SINGAPORE (Sept 11): UOB Kay Hian is maintaining its “buy” call on Health Management International (HMI) with an unchanged target price of 83 cents.
The research house likes HMI for its resilient operations as its staggered and paced organic expansions at Mahkota and Regency hospitals provide strong earnings visibility.
With the boom in Malaysia’s medical tourism, HMI is riding on the favourable outlook, which has contributed to an increase in patient load and high-revenue intensive procedures.
In a Monday report, analyst Thai Wei Ying has a positive outlook on Malaysia’s medical tourism as it is bolstered by the favourable ringgit and initiatives from the Malaysia Healthcare Tourism Council, which has been actively promoting Malaysia as a medical tourism hub.
According to HMI, foreign patients represent around 23% of total patient volume, with foreign patient load growth exceeding local patients.
“This bodes well for revenue growth, given revenue intensity for foreign patients are typically higher on more complex procedures,” says Thai. On average, foreign patients spend 1.5 times more than local patients.
Despite Mahkota being over two decades old and originally built as a 630-bed hospital, the analyst believes that there is still room for organic expansion with its current capacity of 267 beds.
Thai believes HMI will continue to add more wards by shifting out non-clinical administrative services and maximising revenue generating clinical area.
Mahkota still has available landbank and this could potentially be used for hospital extension and complementary services in the medium term.
At present, Johor is still underserved with a 1.6 bed-to-population ratio, which is below Malaysia’s average 1.9.
In addition, a new hospital typically takes about two to three years to ramp up, giving Regency, with eight years of operating history, a strong lead in terms of comprehensiveness and reputation.
After the new hospital extension at Regency, which will likely be commissioned in FY21, it will become a 280-bed tertiary hospital with the capacity to expand to 500 beds.
“Construction cost is projected at RM160 million, and we estimate 75% of cost to be debt funded,” says Thai.
About 80% of the group’s foreign patient load comes from Indonesia, but Thai is not ruling out growth from other markets.
China, Myanmar, Vietnam and India have been identified as vital markets for Malaysia’s medical tourism, according to Malaysia’s Deputy Health Minister Datuk Seri Dr Hilmi. The government is also collaborating closely with private hospitals to market in these regions.
“In our view, we see potential for more investment opportunities or strategic collaborations going forward. Collaborations could constitute clinical exchanges with other doctors or hospitals,” says Thai.
The analyst also believes that the group is likely to expand in more familiar regions such as Malaysia, Singapore or even Indonesia.
As at 11.23am, shares in HMI are trading 1 cent higher at 64 cents with a 2018F P/E of 26.9 times and a dividend yield of 0.7%.
