SINGAPORE (Nov 19): Phillip Capital and CGS-CIMB Research are maintaining their “buy” and “add” calls on Healthcare Management International (HMI) with the respective target prices of 77 cents and 73 cents.

This comes even as the group’s latest set of 1Q19 earnings fell short of both research houses’ estimates due to financing costs and gestation losses incurred from StarMed, its 70%-owned subsidiary.

Both research houses have cut their earnings projections for the group following its results announcement. While Phillip Capital has lowered its revenue and EBITDA estimates for 2019 and 2020 by 5% and 7%, respectively, CGS-CIMB has reduced FY19-21 forward EPS forecasts by 2.8-2.5%.  

In a report last Thursday, Phillip Capital analyst Tin Min Ying notes that both of HMI’s hospitals, Mahkota Medical Centre and Regency Specialist Hospital, enjoyed higher patient load and larger average bill sizes over the latest quarter under review – with the day surgery segment gaining traction as it continues to lift margins.

As such, she remains positive on the outlook for HMI considering how upgrading and expansion plans in Mahkota and Regency are expected to be on track to meet growing demand, as both hospitals continue to broaden their service offerings.

“With the upcoming opening of two competitors, KPJ Bandar Dato’ Onn Specialist Hospital and Columbia Asia South Key, we believe that HMI would be able to remain competitive as the two new hospitals find their footing,” says Tin.

CGS-CIMB analyst Ngoh Yi Sin also remains positive on the group’s prospects, and is of the view that both Mahkota and Regency gives HMI a “first-mover edge” to fend of potential competition from the upcoming opening of its competitors’ hospitals.

Going forward, she also expects StarMed’s 1Q net loss to subsequently narrow as the newly-opened ambulatory care centre ramps up.

“While StarMed received its licensing in Jul 18 and will officially open in early 2019, there was little revenue contribution in 1Q19. It has since inked partnerships with more than 20 specialists, and completed procedures across all the various specialties (radiology, biopsy, endoscopy, etc.) ,” notes Ngoh.

As at 10.59am, shares in HMI are trading flat at 54 cents or 4.63 times FY19F book value based on CGS-CIMB estimates.