SINGAPORE (Aug 29): CGS-CIMB Securities is maintaining its “add” call on Health Management International (HMI) with a slightly lower target price of 79 cents.
This came on the back of yesterday's announcement that HMI's 4Q18 earnings increased by 43% to RM15.2 million ($5.1 million) from RM10.7 million in 4Q17 on higher revenue and improved margins.
FY18 earnings saw a significant increase to RM60.7 million from RM20.6 million in FY17.
Meanwhile, turnover for the latest 4Q grew 7% on-year to RM119.2 million from RM111.7 million due to higher patient load and average bill sixes in HMI’s two hospitals, Mahkota Medical Centre (MMC) and Regency Specialist Hospital (RSH).
See: Health Management International posts 43% growth in 4Q earnings to $5.1 mil
Operating metrics across both hospitals were positive in FY18 and total patient load increased 3.7% y-o-y to 426,000, driven by more outpatient visits while inpatient volume was largely flat as local patients sought public options.
Foreign patient growth outpaced that of local patient and accounted for about 23% of the total volume in FY18.
Due to the changes in patient mix, the group recorded higher revenue intensity, shorter length of stay and lower bed occupancy.
Despite slower inpatient load growth and the trend towards shorter hospital stays, the group continues to invest in both hospitals by upgrading wards at MMC, building a new hospital block at RSH and adding new sub-specialities.
The group is also planning to diversify its marketing efforts to other Southeast Asian countries.
In addition, the group’s 62.5%-owned StarMed has received its relevant Ministry of Health licenses and will comment operations in FY19. The management expects a gestation period of up to 2-3 years, though start-up losses would be less hefty given the format of ambulatory care centre.
In a Tuesday report, analyst Ngoh Yi Sin says, “We forecast RM3 million - RM7 million EBITDA loss per annum in its first three years of operations.”
HMI declared final DPS of 1 sen, bringing FY18 DPS to 2 sen, compared to 1 sen in FY17, implying 1.1% dividend yield and about 27% payout ratio.
“The group’s net gearing climbed to 55.2% on the back of borrowings undertaken for its StarMed stake acquisition earlier, but we are not overly concerned as it continues to generate strong operating cashflow of RM70 million – RM80 million to possibly pare down these additional debt,” adds Ngoh.
As at 2.48pm, shares in HMI are trading 1.5 cents higher at 62 cents or 5.23 times FY19 book with a dividend yield of 1.01%.
