INITIATION REPORT
Singapore
Health Management International Monday, 24 October 2011 (HMI SP; HMIH.SI )
BUY - Initiate Pri ce a s of 13 Sep 2016
0.53
12M ta rget pri ce (S$)
0.60
Previ ous ta rget pri ce (S$)
n/a
Ups i de (%)
13.9
Trading data Ma rket Ca p (S$m)
312.9
Is s ued Sha res (m) Ave Da i l y Tra ded (3-Month) Vol / Va l 52 week l o / hi
584.9 1.2m / $0.6m $0.25 / $0.55
Free Fl oa t
45.1%
Major Shareholders Dr Ga n See Khem Ka bouter Mgt
49.4% 7.4%
Growing on healthy medical tourism demand We initiate coverage on Health Management International (HMI) with a BUY recommendation and a target price of S$0.60, based on a discounted cash flow valuation (WACC 8.0%, Terminal growth rate 3%). We expect PATMI to grow at 21% CAGR in the next three years (vs 38% CAGR from FY14-16), underpinned by growing medical tourism. Our TP is an implied 42x/36x/31x FY17/18/19F and is a slight premium to peers average of 39x forward P/E. We believe the premium is justified given 1) HMI’s PATMI growth of 21% CAGR in FY17-19F compared to the 16% average growth for its regional peers and 2) EBITDA margins that are below peers but which we believe have room to improve (we have not factored in EBITDA margins increase in our current earnings forecast). Two established hospitals with margins improvement as key upside. HMI has a 49% stake in Mahkota Medical Centre (MMC) and a 61% stake in Regency Specialist Hospital (RSH), two well established tertiary care hospitals in Malaysia. We expect RSH to be HMI’s main growth driver over the next 2-3 years as it doubles its existing bed capacity by FY19, thanks to RSH’s proximity to the established centres of Johor’s industrial and residential areas such as Pasir Gudang and Bandar Seri Alam, as well as plans to grow its medical tourism segment. Furthermore, group EBITDA margins have upside to increase given RSH’s 19.8% EBITDA margin compared to MMC’s 27.5% EBITDA margins.
HMI SP (Blue) vs. FSSTI (Red)
Source: Bloomberg
Well positioned to meet healthcare demand growth in Southeast Asia (SEA). As developing countries in SEA struggle with a relatively underdeveloped public healthcare system, private healthcare providers such as HMI are well positioned to meet the growing healthcare demand. MMC has an established presence in Malaysia’s medical tourism market, commanding a 10% share of the country’s medical tourists. Healthcare costs in Malaysia can be more than 50% cheaper than Singapore and that makes HMI an attractive destination for medical tourists. Indonesians make up the majority of medical tourists in Malaysia, contributing 60% of total medical tourism spending, and is expected to do so in the next 3-5 years as their affluence grows. Malaysia’s appeal is also driven by two countries close geographical proximity (most of MMC’s foreign patients are from Sumatra, Indonesia), cultural similarities and quality of healthcare services. Upside catalysts and key risk factors. Main catalysts are faster-than-expected growth in hospital patient load and improvement in EBITDA margins. Main risk comes from competition for patients and doctors from new hospitals opening in Johor and Malacca. Financials & Key Operating Statistics
Joel Ng
[email protected] +65 6236 2630
YE Jun (MYR m) Revenue PATMI Core PATMI Core EPS Core EPS grth (%) Core P/E (x) DPS (SGCents) Div Yield (%) Net Margin (%) Gearing (%) Price / Book (x) ROE (%)
2015 345.2 27.6 25.4 4.3 55.4 36.9 0.0 0.0 8.0 0.7 6.5 19.1
2016 397.8 19.9 25.5 4.3 0.2 36.8 0.3 0.5 5.0 nc 5.5 11.7
So urce: Co mpany Data, KGI Fraser
Please see important disclosures at the end of this publication
2017F 441.8 25.3 25.3 4.3 -0.8 37.1 0.5 0.9 5.7 nc 4.8 13.0
2018F 492.2 29.4 29.4 5.0 16.3 31.9 0.5 0.9 6.0 nc 4.2 13.2
2019F 550.3 34.8 34.8 5.9 18.4 26.9 0.5 0.9 6.3 nc 3.7 13.6
Health Management International
Singapore
Table of Contents Page Company Overview .............................................................................. 3 Mahkota Medical Centre ...................................................................... 4 Regency Specialist Centre ..................................................................... 5 Financials .............................................................................................. 6 Industry Outlook .................................................................................. 9 Forecasts and Assumptions ................................................................ 11 Valuations .......................................................................................... 13 Risks ................................................................................................... 16 Summary of Financials ........................................................................ 17 Appendices: ....................................................................................... 18 Key Management .........................................................................18 Competitive Landscape .................................................................19 Hospital Details ............................................................................21 ASEAN Healthcare Metrics ............................................................23 Healthcare stocks Financial Performance .....................................24
September 14, 2016
2 $ 222
Health Management International
Singapore
Company Overview Overview Figure 1: HMI group structure
HMI, listed on the Singapore exchange in 1999, is a private healthcare provider with operations mainly in Malaysia. HMI owns and operates two specialist hospitals in Malaysia - Mahkota Medical Centre (MMC) in Malacca and Regency Specialist Hospital (RSH) in Iskandar Malaysia. HMI owns 49% of MMC and 61% of RSH. The group has more than 170 practicing specialist consultants serving 400,000 patients per annum. HMI also owns the HMI Institute of Health Sciences in Singapore, which mainly provides healthcare training services.
Source: Company
MMC is recognized as a market leader in Malaysia’s medical tourism and contributed 62% of FY16 (66%/72% in FY15/FY14) turnover while RSH contributed 35% (32%/27% in FY15/FY14). HMI Institute of Health Sciences contributes ~2% of total group turnover. HMI is only one of three healthcare operators approved by the Singapore Ministry of Health for use of Medisave by Singapore residents for overseas hospitalization and day surgeries. Hospitals history HMI acquired a stake and a five-year management contract in MMC, a then loss-making hospital located in the city centre of Malacca, Malaysia in FY1999FY2000. HMI then implemented a comprehensive restructuring plan which saw the hospital quickly turning its operations around. Learning from its Singapore experience, HMI adapted the Singapore private hospital business model for use in Malaysia. Mahkota was the first hospital in Malaysia to sell medical suites to doctors and one of the early movers in attracting medical patients from Indonesia. HMI subsequently acquired a stake in RSH in FY07, a then empty hospital building located in east Johor, Malaysia. RSH’s patient load grew rapidly and achieved its first full year of profitability by FY14, five years after it opened for operations in November 2009. This is inline with industry trends where new hospitals typically take 3-5 years to reach profitability. 10 years timeline
September 14, 2016
FY07 – Acquired 35% stake in RSH. Raised stake in MMC to 49%
FY08 – Commissioned RSH and raised stake in hospital to 61%. Upgraded to SGX mainboard
FY09 – Official opening of RSH
FY10 – MMC and RSH approved for use of Medisave overseas for hospitalization and day surgeries
FY14 – RSH achieved first full year of profitability
FY15 – MMC and RSH commenced capacity expansion
3 $ 333
Singapore
Health Management International
Mahkota Medical Centre (MMC) MMC is a 288-bed multidisciplinary tertiary care hospital located in the heart of Malacca, Malaysia. Established in 1994, it is now one of the largest private hospitals in the South of Malaysia with over 120 practicing consultants specializing in a broad range of medical and surgical disciplines. The hospital comprises of two 11-story medical blocks and is located nearby shopping malls, hotels and popular tourism sites and restaurants. MMC was named Frost & Sullivan’s “Malaysia Medical Tourism Hospital of the Year” in 2015 and 2016.
Photo 1: Mahkota Medical Centre in Malacca
Source: Company
A leader in Malaysian medical tourism, MMC serves close to 300,000 local and regional patients annually. MMC currently captures around 10% of Malaysia’s medical tourism market as a stand-alone hospital, supported by its extensive network of 17 Patient Referral Centres in Indonesia, Malaysia and Singapore. Growth at MMC has stabilized to a more sustainable level over the past five years given its more mature profile, in comparison to RSH, which began operations only in FY09. MMC’s patient load increased by 4.3% CAGR from FY11 to FY16, with both inpatients and outpatient patients increasing at similar levels. Number of beds has increased from 238 as at end FY11 to 266 as at end FY15. Bed occupancy remains healthy at around the 65-67% levels. Figure 2: Slower patient load offset by increase in higher value added services 350
Patient Load ('000)
300 250 200 150
235
216
268
262
261
247
100
50 0
23
25
24
25
27
27
FY11
FY12
FY13
FY14
FY15
FY16
Inpatient
Outpatient
Source: Company, KGI Fraser
Figure 3: Healthy bed occupancy 270 265 260 255 250 245 240 235 230 225 220
67%
68%
67%
67% 65%
65%
266
266
65%
64%
266
63%
66%
266
64% 63%
238
238
FY11
FY12
Bed Occupancy (%)
Number of operational beds
Occupancy rate of 65% over the past two years. Although 2 ppts is lower than FY13-14, it is still within healthy levels. The drop mainly reflects the increase in day surgeries where patients do not stay overnight. The more important metric for HMI is the increase in overall patient load and higher value added services. As highlighted in our Financial Performance (p6), HMI has seen average bill size increase over the last years.
62% 61%
FY13
FY14
Number of operational beds (End of period)
FY15
FY16 Bed occupancy
Source: Company, KGI Fraser
September 14, 2016
4 $ 444
Singapore
Health Management International
Regency Specialist Hospital (RSH) RSH is a 166-bed tertiary care hospital located within Iskandar in Johor, Malaysia. RSH is licensed up to 218 beds. Officially launched in November 2009, RSH serves more than 110,000 patients per year by more than 70 practicing consultants. The hospital is approximately 15 minutes drive from SingaporeWoodlands Checkpoint and Johor Bahru City Centre.
Photo 2: Regency Specialist Centre in Johor
RSH achieved profitability by FY14 and the strong turnaround continued into FY15, with EBITDA margins increasing to 20% in FY16 compared to an EBITDA loss in FY12. Revenue has grown at a 44.6% CAGR from FY12 to FY16, establishing Regency as one of the fastest growing private hospitals in Malaysia.
Source: Company
RSH has a total of 166 operational beds as at end FY16 and bed occupancy has stabilized at a healthy level of 70-72% over the past two years. Patient load grew at a 32.4% CAGR between FY11 and FY16 as it tripled its operational beds to 166 beds as at end FY16. Construction of RSH’s hospital extension is expected to commence in FY17 and targeted to be completed in FY19. The hospital extension is expected to double its existing bed capacity to ~330 beds, with additional clinical service areas, operating theatre capacity and clinical suites for rent or for sale to doctors. Figure 4: RSH leading the growth 120
Patient Load ('000)
100 80 60
73
40 20 0
98
86
56 38
25 3 FY11
5
9
11
14
16
FY12
FY13
FY14
FY15
FY16
Inpatient
Outpatient
Source: Company, KGI Fraser
180 160 140 120 100 80 60 40 20 0
72% 65%
70%
80% 70%
53%
60% 50%
29%
34%
166 93
95
104
40% 30%
130
20%
56
Bed Occupancy (%)
Number of beds increased at 24% CAGR in FY11-FY16 to meet growing demand from the Johor region. RSH is the first major tertiary hospital built in Johor in 20 years.
Number of operational beds
Figure 5: Operational beds tripled from 2011 to 2016 while occupancy at all-time high
10% –
FY11
FY12
FY13
FY14
Number of operational beds (End of period)
FY15
FY16 Bed occupancy
Source: Company, KGI Fraser
September 14, 2016
5 $ 555
Singapore
Health Management International
Financials MMC still main contributor but RSH catching up Although HMI owns only 49% of MMC, MMC’s results are consolidated on the grounds that HMI has control over the financial and operating policies. MMC contributed 63% of total group revenues in FY16 while RSH contributed 35% in FY16. The remaining 2% turnover comes from its training/education segment based in Singapore. While MMC still contributes the bulk of revenues, RSH has been catching up with growth rates of 45% CAGR over the last five years compared to 10% CAGR for MMC. RSH is still expected to grow much faster than MMC as it continues to add medical services (e.g., Aesthetic Centre and Cancer Centre) and increases bed capacity. In terms of patient load, 80% are local and 20% are foreign patients, which has been consistent over the last two years. Figure 6: RSH reporting strong revenue growth and catching up to MMC 300 250
229
211
248
MYR m
200 141
150
111 79
100 50 0 MMC
RSH
FY14
FY15
FY16
Source: Company, KGI Fraser
Hospital metrics—increase in both patient load and bill sizes As a group, inpatient makes up less than 10% of all patient load but contributes around 80% of total revenues while outpatient revenues make up the remainder. Total revenues have increased 18%/15% in FY15/16, with both inpatient and outpatients growing at similar rates. The increase in total revenues is a function of patient load, which increased at around 5% p.a., and bill sizes, which increased between 5.5% and 12.6% over the past two years. The increase in average bill sizes was primarily driven by increase in doctor’s fees, increased revenue intensity and increased complexity of surgeries performed. Figure 7: Inpatient revenue stream is the major source of growth 120
Inpatient and outpatient growing at 10-12% CAGR over the past two years. Inpatients accounts for <10% of total patient load but contributes 80% of revenues
Revenue (MYR m)
100 80
15.2
16.2
15.0
65.6
68.5
66.4
1Q15
2Q15
3Q15
16.5
16.3
17.5
18.8
76.6
75.1
77.1
79.9
4Q15
1Q16
2Q16
3Q16
60 40 20
0
Inpatient
Outpatient
Source: Company, KGI Fraser
September 14, 2016
6 $ 666
Singapore
Health Management International
EBITDA margins improving on better utilization as RSH comes out of gestation The improvement in the group’s margins come on the back of improving utilization of RSH’s operations. RSH began operations in FY09 and turned profitable in FY14, inline with industry trends of around 3-5 years for hospitals to breakeven. In FY16, HMI’s ~22% EBITDA margins are still below those of its peer, IHH Healthcare (IHH), which is reporting 25-26% EBITDA margins in the same period. Figure 8: Room for growth as EBITDA margins still below peers 450
20.8%
400
MYR m
300 200
22.1%
14.0%
9.8%
25.0% 20.0%
17.1%
350 250
21.6%
15.0%
10.8%
10.0%
150 100 14
19
29
42
FY10
FY11 Revenues
FY12
FY13 EBITDA
50
75
61
88 5.0%
0
0.0% FY14
FY15 FY16 EBITDA Margins (%)
Source: Company, KGI Fraser
PATMI has been growing at a 91% CAGR from FY13 to FY15 but declined 28% YoY in FY16 due to a 39.5% YoY increase in admin costs. The increase in admin costs was related to shares based expenses, forex losses, provision for doubtful debts and facilities based expenses incurred after MMC’s restructuring exercise. We do not expect some of these items such as share-based expenses and provision for doubtful debts to be recurring in nature. Stripping these oneoff items, FY16 core earnings increased 12% YoY compared to the headline 28% YoY decline. In terms of exposure to forex volatility, although most of HMI’s revenues are denominated in MYR, the functional currency of the company is in SGD. HMI has trade and other receivables denominated in MYR that results in forex losses to HMI when the MYR weakens against the SGD. We note this is a noncash item and does not affect our valuation of HMI significantly.
Figure 9: PATMI improved from FY13 as RSH achieves economies of scale 40
35 30
MYR m
25 20 15 10 5 0
-5
FY11
FY12
FY13
FY14
FY15
FY16
FY17
FY18
FY19
PATMI
Source: Company, KGI Fraser
September 14, 2016
7 $ 777
Health Management International
Singapore
Cost breakdown - Staff and materials make up the bulk of costs Medical consultant fees, material costs and staff costs (including director fees) makes up 80% of total expenses of the company. Medical consultant fees makes up 32% of total expenses, followed equally by medical material costs and staff costs, making up 23-24% each. Material and staff costs have relatively been stable over the past three years. Meanwhile, medical consultant fees have trended higher due to recruitment of more specialist consultants as well as higher doctor’s fees. Doctor fees are capped as per Malaysian regulations and was only increased by an average of 14.4% in 2014 after 8 years of no increases. This is inline with the revision of Malaysia’s Private Healthcare and Facilities Act 2006, 13th Schedule release at the end of 2014. HMI is able to pass on the increase in doctor fees to patients and thus be able to maintain its margins. For example, average inpatient bill size has increased at an average of 8.7% YoY in the previous four quarters while average outpatient bill size has increased at an average of 9.7% YoY in the last four quarters.
Figure 10: Consultancy, materials and staff costs make up 80% of total expenses 35% 33% 31%
FY10
29%
FY11
27%
Medical consultancy fees rising due to higher doctor’s fees and more specialist consultants recruited to the hospitals.
25%
FY12
23%
FY13
21%
FY14
19%
FY15
17% 15% Medical consultant fees Medical materials costs Staff costs + director fees
Source: Company, KGI Fraser
Other fees such as hospital charges for accommodation, laboratory investigations, use of equipment, nursing care, use of operation room, etc. are not regulated to allow hospitals room to adjust them to various running costs in different locations. HMI’s improvement in margins mainly come from better cost management and higher utilization of its facilities and resources. For example, rental and utilities expenses, which accounted for 10% of total revenues in FY10, declined to 5% of total revenues by FY15.
September 14, 2016
8 $ 888
Singapore
Health Management International
Industry Overview Key drivers - Low penetration of healthcare services in Southeast Asia (SEA), population and income growth, and medical tourism SEA’s healthcare demand is currently driven by population growth rates that are expected to outstrip those of other regions. Most of SEA’s spending on health care comes from the public sector and many of the region’s fiscally constrained governments are finding it challenging to meet their citizens’ escalating needs, as evidenced by a sampling of countries’ current and projected health care spending patterns. The rise in affluence among the developing SEA countries, specifically Indonesia and Malaysia, and increasing medical insurance penetration rates, is likely to benefit private healthcare services. Malaysia - Long term demographic trends and increase in medical insurance packages to benefit private healthcare services Total healthcare spending in Malaysia is well below those of developed nations and even to countries around the SEA region. Malaysia’s estimated health care spending was equivalent to 4.2% of GDP in 2014, an increase of 1.2 percentage points from 1995, according to the World Bank. That proportion is well below those of countries in Western Europe (average 10% of GDP), Australia (9.4% of GDP) and the US (17.1% of GDP). It is also still lower compared to those in the region, including China (5.6% of GDP), Singapore (4.9% of GDP) and Thailand (6.5% of GDP). Malaysia’s economy is still expected to grow despite the dent of low oil prices to the country’s economy (oil products are the second biggest export of Malaysia). GDP is expected to register an average of 4.5% annual growth rate from 2016 to 2018, according to Bloomberg consensus forecasts. Malaysia’s health care spending is projected to rise by an average of 10.5% p.a., growing from an estimated US$13.7bn to US$22.9bn by 2018, according to the Economist Intelligence Unit. Malaysia’s healthcare spending growth is expected to be driven by increase in elderly numbers, urbanization, increased consumer awareness of health care services and improvements to the access of private healthcare services. Access to private healthcare services is driven by the growth in medical insurance packages and public acceptance of subscribing to private insurance.
Figure 11: ASEAN low healthcare penetration rates but expected to catch up
%
18% 16% 14% 12% 10% 8% 6% 4% 2% 0%
Malaysia and Indonesia has one of the lowest penetration rates of healthcare, as indicated by the total expenditure on healthcare as a percentage of GDP
17.1% 11.3% 11.5% 9.4%
9.1%
5.6%
6.5%
4.9%
2.6%
4.2%
Healthcare spend as % of GDP (2014)
Source: World Health Organization, KGI Fraser
September 14, 2016
9 $ 999
Singapore
Health Management International
Medical tourism - Indonesians are the key driver The main driver of medical tourism in SEA is the lack of a developed public healthcare system among the region’s countries and the growing affluence of citizens, specifically among Indonesians, who makes up the majority of medical tourists in Malaysia and Singapore. Indonesians accounted for 60% of the 600,000 medical tourists each year to Malaysia and provides more potential upside given that nearly 1.5 million Indonesians travel outside the country annually, with a corresponding outflow of more than US$1.4 billion yearly, according to data by the Association of Indonesian Tour and Travel Agencies. The region has a chronic shortage of medical personnel. According to the World Health Organization (WHO), Indonesia has only 0.2 doctors per 1,000 people. From an infrastructure perspective, Indonesia has only 0.6 hospitals bed per 1,000 population when compared to the global average (3 beds per 1,000 population) and that in OECD countries (5 beds per 1,000 population). Malaysia is well positioned to meet the region’s healthcare demand growth Malaysia enjoys several tailwinds that places the country in a good position to capture more of the medical tourism market in SEA. Malaysia currently only accounts for <3% of the total medical tourism revenues in the Asia Pacific but is expected to grow at above 15% YoY in 2016, according to Frost & Sullivan. Malaysia’s medical tourism revenues were estimated to be around US$350m in 2015. Malaysia’s main competitors in attracting medical tourists in SEA are mainly Singapore and Thailand. However, Indonesians currently do not contribute significantly to Thailand Hospitals and currently prefer Singapore or Malaysian hospitals due to the close geographical proximity. While Malaysia’s medical costs are comparable to those in Thailand, the country enjoys a huge cost advantage compared to Singapore. For some surgeries such as an angioplasty or a gastric bypass, costs can be more than 50% cheaper in Malaysia than in Singapore. Other surgeries, including a heart bypass and a knee replacement, can be 30-40% cheaper in Malaysia compared to Singapore. The cost difference is further exacerbated by the stronger SGD against the IDR that have made it more attractive for Indonesians to travel to Malaysia instead.
Figure 12: Indonesia expected to be the growth engine in Southeast Asia 7
6.2 5.6
6
5.1
5
4.5
%
4 3 2
Growing affluence in Indonesia is expected to contribute positively to the region’s medical tourism sector.
2.4
2.8
3.1
3.4
3.6
2014
2015
4
2 1 0 2010
2011
2012
2013
2016
2017
2018
2019
2020
Indonesian households with disposable income > US$25,000 (%)
Source: Euromonitor, KGI Fraser
September 14, 2016
10 $ 101010
Singapore
Health Management International
Forecasts and Assumptions Expansion plans and offering more complex services expected to drive growth Given the mature profile of MMC, we expect growth at MMC be driven primarily by new and more advanced services such as Positron Emission Tomography (PET) scanning. Meanwhile, RSH is still seeing healthy growth in patient load and hence, growth is expected to be driven primarily by expansion of capacity. MMC and RSH have commenced their respective upgrading and expansion plans. This includes the addition of a day surgery unit, more inpatient beds and expansion of cancer program at MMC, as well as the proposed construction of a hospital extension block at RSH. Photo 3: RSH-proposed expansion
Source: Company
HMI originally planned to build a RM90m (~S$31m) 10-story medical block (mainly clinical suites to be rented/sold to doctors) but due to strong demand, the company decided to re-design it to become a hospital extension block. From our understanding of the company’s initial announcements, the new hospital extension block is expected to double existing bed capacity to ~330 beds and more clinical service areas, operating theatre capacity and clinical suites. Construction is expected to begin in FY17 and take two and a half years to complete. The details of the hospital extension block is expected to be released in early 2017. Revenue growth forecast Revenue growth is a function of patient load and bill size, of which both have been growing at HMI’s hospitals. Although the hospital extension block at RSH is only planned for completion in FY19, we expect minor expansions, higher utilization at its existing hospital facilities and more complex operations and services to be able to drive revenue growth at 11.4% CAGR (compared to 18% CAGR over last five years), underpinned by 6% patient load growth p.a. and 5% average bill size growth p.a. The rise in average bill sizes can be attributed to more complex surgical operations and services (e.g, open heart surgery programme, Positron Emission Tomography scans) being introduced to its hospitals, as well as price increases to keep up with average inflation. The rise in medical costs is expected to outpace the average inflation rate. According to the IMF World Economic Outlook database and survey done by Aon Hewitt, the global average medical trend rate of 8.8% - which represents the increase in medical costs - was 5.5 ppts higher than the 3.2% average inflation rate. Figure 13: Revenue growth from increase in patient load and average bill sizes 600 500
MYR m
400
300 200 100 0 FY10
FY11
FY12
FY13
FY14
FY15
FY16
FY17
FY18
FY19
Total Revenue
Source: Company, KGI Fraser
September 14, 2016
11 $ 111111
Singapore
Health Management International
Margins and net profit growth We are forecasting gross margins to average around 32% for FY16-18F. HMI averaged around 25% gross profit margins in FY10-12 but gradually improved to around 29-30% from FY13 onwards on better cost management and economies of scale from RSH. EBITDA margins have trended higher from 9.8% in FY10, when RSH was just starting operations and was a drag on margins, to 21.4% EBITDA margins in FY16. We are assuming EBITDA margins of 20-22% over the next three years, which we believe leaves more room for upside potential as RSH continues to scale up. We expect any increase in medical consultant fees (32-34% of total expenses in FY14-15) to be passed on to patients. As a result, we expect FY17-19F PATMI to grow at 21% CAGR. Figure 14: Margins have improved from FY13 onwards as RSH scales up 35% 29%
30% 25%
33%
32%
32%
32%
21%
21%
21%
22%
20%
FY15
FY16
FY17
FY18
FY19
29%
30%
20%
FY14
25%
25%
25% 20%
16% 12%
15% 9%
8%
FY10
FY11
10% 5%
FY12
FY13
Gross profit margin (%)
EBITDA margin (%)
Source: Company, KGI Fraser
Balance sheet and cash flows enough to fund capex plans HMI has been generating positive free cash flows since FY12 and the trend has continued up to FY16. As a result, HMI was in RM37m net cash position as at end FY16. We estimate HMI’s capex to rise to around RM55m p.a. in FY17-18 mainly due to its RSH expansion plans and taper off in FY19, barring any acquisitions. We expect HMI’s strong cash flows from operations to be sufficient to fund the capex requirements over the next three years.
Figure 15: Both hospitals contributing to healthy cash flows 150 105
MYR million
100 37
50
49
63
0 FY11
FY12
FY13
-2 FY15
FY16
FY17
FY18
FY19
-29
-50
-100
FY14
-66
-63
-54 Net Cash (MYR m)
Source: Company, KGI Fraser
September 14, 2016
12 $ 121212
Singapore
Health Management International
Valuation Initiate BUY and TP of S$0.60 based on DCF valuation We initiate HMI with a BUY recommendation and a TP of S$0.60. Our DCF derived fair value for HMI is based on a 8.0% WACC and 3% Terminal Growth Rate. Our assumption for the long term growth rate is derived from a 40% discount to Malaysia’s 10 years historical GDP growth average and Bloomberg consensus forecasts until 2018. We expect EBITDA margins to range around 2122% going forward and capex to normalize at around RM10-15m p.a. after our expected ~RM120m capex in FY17-19 for its RSH expansion plans. We utilized an exchange rate of 3.0 MYR/SGD. We believe that a DCF valuation methodology is appropriate to capture HMI’s positive long term prospects. Our TP is an implied 42x/36x/31x FY17/18/19F and is a slight premium to peers average of 39x forward P/E. We believe the premium is justified given 1) HMI’s PATMI growth of 21% CAGR in FY17-19F compared to the 16% average growth for its regional peers and 2) EBITDA margins that are below peers but which we believe have upside to improve. Furthermore, we believe there are sufficient upside catalysts from the company’s growth prospect via inorganic expansion. HMI’s net cash position and strong operating cash flows allows for an earnings accretive acquisition in Malaysia and elsewhere in the region.
Figure 16: DCF Valuation (MYR m, FYE June) Revenue Growth (%) EBIT EBIT margin (%) EBIT (1-T) Plus Depreciation and Amortization Less Capital Expenditures Less Increase in Net Working Capital FCF PV of FCF Terminal Value Sum of PV of FCF Terminal Value PV of Terminal Value Firm Value Less Net debt/(cash) Less minority interest (4x P/B) Equity Value No of Shares Equity Value per Share (RM) Equity value per share (SGD) Current Price (SGD) Upside/Downside
2016 397.8 68.9 17.3% 57.2 19.0 (11.2) 32.7 97.6
182.7 1681.1 1145.1 1327.8 (37.1) 296.8 1068.1 589.7 1.81 0.60 0.53 13.9%
2017F 441.8 11.1% 71.5 16.2% 59.4 21.0 (55.0) (15.5) 9.9 9.2
2018F 492.2 11.4% 83.3 16.9% 69.1 22.1 (55.0) (17.2) 19.1 16.4
2019F 550.3 11.8% 98.8 18.0% 82.0 23.7 (30.0) (19.3) 56.4 44.8
WACC Assumptions Equity Weight Debt Weight Risk-free Rate Market Risk Premium Beta Cost of Equity Cost of Debt Tax Rate Terminal Growth Rate WACC
2020F 577.8 5.0% 103.7 18.0% 86.1 23.1 (11.6) (20.2) 77.4 57.0
2021F 606.7 5.0% 108.9 18.0% 90.4 24.3 (12.1) (21.2) 81.3 55.4 1681.1
90% 10% 1.8% 8.0% 0.8 8.5% 4.0% 17.0% 3.0% 8.0%
Source: KGI Fraser
September 14, 2016
13 $ 131313
Singapore
Health Management International
Sensitivity analysis Our sensitivity analysis shows that our fair value for HMI is more sensitive to every percentage point change in the WACC. A 1ppt decline in WACC increases our TP by 34% while a 1pp increase in the terminal growth rate increases our TP by 28%. Conversely, a 1ppt increase/decline in WACC/terminal growth results in a –23%/-19% decline in our TP.
Figure 17: Sensitivity analysis to changes in WACC and Terminal growth rates
Growth
1.0% 1.5% 2.0% 2.5% 3.0% 3.5% 4.0%
5.0% 0.88 1.01 1.19 1.44 1.82 2.45 3.71
6.0% 0.66 0.74 0.84 0.97 1.14 1.39 1.75
7.0% 0.51 0.56 0.63 0.71 0.80 0.93 1.10
WACC 8.0% 0.41 0.44 0.49 0.54 0.60 0.68 0.77
9.0% 0.33 0.36 0.39 0.42 0.47 0.52 0.57
10.0% 0.27 0.29 0.31 0.34 0.37 0.40 0.44
11.0% 0.22 0.24 0.26 0.28 0.30 0.32 0.35
Source: KGI Fraser
The fluctuation in forex rates between the SGD and MYR currencies that results in losses/gains in quarterly results is largely a non-cash item that does not pose any significant risk to HMI’s valuations, in our view. However, the long term depreciation of the MYR against SGD may be a key issue when investing in capital intensive projects in the country, as the rate of return on projects needs to be sufficient enough to account for the potential forex loss. The MYR has depreciated almost 30% over the last 10 years against the SGD, or at an annualized rate of 2.5%. According to Bloomberg consensus data, the MYR/SGD is expected to range between 2.8 to 3.1 MYR/SGD until 2020. In our sensitivity assessment, assuming the worst case scenario where MYR/SGD drops to 3.9 (30% depreciation), our fair value declines to 46 SG cents. Conversely, our fair value increases to 86 SG cents when the MYR appreciates 30% against the SGD.
Figure 18: Sensitivity analysis to MYR/SGD exchange rates Fair value (RM) Forex Fluctuation (%) MYR/SGD Fair Value (SGD)
1.81 MYR appreciates against SGD (30.0%) (20.0%) (10.0%) 2.10 2.40 2.70 0.86 0.75 0.67
Base case – 3.00 0.60
MYR depreciates against SGD 10.0% 20.0% 30.0% 3.30 3.60 3.90 0.55 0.50 0.46
Source: KGI Fraser
September 14, 2016
14 $ 141414
Singapore
Health Management International
Peer comparison According to Bloomberg consensus estimates, HMI’s peers are expected to report PATMI growth of 17% CAGR over the next three years. They are also trading at 49x forward P/E, which is skewed higher by Indonesian listed hospital groups (e.g., Siloam International, Mitra Keluarga Karyasehat). Excluding the Indonesian companies, average forward P/E drops to 39x P/E and average PATMI growth slower at 15%. HMI’s Malaysia peers, IHH and KPJ, are expected to grow PATMI at 17% and 14% CAGR over the next three years. IHH is currently trading at 54x forward P/E, a huge premium to peers mainly due to its bigger size and higher EBITDA margins, in our view.
Figure 19: HMI trading in the middle range of peers in the region but with better growth prospects 60.0
Mitra Keluarga Karyasehat
55.0
IHH Healthcare
P/E FY16F (x)
50.0 45.0
Bangkok Dusit Med Service Chularat Hospital Bangkok Chain Hospital
40.0 Raffles Medical Group
35.0
Health Management International*
Bumrungrad Hospital
30.0
KPJ Healthcare
25.0 –
5.0%
10.0%
15.0%
20.0%
25.0%
30.0%
35.0%
PATMI CAGR FY16-18F (%)
Source: Bloomberg, KGI Fraser *Health Management International - FY17F and PATMI CAGR FY17-19F
Figure 20: Peer comparison valuations Company
Bloomberg Price Ticker (Lcl curr)
REGIONAL HOSPITAL OPERATORS IHH Healthcare IHH MK KPJ Healthcare KPJ MK Raffles Medical Group RFMD SP Bangkok Dusit Med Service BDMS TB Bumrungrad Hospital Pub BH TB Chularat Hospital CHG TB Bangkok Chain Hospital BCH TB Mitra Keluarga Karyasehat MIKA IJ Siloam International SILO IJ SIMPLE AVERAGE
6.61 4.20 1.54 22.20 164.50 2.40 10.70 2,700 10,425
Mkt Cap (US$m)
13,183 1,063 1,955 9,750 3,294 736 770 3,083 927
SIMPLE AVERAGE (Ecluding Indonesian hospitals) Health Managent Int'l
HMI SP
0.53
227
P/E (x) (hist)
P/E (x) P/B (x) (fwd)
ROE (%)
ROE EV/EBITDA EV/EBITDA EV/EBITDA Net Dvd Yld Beta (%) (x) (x) (x) Gearing (%) (fwd) (ttm) (fwd) (fwd 2 yr) (%)
53.5 34.8 37.6 41.9 34.7 49.0 41.7 69.2 155.1 57.5
54.2 30.0 36.5 40.6 34.5 41.4 38.1 58.3 121.7 50.6
2.5 2.9 4.2 6.4 8.9 8.9 5.9 12.3 6.6 6.5
5 9 12 16 27 19 15 23 4 14.4
5 10 12 17 26 21 16 21 6 15.0
31.4 16.7 27.5 25.6 21.7 31.2 18.8 48.6 22.5 27.1
24.6 14.8 25.7 25.3 20.9 28.3 18.1 43.3 18.2 24.4
21.4 12.9 22.5 22.5 19.1 23.4 15.9 36.5 14.6 21.0
19.1 78.7 NC 48.1 NC 2.4 78.6 NC NC 45.4
0.5 1.6 1.3 0.5 1.5 1.5 1.3 0.9 na 1.1
0.9 0.6 0.6 0.7 0.8 0.8 0.7 na 0.6 0.7
41.9
39.3
5.7
14.6
15.4
24.7
22.5
19.7
45.4
1.2
0.7
46.1
36.0
5.4
13
14
11.2
10.6
9.3
NC
0.5
0.8
Source: Bloomberg, KGI Fraser
September 14, 2016
15 $ 151515
Health Management International
Singapore
Risks Competition HMI competes against other private hospital operators in Malaysia, including IHH Healthcare and KPH Healthcare, both listed companies. Pantai Group and Columbia Asia have hospitals situated in the main cities, such as Klang Valley, Penang, Johor, and Ipoh. Furthermore, private hospitals also face competition from public hospitals in Malaysia. Public hospitals offer almost free medical services that may pose a threat to patient numbers. The rise in living cost added with the implementation of GST in 2015 could push more people to select cheaper public healthcare services rather than private hospital operators. Foreign exchange Strengthening of USD against MYR will raise the cost of procurement of medical supplies and equipment. On the other hand, a strengthening MYR, specifically against the Indonesian Rupiah, may affect medical tourists as they find it more expensive for healthcare treatment in Malaysia. The group’s balance sheet also may pose forex risk due to the way the company is structured. The Group’s exposure to currency risk arises from MYR denominated amount due from an associated corporation of RM 23m (2014: RM 27m) and amount due from subsidiaries of RM 19m (2014: RM 20m) as the Group’s functional currency is in SGD. As at 30 June 2015, if the RM has strengthened/ weakened by 1% (2014: 1%) against the SGD with all other variables including tax rate being held constant, the Group and Company’s profit after tax would have been RM 0.3m (2014: RM 0.4m) higher/lower, as a result of currency translation gains/losses on these MYR denominated balances. Lack of healthcare professionals Hospital operations are dependent on the resident doctors and their reputation. There is currently a shortage of doctors and nurses in Malaysia. Basing on HMI’s historical growth in patient load, a less than proportionate increase in doctors and nurses would lead to a less than optimal operation. The lack of reputable specialist doctors could also hamper patient volume as patients tend to follow reputable doctors even as they move from hospital to hospital. Our discussion with management however assures us of HMI’s ability to attract and retain talent in their hospitals. HMI’s hospitals have reached the optimum patient load to ensure sufficient work load for its doctors. Compared to a greenfield hospital that requires at 3-5 years of gestation period, resources may not be optimally utilized during these early years. Furthermore, private hospitals in Malaysia are imposed strict guidelines on medical advertisements and thus rely more on word of mouth.
September 14, 2016
16 $ 161616
Singapore
Health Management International
Summary of Financials YE 30 Jun INCOME STATEMENT (MYR m) Revenue Cos t of s a l es Gross Profit Other opera ti ng i ncome/(expens es ) Sel l i ng a nd di s tri buti on Admi n Profit from Operations Fi na nce i ncome/(expens es ) Sha re of JV res ul ts Excepti ona l s /Inves tment i ncome Profit before Tax Income ta x Non-control l i ng i nteres ts PATMI PATMI Norma l i zed
2014 292.9 (207.1) 85.8 5.3 (2.7) (42.0) 44.9 (3.6) 4.9 0.0 46.2 (10.2) (20.0) 16.0 16.0
2015 345.2 (242.2) 103.1 0.0 (2.5) (48.9) 51.1 (1.7) 3.1 2.2 54.8 (1.4) (25.7) 27.6 25.4
2016 397.8 (268.0) 129.8 1.4 (2.7) (59.6) 68.9 (1.9) 2.1 (5.6) 63.4 (17.9) (25.6) 19.9 25.5
2017F 441.8 (300.4) 141.4 1.4 (2.7) (68.5) 71.5 (1.9) 2.2 0.0 71.8 (17.9) (28.5) 25.3 25.3
2018F 492.2 (334.7) 157.5 1.4 (2.7) (72.8) 83.3 (2.1) 2.3 0.0 83.4 (20.9) (33.2) 29.4 29.4
2019F 550.3 (374.2) 176.1 1.4 (2.7) (75.9) 98.8 (2.4) 2.4 0.0 98.8 (24.7) (39.3) 34.8 34.8
BALANCE SHEET (MYR m) Ca s h a nd ca s h equi va l ents Tra de a nd other recei va bl es Inventory Other current a s s ets Current Assets Property, pl a nt a nd equi pment Other non-current a s s ets Non-current Assets Total assets Tra de a nd other pa ya bl es Borrowi ngs (current) Other current l i a bi l i ti es Current Liabilities Borrowi ngs (non-current) Other non-current l i a bi l i ti es Non-current liabilities Sha rehol ders equi ty Non-control l i ng i nteres ts Total Equity Total Liabilities and Equity
2014 26.0 71.2 5.3 4.5 107.0 142.6 37.6 180.1 287.2 56.4 33.8 2.8 93.0 21.6 20.3 41.9 110.5 41.7 152.2 287.2
2015 39.1 87.8 12.8 4.0 143.7 180.5 47.5 228.0 371.8 66.2 28.9 2.3 97.4 11.7 57.6 69.3 144.4 60.8 205.1 371.8
2016 78.9 57.6 14.1 4.0 154.6 177.9 50.5 228.3 382.9 79.3 27.5 5.7 112.5 14.4 23.7 38.1 170.6 61.6 232.3 382.9
2017F 90.3 64.0 15.7 4.0 174.0 213.2 51.9 265.1 439.1 88.9 30.5 14.5 133.9 12.8 23.7 36.5 194.5 74.2 268.6 439.1
2018F 112.8 71.3 17.5 4.0 205.5 247.4 53.3 300.7 506.3 99.0 34.0 26.4 159.5 11.4 23.7 35.1 222.9 88.8 311.7 506.3
2019F 153.6 79.7 19.6 4.0 256.9 255.1 54.8 309.9 566.8 110.7 38.0 21.3 170.0 10.2 23.7 33.9 256.7 106.1 362.8 566.8
CASH FLOW STATEMENT (MYR m) Net i ncome before ta x Depreci a ti on & non ca s h a djus tments Cha nge i n Worki ng Ca pi ta l Income Ta x Pa i d Interes t Pa i d CF from operating activities Purcha s e/Di s pos a l of PPE Other CFI CF from investing activities Di vi dends Pa i d Debt Ra i s ed / (Repa i d) Equi ty Ra i s ed / (Bought Ba ck) Other Ca s h from Fi na nci ng CF from financing activities Net i ncrea s e i n ca s h & ca s h equi v. FX effects Begi nni ng Ca s h Ending Cash
2014 46.2 22.6 (20.1) 0.0 (3.6) 45.2 (12.5) 2.8 (9.7) 0.0 (11.6) 0.0 1.1 (17.9) 17.7 0.1 4.3 22.0
2015 54.8 13.2 (14.4) (2.3) (3.4) 48.0 (10.7) 3.2 (7.5) 0.0 (17.2) 0.0 0.0 (23.9) 16.8 0.2 22.0 39.1
2016 63.4 19.0 42.1 (5.8) (3.6) 79.2 (11.2) (8.9) (20.1) 0.0 (4.0) 0.0 (2.2) (20.4) 39.6 0.9 38.8 78.9
2017F 71.8 18.8 3.3 (9.2) (3.8) 81.0 (55.0) 0.0 (55.0) (1.0) 1.4 0.0 0.0 (15.5) 11.4 0.9 78.4 90.3
2018F 83.4 29.5 2.9 (17.9) (3.9) 94.0 (55.0) 0.0 (55.0) (1.0) 2.1 0.0 0.0 (17.4) 22.4 0.9 89.8 112.8
2019F 98.8 22.3 3.0 (29.8) (4.2) 90.1 (30.0) 0.0 (30.0) (1.0) 2.8 0.0 0.0 (20.1) 40.9 0.9 112.3 153.6
September 14, 2016
17 $ 171717
Health Management International
Singapore
Appendices Senior Management Management Dr Gan See Khem Executive Chairman / Managing Director
Profile Dr Gan See Khem is Executive Chairman and Managing Director of Health Management International Ltd (“HMI”). She has spearheaded the Group’s healthcare and education businesses since 1999. Dr Gan is an active figure in public services and currently serves on The MalaysiaSingapore Business Council. She also currently serves as the first woman President of the Singapore Gan Clan Association, and is distinguished as one of the first two women to become a council member at the Singapore Chinese Chamber of Commerce and Industry in 1995. She was a Nominated Member of Parliament of the Republic of Singapore. She was also previously on the Board of Trustees of the Institute of South East Asian Studies and Singapore Management University (“SMU”), and was a member of the International Advisory Board of Curtin Business School. Dr Gan specialised in strategic planning and management during her 15-year tenure at the National University of Singapore. She holds a PhD in Business Administration from the University of Sheffield, United Kingdom.
Ms Chin Wei Jia Executive Director & Group Chief Executive Officer
Ms Chin Wei Jia was appointed as an Executive Director of HMI in October 2014 and as Group Chief Executive Officer (“CEO”) of HMI in September 2015. As Group CEO, she leads the strategic and operational activities in the Group. She had previously held the concurrent role of CEO of Regency Specialist Hospital (“Regency”) from 2012 to 2016. Ms Chin first joined HMI in 2002 and contributed to the launch of HMI Institute of Health Sciences. She played a key role in the development of HMI into a SGX mainboard listed healthcare company. Ms Chin was a member of the core team that commissioned HMI’s new Regency Specialist Hospital in 2008 and established HMI’s Medisave-accredited referral centre to enable HMI hospitals to provide overseas hospitalisation and day surgeries under the Singapore Medisave scheme. Ms Chin holds a Bachelor of Arts (summa cum laude) in Economics and International Relations from Boston University, United States of America. She also has a Masters of Arts in International Relations from Johns Hopkins University, United States of America.
Mr Chin Wei Yao
Mr Chin Wei Yao joined HMI in 2015 as Director of Finance & Corporate Development. He is responsible for the supervision of the Group’s overall financial Executive Director & reporting matters and driving the development of the Group’s healthcare services Director of Finance and Corporate business. Development Prior to joining HMI, Mr Chin worked for eight years in private equity and investment banking in South East Asia. His last position was Associate Director at KV Asia Capital and he was also previously a Vice President at Sindicatum. He started out his career as an investment banker at Credit Suisse in 2007. Mr Chin graduated summa cum laude with a B.A. in Economics (Honours) from New York University. He is also an Association of Chartered Certified Accountants (“ACCA”) affiliate member. September 14, 2016
18 $ 181818
Health Management International
Appendices
Singapore
Competitive Landscape HMI’s two specialist hospitals is expected to face increased competition from new private hospitals in Malacca and Johor. However, we believe that HMI’s established brand name and track record puts in in a strong position to continue to grow alongside increasing demand. Management has indicated that majority of patients are through word of mouth referrals, which basically indicates a high level of satisfaction of services at HMI’s hospitals. The Malaysia Healthcare Travel Council (MHTC) was set up in 2009 as an initiative to spearhead the promotion of healthcare tourism in Malaysia. The strategy of MHTC is to focus on Penang, Malacca and Johor for development into key medical tourism areas. Currently, HMI is currently focused only on Malacca and Johor but management is open to investment opportunities within Malaysia and the region. The closest competitors to HMI’s hospitals in Southern Malaysia include KPJ Healthcare (KPJ) and Parkway Pentai Group of Hospitals (subsidiary of IHH Healthcare), both listed or part of listed entities on the Malaysian stock exchange. KPJ has 8 hospitals in operation and under construction in the southern region of Johor, with the Bandar Dato’ Onn Specialist and KPJ-UTM Specialist hospitals to be its latest addition (estimated to open in 2018). Parkway Pantai is one of Asia's largest integrated private healthcare groups with 14 hospitals in Malaysia and a total of 31 hospitals throughout the region, including Singapore, Malaysia, India, China, Brunei and the United Arab Emirates. Malacca hospitals Oriental Melaka Straits Medical Centre (OMSMC) is a 300-bed, fully-integrated multidisciplinary specialist centre located at the beach area of Klebang. OMSMC is around 6km away from MMC. OMSMC is owned by Oriental Holdings Berhad (“OHB”), a public-listed company in Malaysia. Pantai Hospital Ayer Keroh is a 250-bed hospital which houses more than 80 medical specialists and an extensive list of medical services and specialties. Pantai Hospital Ayer Keroh is one of 14 hospitals operated by Pantai Holdings Berhad (Pantai Group), which is part of Parkway Pantai Limited, a subsidiary of IHH Healthcare Berhad (IHH). Putra Specialist Hospital is a 200-bed hospital located in the city centre and majority owned by the Malacca State Government. It is located next to hotels and the main shopping street of Malacca.
September 14, 2016
19 $ 191919
Health Management International
Singapore
Johor Several large healthcare related developments have been planned in Johor. It has the potential to cater to both Singapore patients and the growing Iskandar region. Like HMI’s hospitals, Parkway Pantai has hospitals that are approved by the Singapore Ministry of Health for Singapore residents to use their Medisave for hospitalization and day surgeries overseas. Certain conditions apply in order to utilize Medisave overseas, including that patients must be referred by the healthcare firms' Singapore centres first and Medisave use is limited to hospitalisation and day surgery.
Gleneagles Medini, which was launched in December 2015, is the second hospital in Johor approved for Medisave use following Regency Specialist Hospital's approval in 2010. The RM400 million (S$132 million) Gleneagles Medini is a 300-bed tertiary hospital. The hospital caters mainly to the Iskandar economic zone, offering a range of specialties including cardiology, ear, nose & throat (ENT), obstetrics & gynaecology, oncology, ophthalmology and orthopaedics. Columbia Asia Hospital - Nusajaya is Columbia Asia's seventh hospital in Malaysia and is a 10-minute drive from Singapore. It is an 80-bed hospital which opened in 2010. The company, part of Seattle-based Columbia Pacific, built its first hospital in Seremban in 1999 and also has hospitals in Miri and Bintulu in East Malaysia; Taiping in West Malaysia and Puchong and Shah Alam in the Kuala Lumpur area. The hospital offers a full range of primary and secondary services, including inpatient and outpatient care, a 24-hour emergency room, operating theater, day surgery and physiotherapy. The hospital is expecting strong business, among other specialties, in its obstetric and pediatric departments, as well as knee replacements. Major new developments Thomson Medical healthcare mega-city Rowsley Ltd (ROWS SP) had previously announced that it was re-positioning Vantage Bay into a medical hub instead of a lifestyle township following the decline in the market for residential apartments in Iskandar. The projected development cost for the healthcare city is expected to reach RM5 billion (S$1.7 billion). Vantage Bay Healthcare City is expected to cover a 9.23ha site, which is a kilometer away from the Johor Causeway, and will comprise a specialist hospital, a community hospital, long-term care facilities, a teaching hospital, a medical school, research and training institutions and a wellness resort. Vantage Bay is next to the Thomson Medical Hub. That project will be managed by Thomson Medical when it is ready in 2018. The land has been approved for hospital development for up to 272 beds. The Iskandariah Hospital is expected to have the capacity to eventually house 500 beds, subject to regulatory approval.
September 14, 2016
20 $ 202020
Health Management International
Singapore
HMI’s representative offices across the region. HMI currently has 17 patient representative offices throughout Southeast Asia. Figure 21: HMI’s hospitals are supported by 17 representative offices, mainly in Indonesia
Source: Company
Figure 22: MMC situated at the heart of Malacca City. It offers patients a wide range of amenities in the surrounding area.
Source: Company
September 14, 2016
21 $ 212121
Health Management International
Singapore
Medical specialties available at RSH:
Anaesthesiology Cardiology Colorectal Surgery Ear, Nose & Throat (ENT), Head & Neck Surgery Emergency Medicine Gastroenterology & Internal Medicine General Surgery Gynaecologic Oncology Medical Oncology & Haematology Neurosurgery Obstetrics & Gynaecology Ophthalmology Orthopaedic & Trauma Surgery Paediatrics, Paediatric Cardiology, Neonatology & Paediatric Neurosurgery Plastic, Cosmetic & Reconstruction Surgery Radiology & Interventional Radiology Respiratory & Internal Medicine Urology Vascular & Endovascular Surgery
RSH’s location in Johor. RSH is around 15 minutes drive from the Johor Bahru checkpoint. Many of the other private hospitals are on the west side of Johor, including Gleneagles Medini and Columbia Asia Hospital - Nusajaya Figure 23: RSH located near industrial and Petronas’ new oil refinery-petrochemicals complex
Source: Company
September 14, 2016
22 $ 222222
Singapore
Health Management International
Appendices Figure 24: Low healthcare penetration in Southeast Asia. Total healthcare spend as a percentage of GDP (2014)
Total healthcare spending in Southeast Asia is almost 50% lower compared to developed nations, with Indonesia (2.9% of GDP) among the lowest.
Source: World Health Organization, KGI Fraser
Figure 25: Chronic shortage of medical personnel in Southeast Asia. Indonesia has the second lowest doctors/1000 population.
Indonesia has only 0.2 doctors per 1000 population, well below those of Thailand (0.4), Malaysia (1.2) and Singapore (2.0)
Source: World Health Organization, KGI Fraser
September 14, 2016
23 $ 232323
Singapore
Health Management International
Appendices - Healthcare sector 3 years financial performance Figure 26: SGX listed Healthcare companies 3 years sales and net profit Company
Bloomberg Price Ticker (Lcl curr)
Mkt Cap (US$m)
Revenue FY13 (S$m)
Revenue FY14 (S$m)
Revenue Net Income Net Income Net Income FY15 FY13 FY14 FY15 (S$m) (S$m) (S$m) (S$m)
HOSPITAL SERVICES Raffles Medical Group RFMD SP Health Management Int'l HMI SP IHH Healthcare IHH SP
1.53 0.50 2.19
1,958 210 13,247
341 99 2683
375 114 2842
411 131 2984
85 3 251
68 6 292
69 10 330
HEALTHCARE SERVICES Q&M Dental Group Cordlife Group Talkmed Group Singapore O&G Int'l Healthway Corp ISEC Healthcare Healthway Medical Corp
QNM SP CLGL SP TKMED SP SOG SP IHC SP ISEC SP HMED SP
0.75 1.23 1.00 1.18 0.04 0.32 0.03
436 234 480 206 46 115 50
71 35 56 9 31 22 81
100 49 63 14 35 22 86
124 58 66 16 45 27 94
6 13 28 3 44 6 31
9 31 39 4 31 2 10
11 32 37 5 0 3 2
CONSUMABLES Haw Par Corp HPAR SP Tianjin Zhong Xin Pharmaceutical TIAN SP Top Glove Corporation TOPG SP Riverstone Holdings RSTON SP IX Biopharma IXBIO SP Trendlines Group TTGL SP QT Vascular QTVC SP UG Healthcare Corp UGHC SP
8.81 0.78 1.52 0.88 0.28 0.17 0.08 0.32
1,420 1,659 1,399 479 132 63 53 44
141 1214 927 142 0 38 7 47
154 1448 883 155 1 11 17 49
179 1539 937 198 7 14 17 56
108 72 79 23 -2 20 -43 4
119 74 70 27 -3 -4 -43 5
183 99 104 45 -11 -5 -73 3
Source: Bloomberg, KGI Fraser
September 14, 2016
24 $ 242424
Health Management International
KGI’s Ratings
Disclaimer
Singapore
Rating
Definition KGI Fraser Research’s recommendations are based on an Absolute Return rating system.
BUY
>10% total return over the next 12 months
HOLD
-10% to +10% total return over the next 12 months
SELL
<-10% total return over the next 12 months
This report is provided for information only and is not an offer or a solicitation to deal in securities or to enter into any legal relations, nor an advice or a recommendation with respect to such securities. This report is prepared for general circulation. It does not have regard to the specific investment objectives, financial situation and the particular needs of any recipient hereof. You should independently evaluate particular investments and consult an independent financial adviser before dealing in any securities mentioned in this report. This report is confidential. This report may not be published, circulated, reproduced or distributed and/or redistributed in whole or in part by any recipient of this report to any other person without the prior written consent of KGI Fraser. This report is not intended for distribution and/or redistribution, publication to or use by any person in any jurisdiction outside Singapore or any other jurisdiction as KGI Fraser may determine in its absolute discretion, where the distribution, publication or use of this report would be contrary to applicable law or would subject KGI Fraser and its connected persons (as defined in the Financial Advisers Act, Chapter 110 of Singapore) to any registration, licensing or other requirements within such jurisdiction. The information or views in the report (“Information”) has been obtained or derived from sources believed by KGI Fraser to be reliable. However, KGI Fraser makes no representation as to the accuracy or completeness of such sources or the Information and KGI Fraser accepts no liability whatsoever for any loss or damage arising from the use of or reliance on the Information. KGI Fraser and its connected persons may have issued other reports expressing views different from the Information and all views expressed in all reports of KGI Fraser and its connected persons are subject to change without notice. KGI Fraser reserves the right to act upon or use the Information at any time, including before its publication herein. Except as otherwise indicated below, (1) KGI Fraser, its connected persons and its officers, employees and representatives may, to the extent permitted by law, transact with, perform or provide broking, underwriting, corporate finance-related or other services for or solicit business from, the subject corporation(s) referred to in this report; (2) KGI Fraser, its connected persons and its officers, employees and representatives may also, to the extent permitted by law, transact with, perform or provide broking or other services for or solicit business from, other persons in respect of dealings in the securities referred to in this report or other investments related thereto; and (3) the officers, employees and representatives of KGI Fraser may also serve on the board of directors or in trustee positions with the subject corporation(s) referred to in this report. (All of the foregoing is hereafter referred to as the “Subject Business”.) However, as of the date of this report, neither KGI Fraser nor its representative(s) who produced this report (each a “research analyst”), has any proprietary position or material interest in, and KGI Fraser does not make any market in, the securities which are recommended in this report. Each research analyst of KGI Fraser who produced this report hereby certifies that (1) the views expressed in this report accurately reflect his/her personal views about all of the subject corporation(s) and securities in this report; (2) the report was produced independently by him/her; (3) he/she does not carry out, whether for himself/herself or on behalf of KGI Fraser or any other person, any of the Subject Business involving any of the subject corporation(s) or securities referred to in this report; and (4) he/she has not received and will not receive any compensation that is directly or indirectly related or linked to the recommendations or views expressed in this report or to any sales, trading, dealing or corporate finance advisory services or transaction in respect of the securities in this report. However, the compensation received by each such research analyst is based upon various factors, including KGI Fraser’s total revenues, a portion of which are generated from KGI Fraser’s business of dealing in securities. Copyright 2016. KGI Fraser Securities Pte. Ltd. All rights reserved.
September 14, 2016
$
