“We have a TP of 86 cents, based on our DCF valuation model,” says analyst Joel Ng in a Monday report.
Ng also likes the new cleaner group structure and believes the clarity in its financials may remove concerns among investors, and thus the discount given to its valuations.
Visible short-term plans contributing to further growth of its hospitals include one new ward of 30 beds to be added to each of its hospitals over next 12 months as well as nuclear medicine unit to contribute beginning 2Q17, thus leading to higher revenues from higher value added services.
Long-term growth is expected to be driven by its Regency hospital expansion block. The Regency expansion is estimated to cost RM160 million ($51 million) over 2.5 years and will more than double existing capacity at the hospital.
Nevertheless, competition is still expected to intensify, especially in Johor, with the entry of new hospitals.
Recent announcements included the $1.6 billion Thomson Medical hospital, part of a mega-healthcare hub in Johor Baru.
However, these projects will take at least five or more years to be completed, and longer to build up credibility with patients.
Meanwhile, HMI’s Regency can continue to build on top its seven years of operating history to develop its specialities and outreach to international patients, similar to what it has achieved with Mahkota as a leading medical tourism destination in Malaysia.
To recap, HMI’s 2Q17 PATMI declined 1.1% y-o-y to RM5.3 million. Excluding forex losses and professional fees related to the proposed consolidation, adjusted PATMI increased 58.0% y-o-y to RM7.2 million. Revenues increased 11% y-o-y to RM106.9 million on higher patient load and bill sizes. Revenues and PATMI make up 49% of KGI’s full-year forecasts.
Shares of HMI are down 64 cents at 11.05am.
