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.

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.

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.

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.

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.

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