Health Management International - CGS-CIMB Research 2018-11-14: 1QFY6/19 Entering Gestation


Health Management International - 1QFY6/19: Entering Gestation

  • HMI's 1Q19 core PATMI of RM14.1m (- 10.9% y-o-y) was a slight miss due to higher financing costs and start-up loss from StarMed.
  • MMC and RSH operationally strong despite FX and competitive headwinds.
  • Maintain ADD; faster ramp-up of StarMed could catalyse the stock.

1Q19 core PATMI dragged by financing and start-up costs

  • Excluding FX losses of RM3.5m, Health Management International (HMI) recorded 1Q19 core PATMI of RM14.1m, down 10.9% y-o-y and deemed slightly below ours/consensus expectations at 22%/21% of FY19F forecast.
  • The 6.7% topline growth and 0.5% pt EBITDA margin expansion in 1Q19 were offset by higher financing costs and start-up loss from StarMed, its 70%- owned subsidiary (previously 62.5%).

Financing expenses to come off gradually

  • We saw a step-up in financing costs to RM5.7m in 1Q19 (1Q18: RM2.1m), partly due to the accelerated amortisation of RM2.5m (non-recurring) of capitalised expenses relating to the term loan facility (for the purpose of minority interests’ consolidation).
  • Additional borrowings for the 70% stake acquisition of StarMed also contributed to the higher finance expenses, which should improve gradually as the group pares down its debt with the strong operating cashflow.
  • Net gearing was stable at 0.6x as of end-1Q19.

Operationally strong amid some headwinds

  • Both Mahkota (MMC) and Regency (RSH) hospitals continue to report higher revenue intensity and complexity of surgeries, as average outpatient and inpatient bill sizes grew 3.7% and 7.6% y-o-y respectively. Total patient load was up 1.3% y-o-y mainly driven by domestic patients (+3.6% y-o-y) while foreign patient volume fell due to rupiah weakening.
  • We believe HMI has the first-mover edge to fend off potential competition from the upcoming opening of KPJ Bandar Dato Onn and Columbia Asia South Key in Johor.

StarMed: well-positioned for domestic patient volume

  • While StarMed received its licensing in Jul 18 and will officially open in early 2019, there was little revenue contribution in 1Q19. It has since inked partnerships with more than 20 specialists, and completed procedures across all the various specialties (radiology, biopsy, endoscopy, etc.).
  • We expect StarMed’s 1Q19 net loss of c.RM5m to narrow subsequently as the newly-opened ambulatory care centre ramps up.

Maintain ADD

  • We cut our FY19-21F EPS forecasts by 2.8-3.5% on the back of higher financing and start-up costs from StarMed, and lower our DCF-based Target Price to S$0.73 (WACC: 7.0%), which implies 15.2x FY20F EV/EBITDA. Maintain ADD.
  • Faster ramp up of StarMed is a key catalyst.
  • Downside risks: rising competition and unfavourable regulatory changes.

NGOH Yi Sin CGS-CIMB Research | https://research.itradecimb.com/ 2018-11-14
SGX Stock Analyst Report ADD MAINTAIN ADD 0.73 DOWN 0.790