Health Management International (HMI), in recent years, has grown from strength to strength. Its two hospitals -- one in Johor and the other in Malacca -- have generated rising revenue and profit.

HMI 8.17(L-R): CFO Chin Wei Yao and CEO Chin Wei Jia.  Their mother, Dr Gan See Khem, is HMI's executive chairman.
Photo by Tok Chong Yap
Its Mahkota Medical Centre in Malacca is the largest private tertiary hospital in South Malaysia, serving almost 300,000 patients a year.

In Johor, its Regency Specialist Hospital serves >110,000 patients a year.

Here are 6 takeaways from the FY2017 results.

1. PE ratio:
 At first blush, the PE ratio of HMI looks crazy at 52X its FY2017 (ended June) earnings.

The PE has expanded as HMI's share price has nearly doubled since the start of 2016 -- from 34 cents to 64 cents recently.

It's the forward projected earnings that matter a lot, and HMI is poised to achieve about RM59 million in net profit attributable to shareholders in FY2018, up from RM32 million in FY2017, according to both UOB Kay Hian and Maybank Kim Eng reports.

On that expectation, HMI (65 cents) is currently trading at a PE of about 28X.

EBIDTA margin was 22.1% (FY2016: 21.2%) while core net profit after tax margin was 12.3% (FY2016: 12.2%).

4QFY2017
y-o-y growth

FY2017
y-o-y growth

Revenue

5.2%

9.5%

EBITDA

22.4%

13.7%

Core NPAT(1)

-12.8%

10.9%

Core PATMI(1)

63.8%

40.3%

Note (1): Excludes non-operational and one-off items such as forex gain (loss), acquisition-related professional fees and other costs.

2. Earnings jump in FY18: The key driver: HMI will consolidate 100% of the profits of its two hospitals, this being the first full-year of consolidation. 

This follows HMI's purchase -- with cash and new shares -- of the non-controlling shares of the hospitals.

In addition, HMI in FY2018 will reap the benefit of the 2017 Hari Raya and fasting month having taken place in June 2017 (which is the second time the festive period has taken place in HMI's financial year 2017).

The fasting month and the Hari Raya celebrations typically are when HMI's hospitals see a reduced patient load as patients postpone complex procedures. 

Accordingly, HMI has seen a very strong July 2017 for its business.

RegencyRegency Specialist Hospital in Johor: Construction of an extension block is expected to start this FY18, boosting the number of beds from 200 to 380 with capacity to expand eventually to 500. Construction cost: MYR160 mn. 
Photo: Company
HMI's growth (organic) is driven by a rising number of patients and doctors and wider medical services.

Says CFO Chin Wei Yao: "We don't do aggressive price increases -- as our strategy is to grow by volume, while being at market or below market when it comes to pricing." 

The target market are the middle-class consumers, the fastest growing segment of the population.

3. Strong cash generation: HMI took on debt to consolidate its ownership of the two hospitals.

As at end-June 2017, net debt stood at RM87 million, which is less than a year's worth of its EBITDA (about RM96 million in FY2017). 

HMI says it plans to pay down 50% of the acquisition debt by December 2017.

4. Key operating metrics

FY2017

FY2018

Total operational beds

434 beds
(+0.5% YoY)

Mahkota Medical Centre and Regency Specialist Hospital will increase capacity by 34 beds each to 300 beds and 200 beds, respectively.

Total patient load

113.5 K patients (+3.7% YoY)

Average in-patient bill size

RM7,524
(-0.2% YoY)

Average out-patient bill size

RM2,13
(+7.8% YoY)

 
5. Rising no. of medical tourists to Malacca:  Starting in Oct 2017, Air Asia will have direct flights to and from Jakarta, Guangzhou and Vietnam. The airport currently handles flights to and from Pekanbaru and Penang. 

briefing HMI 8.17@ FY2017 results briefing. NextInsight photoThe direct connection with Jakarta is the most significant for HMI.

This is exepected to fuel the growth in foreign patient load, which has outpaced the growth in local patient load throughout FY2017: Foreign patients comprised 23% of HMI's patients as of 4QFY17.

One attraction of HMI's hospitals is its single-tier pricing system -- ie, foreigners are not charged higher, unlike in other hospitals.

As for relative costs of medical care, Jakarta's and Malaysia's are, respectively, about two-thirds and a third of Singapore's.  

6. Undersupply of hospital beds in Johor: Regency Specialist Hospital will undergo a massive expansion which will see its capacity surge from 200 beds to 500 beds over several years (see photo caption).

Studies have shown that the current supply is not enough to cater to the demand of the 3.4 million population, "hence there is an outflow of patients to KL, Malacca, Singapore..." said CFO Chin.


For many more details, see HMI's corporate presentation here. 


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