SINGAPORE (May 16): Maybank Kim Eng is maintaining its “buy” call on Health Management International (HMI) with a target price of 80 cents.
The group on May 14 announced that it is committing $40 million to acquire a 62.5% stake in StarMed @ Farrer Square, which owns Starmed Specialist Centre, a new proposed day-surgery and multi-disciplinary medical centre.
See: HMI commits $40 mil to acquire 62.5% stake in StarMed
On top of the purchase price of $6.9 million, HMI will inject a $1.9 million shareholders loan while assuming obligations of up to $31.2 million worth of loans, in proportion to its shareholdings.
The cash consideration of $8.8 million will be funded from proceeds of Heliconia Capital Management’s $11.0 million placement in November 2017.
In a Tuesday report, analyst John Cheong says, “HMI could tap into the positive trend of more day procedures being done outside of hospitals and expand its presence in the ASEAN region.”
The analyst expects startup losses for the group to amount up to $2 million for the first two years of operations, but expects this deal to be positive over the long term and FY21 earnings contribution onwards to compensate for the startup losses with upside potential on good startup.
Through StarMed, the group aims to tap into the growing global trend towards procedures being done outside of hospitals. StarMed will be the first private one-stop ambulatory care centre in Singapore, with an initial focus on cardio-vascular, digestive, minimally invasive surgeries and diagnostic services.
“We expect HMI’s net gearing to exceed 60% from the 10% level currently. However, given the robust FCF of HMI’s Malaysia operations, its net interest cover will remain at more than 10 times,” says Cheong.
As at 2.22pm, shares in HMI are trading 1 cent lower at 66 cents or 6.7 FY18 book with a dividend yield of 1.0%.
