Health Management Int’l (HMI SP) - Maybank Kim Eng 2018-05-15: Expanding Into Ambulatory Care Centre

Health Management Int’l (HMI SP) - Maybank Kim Eng 2018-05-15: Expanding Into Ambulatory Care Centre HEALTH MANAGEMENT INTL LTD SGX: 588

Health Management Int’l (HMI SP) - Expanding Into Ambulatory Care Centre

Long-term potential to compensate start-up losses

  • HMI has committed SGD40m to acquire a 62.5% stake in StarMed @ Farrer Square, a new ambulatory care centre in Singapore. HMI could tap into the positive trend of more day procedures being done outside of hospitals and expand its presence in the ASEAN region. 
  • We expect start-up losses of SGD1-2m for the first two years of operations, but this deal should be positive over the long term. 
  • Accordingly, we trimmed our FY19-20E EPS by 4-7% but maintain our DCF-based Target Price of SGD0.80 (WACC 7.4%, LTG 2.0%) as we expect earnings contribution in FY21E onwards to compensate for the start-up losses with upside potential on good startup.

Tapping into global trend of day surgery

  • Through StarMed, HMI aims to tap into the growing global trend towards procedures being done outside of hospitals. 
  • StarMed will be the first private one-stop ambulatory care centre in Singapore, with an initial focus on cardio-vascular, digestive, minimally invasive surgeries and diagnostic services. The 16k sf facility is conveniently located above Farrer Park MRT station. The minority shareholders consist of seven specialist doctors who aim to contribute their specialties as well. 
  • According to Singapore Department of Statistics and BMI, the growth in day procedures outpaced inpatient procedures, with a 16-year CAGR of 7.6% vs 2.1% for the latter.

Robust FCF could fund the deal

  • The total commitment of SGD40m comprised of 3 components:
    1. purchase consideration of SGD6.9m for a 62.5% stake and an existing SGD10m shareholder’s loan;
    2. new shareholder loan of SGD1.9m to support the start-up of the business; and
    3. guarantees limited to SGD31.2m loan obligations.
  • The cash consideration of SGD.8m will be funded from proceeds from Heliconia’s SGD11.0m placement in Nov 2017. 
  • We expect HMI’s net gearing to exceed 60% from the 10% level currently. However, given the robust FCF of HMI’s Malaysia operations, its net interest cover will remain at more than 10x.

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 that 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 for and acquiring value-destroying businesses. 

John Cheong CFA Maybank Kim Eng | https://www.maybank-ke.com.sg/ 2018-05-15
SGX Stock Analyst Report BUY Maintain BUY 0.800 Same 0.800