• Core PATMI within expectations
• Growth intact for both hospitals
• Expanding services and capacity

First Set of Consolidated Results This Quarter

Health Management International recently reported its FY17 results that were within our expectations. 4QFY17 revenue was up 5.2% YoY to RM111.7m and FY17 revenue was up 9.5% to RM435.8m, helped by higher patient load and average bill sizes in its two hospitals. FY17 revenue growth was deemed to be slower as the group saw two Hari Raya periods in this financial year - in Jul-16 and Jun-17, which are seasonally slower.

Nonetheless, the group also recorded a net profit of RM10.7m, vs. RM4.9m in 4QFY16, as this is the first quarter with a fully consolidated set of results, reflecting the acquisition of non-controlling interests in its two hospitals. Due to the acquisition, there were RM8.2m of one-off costs, thus FY17 PATMI was up 3.5% to RM20.6m. Excluding one-offs and FX, core FY17 PATMI of RM32.1m was within our expectations.

Clear Growth Visibility for Both Hospitals

Mahkota’s (MMCSB) revenue was up 5% and EBITDA was up 10%, with improvement in EBITDA from 27.5% to 28.8%. MMCSB continues to drive growth via expanding its clinical services. We also see it as a beneficiary of broader developments in Malacca such as the Malacca Gateway, more flight routes, and proposed upgrading of the Malacca International Airport. Regency has also seen good growth over the last five years, and based on demand growth expectations, the new hospital extension block will add more inpatient beds, clinical services, operating theatres as well as clinic suites for rental or sale to doctors.

Maintaining Our View

Looking ahead, FY18 earnings should offer further clarity to investors with fewer one-off costs. The group aims to pay down half of the acquisition debt by year end, while they need to gear up for the construction of Regency’s extension block. Nonetheless, the group is able to generate strong cash flows, and we believe our investment thesis remains intact with the group on a healthy growth momentum, as both hospitals work on expanding services, operational excellence, as well as capacity to effectively capture the expected increase in demand from both local and foreign patients. We maintain our BUY with FV of S$0.80 unchanged.

Source: OCBC Research - 28 Aug 2017