SINGAPORE (May 22): Phillip Capital, Maybank KimEng and UOB KayHian all have “buy” calls on Health Management International after 3Q19 revenue rose on the back of resilient patient load growth and increasing average patient bill size.

In the third quarter, patient load grew 1.3% y-o-y to 116,200 patients, driven by both inpatient and outpatient growth from Mahkota Medical Centre (MMC), Melaka and Regency Specialist Hospital (RSH), Johor.

See: Health Management International posts 15% drop in 3Q earnings to $4.4 mil on higher costs

According to Phillip, HMI’s average inpatient and outpatient bill size rose 4.9% and 5.3% y-o-y respectively due to the expansion of specialist offerings, further developments of HMI’s Centres of Excellence (COE), investments in specialised medical technology and recruitment of more specialists and sub-specialists.

In addition, bed occupancy rose to 61% from 59% a year ago despite the total number of operational beds remaining the same at 437.

Looking ahead, Phillip expects increasingly complex and acute cases to contribute to revenue intensity.

“We expect patient traffic to continue its steady growth as the COEs attract referrals and marketing efforts boost awareness,” says analyst Tin Min Ying. Phillip has a DCF-derived target price of 73 cents.

Similarly, UOB is maintaining HMI at “buy” with DCF-based target price of 73 cents on its long-term prospects.

HMI’s 3Q19 core net profit of RM13 million came in line with UOB’s estimates. On a 9M19 basis, core PATMI was recorded at RM44.3 million, coming in at 73.8% of its full-year estimate.

UOB analyst Lucas Teng says HMI will take time to ramp up its expansionary plans in both Singapore and Malaysia with macro factors of an ageing population very much in its favour.

HMI is also expanding its Singapore exposure via the acquisition of a 70% stake in StarMed in 2018, a medical centre focused on day surgeries.

The group has also grew its management team, appointing a new CFO as well as a Chief Development Officer. HMI previous CFO, Chin, will take on the role as Chief Investment Officer.

Plus Medical, its primary care clinic chain, also intends to grow from its current size of 16 outlets to a long term target of 40.

Finally, Maybank is initiating HMI at “buy” with 68 cents target price.

Maybank believes both HMI’s hospitals, RSH and MMC, are well positioned to benefit from rising incidences of chronic diseases; rising insurance takeup rates; and overburdened public healthcare system.

Furthermore, RSH stands to gain from the nearby Petronas Rapid project in Johor which could create more than 50,000 jobs when completed. When the new extension block is commissioned in 2021, RSH will increase to a 380-bed hospital from 218 currently.

And as bill sizes at MMC and RSH are 33% of those in Singapore, Maybank’s price-elastic medical tourists may favour treatment in HMI’s Malaysia-based hospitals than Singaporean ones.

In addition, MMC has cultivated a strong reputation in Indonesia, having pioneered medical tourism in Malaysia as early as 1999. Today, MMC is a leader in medical tourism with an estimated 8-10% market share in Malaysia.

As at 1.15pm, shares in HMI are up 0.5 cent at 54 cents.