Health Management International (HMI SP) - UOB Kay Hian 2018-05-11: 9MFY18 Earnings In Line. Solid Execution And Our Preferred Healthcare Pick

Health Management International (HMI SP) - UOB Kay Hian 2018-05-11: 9mfy18 Earnings In Line. Solid Execution And Our Preferred Healthcare Pick HEALTH MANAGEMENT INTL LTD SGX: 588

Health Management International (HMI SP) - 9MFY18 Earnings In Line. Solid Execution And Our Preferred Healthcare Pick

  • No surprises in 9MFY18 results, which saw Health Management International (HMI)'s net profit surge 115% y-o-y.
  • Operating matrices such as patient load growth and billing intensity continued to grow nicely, driven by good execution.
  • We maintain our forecasts of a 3-year EPS growth of 21% and BUY rating, with a DCF-based target price of S$0.83 (unchanged).


  • 9MFY18 underlying earnings in line with estimates. Excluding forex, the group's 9MFY18 core net profit of RM46.5m was broadly in line with our estimates, accounting for 78% of our full-year estimates. Core net profit improved 115% y-o-y due to its consolidation exercise of its hospitals as well as a better operating performance.
  • Solid core operations. 9MFY18 revenue rose 7.5% y-o-y, helped by favourable operating statistics such as more operational beds (+0.9% y-o-y to 437), higher patient load (+2.7% y-o-y to 113,500 patients) and higher average inpatient billing intensity (+3.8% y-o-y to RM7,650). As a result of operating efficiencies (from costs management and higher billing intensity), EBITDA margins expanded to 24.8% in 9MFY18 compared with 22.2% in 9MFY17.
  • Balance sheet remains strong, with a cash balance of RM70.7m and net debt of only RM25.2m or 0.1x net debt/equity. Management continues to maintain a prudent balance sheet but is open to further gearing up in the event of good investment opportunities.
  • Prospects remain promising. Patient loads continue to grow nicely (+2.7% y-o-y in 3QFY18). Foreign patient load growth continues to outpace local patients load growth, with circa 23-24% of patients from overseas. Out of the total number of foreign patients, we understand 90% are from Indonesia. Looking ahead, the group will continue to engage patients in Southeast Asia through its 16 patient referral centres in Indonesia, Malaysia and Singapore.
  • Mahkota – Building on its Centres of Excellence. The group continues to develop its flagship Mahkota Hospital with introduction of new consultants and the opening of the new ward 9B. During the period, the group added consultants such as colorectal surgeons, obstetrician & gynaecologists, radiotherapists & oncologist and a dental consultant. HMI is also undergoing construction of a small extension to its East Wing.
  • Progress report on Regency. As for its Regency Hospital in Johor, management is in the process of securing the necessary approval process for a new hospital block. The group expects to start land preparation works in the next 1-2 months. Meanwhile, management has already taken in new consultants in the Paediatric Surgery, Urology and Neurology departments.


  • No change to our earnings forecasts. We project FY17-20F EPS CAGR of 21%. There could be further changes as the group continues to explore new inorganic growth opportunities. Funding this is not as issue given its low net gearing of only 0.1x.


  • BUY with a DCF-based target price of S$0.83 (unchanged). Our target price is based on the following factors: 2018-22 free cash flow forecasts, 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 and good execution.

Andrew Chow CFA UOB Kay Hian | 2018-05-11
SGX Stock Analyst Report BUY Maintain BUY 0.830 Same 0.830