May 18, 2017

Health Management International (HMI)’s 3Q17 Core PATMI was in line with expectations. Excluding forex losses and professional fees related to the proposed consolidation, core PATMI increased 12% YoY to RM7.1m. Revenues in 3Q17 increased 7% YoY to RM107.7m on higher patient load and bill sizes. 9M17 revenues/PATMI made up 73%/72% of our FY17 full year forecast.

We see visible short term plans contributing to further growth of its hospitals 1) one new ward (~30 beds) to be added to each of its hospitals over next 12 months 2) nuclear medicine contributing beginning 2Q17, thus leading to increased revenues from higher value added services.

Thereafter, mid-term growth is expected to be driven by its Regency hospital expansion block. The Regency expansion is estimated to cost RM160m over 2.5 years and will more than double existing capacity at the hospital.

We remain positive on the growth prospects of HMI after the completion of the 100% consolidation of its two Malaysian hospitals in March 17. Revenue intensity (bill size/patient) continues to improve (3Q17: +5.9% YoY inpatient, +6.9% YoY outpatient), driven by increased complexity of surgeries. Maintain BUY, TP of S$0.86, based on DCF valuation model. Our fair value is an implied 38/31x FY18/19F P/E. –KGI

HMI closed at: S$0.60