SINGAPORE (Aug 29): Phillip Capital is maintaining its “buy” recommendation on Health Management International (HMI) at a target price of 83 cents, while expressing a positive view on the group’s FY18 earnings outlook.
This comes after the group’s FY17 revenue came in line with the research house’s expectations, although its core profit after tax and minority interests (PATMI) came in 7% lower than projected due to higher-than-expected tax expenses.
In a Tuesday report, investment analyst Soh Lin Sin notes that both of the group’s hospitals in Malaysia continued to register growth in revenue as well as patient revenue over the past financial year – and expects even higher hospital revenue over the first quarter of FY18, as the delayed effect of Hari Raya in 2107 will be reflected in July this year.
With the two hospitals continuing to ramp up capacity on increasing demand and plans to add about 34 operational beds each, the group is expected to have a total bed capacity of 500 by FY18.
“[HMI’s] younger hospital, Regency Specialist Hospital, continued to record double digit growth (Revenue +14.2% YoY and Patient load +27.2% YoY). Notably, patient load grew 8.8% y-o-y despite that FY17 being weighed down by two Hari Raya festive days (Jul-16 and Jun-17) compared to once in FY16 (Jul-15). Patients typically avoid seeking healthcare services during the Ramadhan month, while doctors go on leave during the festive season,” explains the analyst.
While HMI is currently in a net debt position of RM87 million as at end-FY17 compared to net cash of RM37.1 million a year ago, the analyst believes the group’s target to pay down 50% of its acquisition debt by end-2018 is achievable due to its strong operating cash flows, as well as the fact that 25% of the debt had already been pared down in 4Q17.
“The shift from inpatient to outpatient care offset the 21.4% y-o-y growth in foreign patient load [over FY17]. However, we expect revenue intensity to expand as HMI enhance its range of specialist healthcare offerings,” he adds.
Phillip Capital is projecting for the group to register revenue of RM480 million in FY18E, which translates to earnings per share of 2.34 cents and dividend yield of 0.7%. The counter is currently at a price-to-equity ratio (PER) of 27.4 times FY18E estimates, and trading 7 times book.
As at 4.09pm, shares in HMI are trading 0.8% lower at 64 cents.
