Health Management International - CGS-CIMB Research 2019-06-10: Our Preferred Small-Cap Pick In Healthcare


Health Management International - Our Preferred Small-Cap Pick In Healthcare

  • The strategic locations, affordable pricing and established track records of Mahkota Medical Centre (MMC) in Malacca and Regency Specialist Hospital (RSH) in Johor make Health Management International (HMI) an attractive play on Malaysia’s medical tourism.
  • We expect narrowing loss from StarMed as it ramps up patient volumes.
  • Health Management International (HMI, SGX:588) trades at 20.8x CY20F P/E, c.40% below its regional hospital peers’ average of 33.7x.

A steadily-growing base in Malaysia

  • Despite rising competitive headwinds from the newly-opened KPJ Bandar Dato’ Onn and upcoming Columbia Asia South Key in Johor, HMI’s two hospitals – Mahkota Medical Centre (MMC) in Malacca and Regency Specialist Hospital (RSH) in Johor – continue to record growth in patient volume and revenue intensity per patient.
  • In 9MFY19, HMI posted 3.1% y-o-y growth in patient load, to 358.6k. Bed occupancy in 2Q-3QFY19 was stable at above 60%, with domestic-to-foreign patient mix at 77:23.
  • Average inpatient and outpatient bill size rose 4.2% and 4.7%, respectively, in 9MFY19, on the back of more complex cases. Management has identified 10 and five more centres of excellence (CoEs) to develop for MMC and RSH, respectively; we believe this will drive growth in bill sizes and margins. For instance, having installed the only PET-CT machine in Malacca, MMC plans to launch tomotherapy services soon, becoming the only hospital south of Kuala Lumpur to offer this.
  • While MMC (288 licensed bed capacity) progressively refurbishes its older wards, RSH has commenced the construction of its new hospital block (capex: RM160m), which will see its licensed capacity rise from 218 beds to 380 (with potential to expand to 500). We expect a gradual step-up in start-up costs as:
    1. RSH extension opens in phases upon its targeted commissioning in 2021F, and
    2. RSH is not a new site.

Building a future base in Singapore

  • HMI entered the Singapore market in 2018 when it acquired a 70% stake in StarMed Specialist Centre, followed by a 28% stake purchase in Plus Medical Holdings (primary care chain), which could help with patient referrals.
  • While StarMed reported 9MFY19 EBITDA loss of RM6.7m (RM11.9m net loss), we expect these losses to narrow and EBITDA breakeven to be achieved by end-FY21F, as the group improves market awareness, and increases sign-ups with insurance companies and third-party administrators (TPAs).

Maintain ADD with DCF-based Target Price of S$0.68

  • We keep our ADD call on the stock, with a DCF-based Target Price of S$0.68 (7% WACC).
  • Downside risks include intensifying competition and unfavourable regulatory changes.
  • Key potential re-rating catalysts are faster StarMed turnaround and stronger medical tourism in Malaysia.

NGOH Yi Sin CGS-CIMB Research | https://research.itradecimb.com/ 2019-06-10
SGX Stock Analyst Report ADD MAINTAIN ADD 0.680 SAME 0.680