• We expect HMI to report a 4QFY6/18F core PATMI of RM12.5m (+20% y-o-y), which is a seasonally-weaker quarter due to the Ramadan effect.
• The recent majority stake acquisition in StarMed marks its return to Singapore’s private healthcare, enabling it to leverage on rising popularity of day procedures.
• The removal of the 6% GST in Malaysia could lift some pressure off margins, while HMI’s affordable pricing could fend off competition from more public hospitals.
• At 22x forward P/E (45% discount to regional peers), HMI offers greater value with 42.9% 3-year EPS CAGR vs. regional peers’ 12.2% average.
• Maintain ADD. HMI remains our top small-cap pick in the healthcare sector.

4QFY18F Preview: Double-digit Core PATMI Growth

We expect Health Management International (HMI) to report a 4QFY18F core PATMI of RM12.5m (+20% y-o-y), on the back of increasing topline and margin expansion.

Regardless of the policy changes, the total healthcare industry spending in Malaysia is expected to increase to RM80bn by 2020, from RM52bn as of end-2017, based on Frost & Sullivan forecasts. The reforms in Malaysia include:

• Switching from the goods and service tax (GST) to the sales and services tax (SST) regime;
• Higher budget allocation for the Ministry of Health (MOH) from the current 2% spending level to 4% of national gross domestic product (GDP);
• Possible break-up of the drug supply cartel; and
• Improving the supply chain for public drug procurement and fine-tuning existing Approved Purchase List (APPL) concession agreements with MOH.

Source: CGS-CIMB Research - 13 Jul 2018