Health Management International - CGS-CIMB Research 2019-05-14: 3QFY6/19 Patience Needed For StarMed


Health Management International - 3QFY6/19: Patience Needed For StarMed

  • Health Management International (SGX:588)'s 3Q19 core PATMI was 15.9% lower y-o-y, within our/consensus expectations. StarMed’s start-up loss and higher financing costs were the main drags.
  • Both Mahkota Medical Centre and Regency Specialist Hospital continue to grow patient volume and average bill sizes.
  • Maintain ADD, premised on FY20-21F EPS recovery and steep valuation discount to its regional peers.

Healthy core operations, dragged by StarMed’s gestation costs

  • Health Management International (SGX:588) reported 3QFY19 core PATMI of RM13m, which fell 15.9% y-o-y on the back of gestation costs from the StarMed Specialist Centre in Singapore. Excluding the start-up loss, 3Q19 EBITDA and core PATMI would have grown 5.6% y-o-y and 10.0% y-o-y respectively.
  • Health Management International's 9M19 core PATMI of RM44m was broadly in line at 73% of our/consensus full-year forecasts.

Rising patient loads and average bill sizes in Malaysia

  • Health Management International's 3Q19 topline increased 8.1% y-o-y (9M19: +8.6%), thanks to growth in patient load (+1.3% y-o-y to 116,202), average outpatient bill size (+5.3% y-o-y to RM233) and average inpatient bill size (+4.9% y-o-y to RM8191) across Regency Specialist Hospital (RSH) and Mahkota Medical Centre (MMC).
  • Local/foreign patient mix held steady at 23%/77%, while bed occupancy saw an uptick to 61% (3Q18: 59%) based on an unchanged number of operational beds at 437.

Potentially 3-year gestation for StarMed

  • StarMed posted 9MFY19 EBITDA of RM6.6m and net losses of RM11.9m. While revenue contribution has not been meaningful, we think this should improve in FY20F on more market awareness, insurance tie-ups and patient referrals from Plus Medical.

Healthy operating cashflow mitigates higher net debt

  • Following Health Management International’s majority-stake acquisition of StarMed and 28% stake purchase of Plus Medical Holdings (primary care chain), its net gearing has inched higher from 0.6x at end-Dec 2018, to 1.0x at end-Mar 2019.
  • We think this could cap near-term expansion plans, but are not overly concerned as its RM70m-80m annual operating cashflow should help to fund the Regency extension project (RM160m over 3-year period) and pare down the net debt position gradually over FY19-21F.

Maintain ADD, with lower EPS and Target Price

  • As we factor in lower StarMed revenue and some associate losses, our FY19-21F EPS decreased by 0.1-7.5%. Our DCF-based Target Price also falls to S$0.68 (WACC: 7%), but maintain ADD on FY20-21F EPS recovery.
  • Downside risks: rising competition and unfavourable policy changes.
  • Faster StarMed turnaround and stronger medical tourism to Malaysia are catalysts for the stock.

NGOH Yi Sin CGS-CIMB Research | https://research.itradecimb.com/ 2019-05-14
SGX Stock Analyst Report ADD MAINTAIN ADD 0.68 DOWN 0.730