SINGAPORE (April 20): UOB Kay Hian has initiated coverage on Malaysia-based private healthcare operator Health Management International (HMI) with a “buy” call and a target price of 83 cents.
The brokerage is “upbeat” on HMI’s growth prospects, says UOB lead analyst Thai Wei Ying in a Thursday report.
This is on the back on HMI’s “strong management team with proven track record of unlocking value” and its “focus on high revenue intensity cases”.
“Furthermore, post its recent consolidation transaction in Mahkota and Regency, its ownership structure is cleaner, where the group stands to benefit both operationally and financially,” Thai says. “Post consolidation, we project FY17-19F EPS to grow at a 3-year CAGR of 32.4%.”
Thai adds that HMI is also buoyed by healthy demographic trends and positive medical tourism outlook in Malaysia.
“A key attraction for medical tourism in Malaysia is the relatively lower and more affordable pricing as compared to its regional peers,” says Thai. “Indicatively, we note that average bill sizes at HMI’s hospitals are almost one-third of Singapore’s private healthcare costs.”
In addition, Thai opines that HMI’s business is supported by rising income and growing population in Malaysia.
“Meanwhile, government healthcare expenditure (as % of GDP) is still trailing the ASEAN average, which may suggest an inclination towards private hospitals as overly-burdened public systems typically result in longer waits and lower quality,” Thai says.
Thai also notes that HMI is trading at a FY18F PE of 26.5x at its current share price. This is a 31% discount to the average FY17F PE of 38.6x among its hospital group peers.
“At our target price of $0.83, it implies a FY18F PE of 35.2x which we reckon is a more reasonable valuation,” says Thai.
As at 4.40pm, shares of HMI are trading flat at 62.5 cents.
