SINGAPORE (Feb 14): UOB Kay Hian and Phillip Capital are maintaining their “buy” calls on Health Management International (HMI), both with target prices of 83 cents, after the group’s 1H results for FY2018 came in line with expectations.

To recap, HMI reported a 1H core net profit of RM31 million, coming in at 52% of UOB’s full-year estimate with its earnings driven by higher revenue on the back of higher patient load and revenue intensity growth.

In a Wednesday report, UOB lead analyst Thai Wei Ying explains that the research house’s target price of 83 cents is derived from explicit 2018-22 free cashflow forecasts, a terminal growth of 2.5% – in line with Malaysia’s 10-year long term inflation rate, and WACC of 7%.

In particular, Thai is positive on the group’s growth outlook given its strong medical tourism prospects in Malaysia as well as expansion plans.

She also believes the higher foreign patient load growth, which exceeded local patient load in 2Q18, is 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.

“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,” says the analyst.

Similarly, Phillip Capital’s Soh Lin Sin expects 2H, which is typically seasonally stronger for HMI, to see an extension of the group’s upward trajectory on the back of revenue intensity and patient load growth.

Although HMI registered higher finance costs over the quarter due to the drawdown of a term loan facility to acquire interests in Mahkota Medical Centre and Regency Specialist Hospital, Soh believes the pressure from finance costs should taper off moving forward as the group has pared down 57% of its acquisition debt.

“Meanwhile, its [HMI’s] partnership with Gakken Cocofump to introduce elderly care training into Singapore and the region could add a new revenue stream to its Education business,” she adds.

<hr/><a href="https://www.theedgesingapore.com/health-management-international-license-content-japans-gakken-elderly-care-training">See: Health Management International to license content from Japan's Gakken for elderly care training</a><hr/>

As at 4:01pm, shares in HMI are trading 1 cent higher at 64 cents, or 7.2 times FY18F book value based on UOB estimates.

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