SINGAPORE (May 11): Health Management International (HMI) on May 9 announced that it has swung back to profitability in 3Q18, posting earnings of RM15.9 million ($5.4 million), compared to a loss of RM1.6 million last year.
Excluding non-operational and one-off items, core earnings would have more than doubled to RM15.4 million in 3Q18, from RM7.1 million a year ago.
Revenue for the quarter was 7.1% higher at RM115.4 million from RM107.7 million in the previous year, on the back of rising patient loads and average bill sizes at Mahkota Medical Centre and Regency Specialist Hospital.
See: Health Management International swings back to profitability with 3Q earnings of $5.4 mil
Following the results announcement, UOB Kay Hian is maintaining its “buy” call on HMI with a target price of 83 cents, while also picking it as its preferred healthcare stock.
The group’s patient load continues to steadily increase, as 3Q18 was up 2.7% y-o-y. Foreign patient load growth also continues to outpace local patients load growth, with circa 23-24% of patients from overseas. Looking ahead, the group will continue to engage patients in Southeast Asia through its 16 patient referral centres in Indonesia, Malaysia and Singapore.
Meanwhile, the group continues to develop its flagship Mahkota Hospital with introduction of new consultants and the opening of the new ward 9B.
As for its Regency Hospital in Johor, management is in the process of securing the necessary approval process for a new hospital block. The group expects to start land preparation works in the next one to two months.
In a Friday report, analyst Andrew Chow says, “We project FY17-20F EPS CAGR of 21%. There could be further changes as the group continues to explore new inorganic growth opportunities. Funding this is not as issue given its low net gearing of only 0.1 times.”
“We remain positive on HMI’s growth outlook, given the strong medical tourism prospects in Malaysia as well as the group’s expansion plans and good execution,” adds Chow.
Phillip Capital is also reiterating its “buy” recommendation on HMI with a target price of 83 cents.
The group’s average bill size continued to grow with higher revenue intensity and increasingly complex surgeries, which caused average outpatient bill size and average to rise by 9% and 3.8% y-o-y, respectively.
In a Thursday report, analyst Soh Lin Sin says that Day Surgery is gaining traction as bed occupancy rate has been trending downwards and average outpatient bill size has been increasing.
Soh also notes that the bed occupancy rate tracks overnight-stay and Day Surgery cases are billed under outpatient category.
And with Day Surgery getting traction, operating efficiencies have improved, driving up revenue intensity, alongside the group’s effort in streamlining procurement processes.
“We maintain our view that HMI will benefit from the socioeconomic tailwinds arising from public and private initiatives to improve infrastructure and regional connectivity; increasing domestic insurance take-up rate; favourable demographics; and cost competitive pricing compared to regional peers,” says Soh.
Similarly, CGS-CIMB Research says that it keeping its “add” call on HMI with a fair price estimate of 80 cents.
In a Thursday report, analyst Ngoh Yi Sin says, “Its attractive positioning for medical tourism and community engagement initiatives remain as key drivers for foreign patient load growth.”
While land preparation for the new Regency hospital block is underway, there are also more hospitals in the pipeline at both Johor and Malacca.
“We are not overly concerned about rising competition, as structural demand for private healthcare remains intact, protected by local zoning policies and HMI’s early mover advantage,” adds Ngoh.
In addition, the analyst believes that improving insurance penetration and ageing demographics are industry tailwinds for the group.
Apart from $11 million unutilised proceeds and strong operating cashflow of RM70 million to RM80 million per year, HMI also has a low net gearing of 0.1 times, as it continues to pare down the $53 million acquisition debt.
“We think the group is in a strong financial position to pursue both organic and inorganic opportunities, which could be a key re-rating catalyst for the stock,” says Ngoh.
Maybank Kim Eng is also maintaining its “buy” rating on HMI with a target price of 80 cents.
In a Friday report, analyst John Cheong says, “We continue to see positive developments from three key drivers of the richer product mix/revenue intensity: growth in foreign patient load continued to outpace the local patient; inpatient and outpatient bill size grew; and introduction of more new specialist consultants.”
In addition, the group has repaid more than half of its $53 million borrowings, used for consolidation of two hospitals in Mar 2017, bringing its total net debt to RM25 million, compared to RM87 million in FY17.
As at 2.50pm, shares in HMI are trading 2.5 higher at 67 cents, or 7.0 times FY18 book with a dividend yield of 0.7%.
