20170310-辉立证券-Health_Management_International_35页_1mb

HMI Summary

Core Content

Health Management International (HMI) is a growing private healthcare provider in Malaysia, with two tertiary hospitals: Mahkota Medical Centre (MMC) and Regency Specialist Hospital (RSH). The Group also operates the HMI Institute of Health Sciences in Singapore. HMI is expected to deliver strong growth in revenue and margins over the next five years.

Main Points

1. Revenue Growth and Margin Expansion

• Revenue Growth: HMI's revenue is projected to grow at a 11.5% CAGR over the next five years, driven by increased patient load, higher revenue intensity, and expanding hospital capacity.
• PATMI Growth: With the consolidation of its hospitals, HMI anticipates a 38.0% CAGR in PATMI (Profit After Tax and Minority Interest) over the next five years, supported by robust margins and operational efficiencies.
• Expansion Plans: New wards with approximately 30 beds each are set to be added to MMC and RSH by 1H FY2018. RSH will also expand with a Hospital Extension Block by FY2020, expected to significantly increase its capacity and revenue.

2. Investment Merits

• Superior EBITDA Margins: HMI's EBITDA margin for the Hospital segment is 24.8% in FY2016, with MMC at 27.5% and RSH at 19.8%. The Group expects RSH's margin to increase to 25.1% in FY21F.
• Business Model: HMI operates a comprehensive one-stop healthcare center, offering a wide range of services and specialized equipment. This model attracts complex cases and enhances the average hospital bill size.
• Medical Tourism: HMI has a significant share in Malaysia's medical tourism market, with 10% market share in 2015. The Group's strategic location and accreditation under the Singapore Medisave scheme position it well to attract international patients.
• Consolidation: The Group plans to consolidate ownership of MMC and RSH to 100% by end-March 2017, which is expected to be 30.4% accretive to fully diluted EPS and reduce non-controlling interest (NCI).

3. Strategic Positioning and Growth

• Market Position: HMI is a leading private hospital in Malaysia and Indonesia, with a strong brand and first-mover advantage in medical tourism and specialized services.
• Patient Mix: Approximately 21% of HMI's patient load consists of medical tourists, with a stable mix over the past nine quarters.
• Facilities and Services: The Group continues to invest in new services and recruit specialists, including nuclear medicine, and plans to expand its Centres of Excellence (COEs).

4. Financial Performance

• Revenue and EBITDA: FY2016 revenue was RM449 mn, with EBITDA at RM87 mn. Net profit after tax (NPAT) was RM31 mn, and EPS was RM7.42.
• Valuation: The Group is initiated with a "Buy" rating, a target price of SGD0.83, and an upside of 36.6% from the last close price of SGD0.610.
• Financial Health: HMI has been deleveraging, with total debt decreasing by 40% over the past five years to RM41.9 mn as of end-FY2016. It has a strong net cash position of RM37.1 mn.

Key Financials

Investment Thesis

• Growth Potential: HMI's expansion plans, including new wards and a Hospital Extension Block, are expected to drive 11.5% CAGR in revenue and 38.0% CAGR in PATMI.
• Margin Expansion: HMI benefits from economies of scale, improved service mix, and increased average bill size to enhance EBITDA and net margins.
• Medical Tourism: Strategic location and government support position HMI to benefit from the growing medical tourism sector in Malaysia.
• Strong Financial Position: HMI has a positive cash flow, deleveraging trend, and a solid net cash position to support future expansion.

Conclusion

HMI is well-positioned to deliver double-digit growth over the next five years, with a strong business model, superior margins, and strategic expansion plans. The consolidation of its hospital ownership is expected to enhance its financial performance and operational efficiency, making it an attractive investment opportunity in the Malaysian healthcare sector.