• Healthcare provider with an edge
• Set for sustainable growth over the long term
• Initiate with BUY and S$0.80 FV

Strong management team with a competitive edge

Health Management International (HMI) has established a strong track record in management execution and developed an edge for themselves with their unique business model. The group had notably turned around an unprofitable hospital in a short span of time for Mahkota Medical Centre (MMC) in Malacca, and grew Regency Specialist Hospital (RSH) from an empty building in Johor into an established profitable hospital. HMI went on to display consistent growth in estimated core earnings, at an approx. CAGR of 101% over FY11-16.

Amid a competitive private healthcare sector, the group’s unique adaptation of the independent clinic model for its hospitals has allowed HMI to attract and retain their doctors. In addition, being the first to address a lack of certain treatment methods has also been one of HMI’s strengths, in our view.

Multi-strategy approach to drive further organic growth

Looking ahead, through a multi-strategy approach grounded on talent management, broadening scope of specialties, expansion of facilities, capacity building, and efficiency initiatives, we see better and sustainable profitability outcomes ahead. RSH will also start works on a new medical block extension that is slated to double its existing capacity when completed in 2020. HMI’s growth story is further supported by a backdrop of favourable secular trends, greater private insurance coverage, and encouraging government initiatives for the local healthcare and medical tourism sector.

Initiating with BUY and S$0.80 fair value estimate

The consolidation of its ownership in both hospitals (from 48.9%-owned MMC and 60.8%- owned RSH to 100% each) is a positive move in our view, as it offers clarity to investors on earnings. We believe the group is on a healthy growth momentum, backed by a multi-strategy approach and strong management team. Initiate coverage on HMI with a BUY and DCF-derived fair value estimate of S$0.80.

Source: OCBC Research - 24 Mar 2017