HEALTH MANAGEMENT INT'L: Robust Malaysia healthcare sector lifts 3QFY2018 margin

Health Management International's extension block at its Regency Specialist Hospital will increase its capacity in Johor from 218 beds to 500 beds by FY2021. Land preparation work is expected to commence next month. (Artist's impression) Healthcare providers are generally challenged by rising cost and shrinking margins (Deloitte 2018 Global Healthcare Outlook) but Health Management International ("HMI") has risen against the trend with a 3.7 percentage point increase in EBITDA margin to reach 24.4% for 3QFY2018. The Group operates 2 private hospitals in Malaysia, where an increasing domestic insurance take-up rate, an aging population and increasing regional connectivity are expected to further contribute to the growth of private healthcare services. BMI Research has forecasted Malaysia's health expenditure will grow 7.9% p.a. from 2016 to 2020. HMI's margins were helped by higher patient loads, higher average bill sizes, and effective cost management. It posted yet another quarter of steady revenue growth -- by 7% to reach MYR 115.4 million for 3QFY2018. Bill sizes increase with the complexity of procedures, and the Group has been recruiting new consultants for specialist disciplines such as colorectal surgery, radiotherapy, oncology, pediatric surgery, as well as urology and neurology. "Growth in foreign patient load outpaces the local patient load," said HMI CEO Chin Wei Jia at its results briefing on Thursday (10 May). 22% of the Group's patient load in 3QFY2018 was from foreigners. The Group is benefiting from Malaysia's robust medical tourism market, where growth will be as high as 30% CAGR over 2016 to 2024 according to estimates by Transparency Market Research. Other highlights of 3QFY2018: Profit before tax was up 147% yoy at MYR 22.1 million. Total patient load increased by 2.7% yoy to 113,451 Average inpatient bill size increased by 3.8% yoy to MYR 7,650 For more information, refer to its 3QFY2018 results media release here.

To cope with the growing number of patients at its hospitals and rising demand for private healthcare, the Group has embarked on expansion initiatives to capture growth opportunities.

At its Mahkota Medical Centre in Melaka, a new ward has been opened which allows the hospital to refurbish its older wards over time. In addition, Mahkota is constructing a small extension to the building to allow more clinical space for its radiology and other departments.

Its Regency Specialist Hospital in Johor will have a new block that will more than double existing capacity with additional inpatient beds, clinical services, operating theatres and clinical suites for sale or rental to doctors. Upon its targeted commissioning in 2021, Regency will become a 380-bed tertiary hospital, with potential to expand capacity to 500 beds.

Below is an excerpt of the questions raised at the Group's 3QFY2018 results briefing, and the replies provided by CEO Chin Wei Jia and CFO Chin Wei Yao.

(L-R): CEO Chin Wei Jia and CFO Chin Wei Yao. Their mother, Dr Gan See Khem, is HMI's executive chairman. NextInsight file photo.

Q: What is your competitive landscape?

We have been seeing a lot of private healthcare investment in hospital extensions as well as in new hospitals.

Columbia Asia is completing their extension block (at Iskandar Puteri). They are also building a new hospital in Johor Bahru.

At the end of the year, there will be a new hospital in Johor operated by KPJ Healthcare. KPJ has also said it plans to open a hospital in Melaka in a couple of years.

In Melaka, Pantai Hospital Ayer Keroh is also going to start building an extension wing. 

Competitive pressure will be there. But at the end of the day, how comprehensive our healthcare service is and how convenient we make it for patients will determine whether they come to us. Our focus is on building up our range of services and improving service quality.

Q: What is your capex on your new ward and new block?

We have an on-going budget for new wards, new equipment, maintenance, and upgrading. Expenditure on the new ward at Makhota is not expected to have much impact (on our cashflow from investing activities).

We have estimated construction cost for the new block at Regency Specialist Hospital to be around MYR 150 million.

Construction will be financed by bank debt. Medical equipment will be on hire purchase.

Q: What goes into your marketing and promotional costs?

We are building up to a big push in our marketing efforts in this quarter. You will see a ramp-up in costs related to that.

We will continue to invest a bit more in reaching out to patients in foreign markets.

We are very active and have been conducting talks and continuing medical education programmes with doctors.