Excerpts from UOB Kay Hian report

Analysts: Thai Wei Ying & Andrew Chow, CFA

Health Management International (HMI SP) 1HFY18:
Earnings In Line As Resilient Operations Continue; Dividend Policy Announced 


HMI 8.17(L-R): CFO Chin Wei Yao and CEO Chin Wei Jia. Their mother, Dr Gan See Khem, is HMI's executive chairman. File photo.1HFY18 core net profit of RM31.0m (+113% yoy) is in line with our forecast. The group continued to record resilient revenue growth of 8% yoy, bolstered by strong patient load and revenue intensity growth. 

We remain optimistic of the group’s growth prospects, which we believe will be driven by higher revenue intensity cases as well as the positive medical tourism outlook in Malaysia. Maintain BUY and DCF target price of S$0.83.



RESULTS

HMI

Stock price: 
63 c

Target price: 
83 c

1HFY18 core earnings in line with our estimates. HMI's 1HFY18 earnings benefitted from a consolidation exercise. Core net profit of RM31.0m (+113% yoy) is in line with expectations, coming in at 52% of our full-year estimate. Meanwhile, earnings were driven by revenue increase of 7.7% yoy on the back of higher patient load and revenue intensity growth.

• Adoption of new dividend policy. The group declared an interim dividend of 1 RM cent per share. It also announced a dividend policy to declare dividends of not less than 20% of core operating earnings of the financial year. Previously, HMI had no fixed dividend policy.

• Foreign patient load growth exceeded local patient load. 2QFY18 foreign:local mix improved to 23:77 (2QFY17: 21:79) as foreign patient load growth continued to outpace local patient load. We reckon this as a positive sign that the group’s continued efforts to develop centres of excellence as well as multi-disciplines at both hospitals are bearing results.

• Average bill size inched up. Corresponding to the growth in foreign patients who typically command higher revenue intensity due to complexity of case mix, HMI also saw its average bill size expand in 2QFY18. Indicatively, average outpatient bill increased 10.9% yoy to RM222, while average inpatient bill grew 3.6% yoy to RM7,993.

• Improvement in balance sheet as group pared down debt. As of 1HFY18, the group’s core business generated strong positive operating cash flows of RM40.6m. At the same time, the group continued to pare down debt and net gearing declined to 0.2x (as at 31 Dec 17) from 0.5x as at 30 Jun 17.

• Development of centres of excellence at Mahkota. During the quarter, Mahkota continued to develop its centres of excellence, with the introduction of new consultants in anaesthesiology, ENT, orthopaedic & trauma. Meanwhile, a new ward was opened as part of the group’s expansion initiatives.

• Regency Hospital extension block targeted to commission in FY21. The new planned hospital extension block at Regency is in the regulatory approval process, and its commission is targeted in FY21. Regency will become a 380-bed tertiary hospital with the capacity to expand to 500 beds.

EARNINGS REVISION/RISK
• No change to our earnings forecasts. We project FY18-20 EPS CAGR of 21%.

VALUATION/RECOMMENDATION 
• Maintain BUY and DCF-based target price of S$0.83. Our target price is based on the following factors: explicit 2018-22 free cash flow forecasts, terminal growth of 2.5% (in line with Malaysia’s 10-year long-term inflation rate) and WACC of 7.0%.

We remain positive on HMI’s growth outlook, given the strong medical tourism prospects in Malaysia as well as the group’s expansion plans.


Full report here.


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