FY19 Within Expectations; Take the Cash Offer

• HEALTH MANAGEMENT INTERNATIONAL LTD (SGX:588)'s FY19 PATMI met the higher end of our expectations. 4QFY19 core PATMI fell 7% y-o-y due to gestation costs at StarMed. Revenue rose 10% y-o-y, driven by decent patient load growth and robust bill sizes.
• Our FY20-22E earnings forecasts are unchanged. We raise DCF-based Target Price to SGD0.73 (WACC: 7.1%, LTG: 1.5%) as we roll forward valuation to FY20.
• While our HOLD rating is maintained, we recommend investors to take the cash option of EQT’s SGD0.73 offer.

Malaysian Hospitals Are Robust

• Operations at the two Malaysian hospitals are robust. 4Q19 revenue rose 10%, driven by strong patient load growth of 6%, coupled with higher outpatient bill sizes (+5%), while inpatient bill sizes were firm (+0.5%). 4QFY19 EBITDA margin fell 2.7ppt to 21.6% due to gestation costs from StarMed. Excluding the effects of FX, one-off items, and StarMed, PATMI would have risen 4% y-o-y.

On Track With Expansion Plans

• Construction for the new hospital block at Regency Specialist Hospital in Johor has begun, with expected commissioning in 2021. This will boost bed count to 380 from 218 currently. The official launch for StarMed will take place in FY20, and Health Management International reiterates expectations that StarMed will incur start-up losses for up to 3 years.
• Health Management International will continually recruit specialists and boost marketing efforts to increase awareness of StarMed. Health Management International remains optimistic of StarMed’s long-term prospects, in view of rising demand for day surgeries and diagnostic imaging.

Take the Cash Offer

• On 5 Jul, EQT launched an offer to privatise Health Management International at SGD0.73 via a scheme of arrangement. We recommend investors to take the cash option, as
  1. this is a clean exit given that the offeror’s shares will not be listed on any exchange, and
  2. the offer price fully reflects the fundamental value of Health Management International.
• The scheme meeting is expected to take place in Sep-Oct 2019.

Source: Maybank Kim Eng Research - 20 Aug 2019