SINGAPORE (Jan 8): CIMB is maintaining its “add” call on Health Management International (HMI) with a target price of 83 cents. HMI is also the research house’s top healthcare stock pick.
In a Sunday report, analyst Ngoh Yi Sin believes that the group is well-positioned to ride on the booming medical tourism in Malaysia with its two established hospital there – Mahkota Medical Centre (MMC) in Malacca and Regency Specialist Hospital (RSH) in Johor.
“The RM30 million ($10 million) allocation in Malaysia’s 2018 Budget and additional initiatives to promote medical tourism by the Malaysia Healthcare Travel Council (MHTC) also bode well for the group, in our view,” says Ngoh.
Moreover, the analyst believes that with the group’s 20-year operating history, affordable medical treatments compared to neighbouring countries, as well as the improving connectivity links by new AirAsia direct flights would help drive patient load for the group’s hospitals.
Currently, the group has 266 operational beds in MMC and will be adding more than 30 more beds in FY18 to cope with higher patient demand. MMC has also available land bank that could be developed for hospital extension.
Meanwhile, RSH has 116 operational beds and the group plans to increase the capacity to 200 in FY18. The development for an extension block is also underway, which will make RSH a 500-licensed bed hospital once it completes in FY21.
Both hospitals continue to attract strong local and foreign (mainly Indonesian) patient volumes, recording 5.4% y-o-y growth in 1Q18.
The group also reported higher average inpatient and outpatient bill sizes in 1Q18, increasing 3.6% and 12.2% y-o-y respectively.
This was attributed to more complex surgeries, diagnostics services and lab tests.
“We expect the development of more centres of excellence (CoEs) to lead to growth in bill sizes and better margins,” says Ngoh.
HMI last year welcomed a new shareholder, Heliconia Capital Management, which is a subsidiary of Temasek.
See: Temasek unit to consider investing with Health Management International
The analyst believes that this partnership could accelerate the group’s regional expansion plans.
In addition, Ngoh also likes the stock for its quality assets, growth potential and cheaper valuation of 14.9 times CY18 EV/EBITDA compared to an industry average of 18.8 times.
As at 4.13pm, shares in HMI are trading at 68 cents or 34 times FY18 core earnings.
