Health Management International - Maybank Kim Eng 2019-05-15: Stay The Course

HEALTH MANAGEMENT INTL LTD (SGX:588)

Health Management International - Stay The Course

HEALTH MANAGEMENT INTL LTD (HMI, SGX:588)'s 9MFY19 core PATMI was at the lower end of our estimate, and missed consensus.
Due to StarMed-related gestation costs, 3QFY19 core PATMI of SGD13.7m fell 14% y-o-y. However, we believe our thesis that HMI is a beneficiary of aging population, rising affluence and medical tourism remains intact, as excluding FX, exceptional items and StarMed gestation costs, PATMI grew 10% y-o-y.
We trimmed FY19-21E EPS by 6-7% to factor in adjustments to interest and tax expense assumptions.

Maintain BUY with 3% lower DCF-based Target Price of SGD0.66 (WACC: 7.1%, LTG: 1.5%).

HMI's 3QFY19 revenue rose 8% y-o-y, supported by a 1% rise in total patient load, and 5% uptick in both average inpatient and outpatient bill sizes across both Malaysian hospitals. EBITDA fell 2.2% y-o-y due to gestation costs from StarMed; Excluding that, EBITDA would have risen 5.6%.
MMC will be the first hospital south of KL to offer tomotherapy services. This should extend the lead of MMC’s Cancer Centre, a key centre of excellence.
At RSH, construction of the extension block has begun. Upon commissioning in 2021E, RSH will be a 380-bed hospital from 218 presently.

At StarMed, there are now around 30 specialists, and HMI has started various initiatives to boost awareness of StarMed to the community. HMI emphasizes that with StarMed’s prices, which will be lower than that of private hospitals it will be able to offer a stronger proposition for private patients. The official launch is expected to take place in 2020.
Through 9MFY19, total debt has increased nearly MYR200m. The StarMed property mortgage accounts for 64% of total debt. Net debt to trailing EBITDA stood at 2.3x (FY18: 1.2x), while net gearing was at 1x (FY18: 0.6x).

Key risks include:
- underestimation of StarMed gestation costs;
- fluctuations in FX and foreign patients (which account for 20-23% of the total);
- adverse regulatory changes; and
- competition.

Lai Gene Lih CFA Maybank Kim Eng Research | https://www.maybank-ke.com.sg/ 2019-05-15

SGX Stock Analyst Report BUY MAINTAIN BUY 0.66 DOWN 0.680