line, up 15.8% y-o-y

  • HMI reported 3QFY18 core net profit of RM15.4m, flat q-o-q but up 15.8% y-o-y and within our/consensus expectations at 26% of full-year forecasts. 
  • 3Q18 core PATMI rose 117%, thanks to the consolidation of minority interests management undertook in 3Q17. 
  • We saw both topline growth and margin expansion this quarter, on the back of higher patient load (+2.7% y-o-y), an increase in average bill sizes and effective cost management.

More COEs to boost revenue intensity

  • HMI continues to develop its centres of excellence (COEs) and bring in new consultants at both Mahkota and Regency, which led to higher average inpatient bill size (+3.8% y-o-y) and outpatient bill size (+9.0% y-o-y). 
  • Its attractive positioning for medical tourism and community engagement initiatives remain as key drivers for foreign patient load growth. Bed occupancy ratio was stable at 59% (2Q18: 56%, 3Q17: 63%) despite new ward at Mahkota, as older wards undergo refurbishment and more day surgery beds are added.

Intensifying competition, but structural demand intact

  • While land preparation for the new Regency hospital block is underway, there are also more hospitals in the pipeline at both Johor and Malacca. 
  • We are not overly concerned about rising competition, as structural demand for private healthcare remains intact, protected by local zoning policies and HMI’s early mover advantage. 
  • Improving insurance penetration (current: 50/50 insured vs. cash-paying patients) and ageing demographics are industry tailwinds for the group, in our view.

Balance sheet strength to support expansionary plans

  • Apart from S$11m unutilised proceeds (from share placement to Heliconia) and strong operating cashflow of RM70m-80m per year, HMI also has a low net gearing of 0.1x (0.2x as at end-17), as it continues to pare down the S$53m acquisition debt. 
  • We think the group is in a strong financial position to pursue both organic and inorganic opportunities, which could be a key re-rating catalyst for the stock.

Maintain ADD

  • We tweak our FY18-20F EPS to account for lower revenue assumptions but better margins. Our DCF-based target price drops slightly to S$0.80 (7% WACC) as we adjust for higher capex. Maintain ADD. 
  • Downside risks include unfavourable regulatory changes, competitive pressure and poor M&A execution.

NGOH Yi Sin CGS-CIMB | https://research.itradecimb.com/ 2018-05-10
SGX Stock Analyst Report ADD Maintain ADD 0.80 Down 0.830