The Motley Fool

This Healthcare Stock Has Appreciated 387% Over the Past Decade. Is It Still a Buy?

Health Management International Ltd  (SGX: 588) is a lesser known healthcare player listed on the Singapore stock market. It owns and manages Mahkota Medical Centre in Malacca and the 218-bed capacity Regency Specialist Hospital in Johor. It also owns and operates HMI Institute of Health Sciences in Singapore.

The group has been one of the star-performing stocks in Singapore over the last 10 years as its shares have appreciated an astonishing 387.5%.

Even though its share price has already appreciated manifold, I took a closer look to see if it can still make a good investment.

Organic growth

In the last financial year, the group saw growth in its key operational metrics. Total operational beds were up 0.7%, while total patient load increased 1.5% year-on-year. In addition, the average inpatient and outpatient bill size increased by 9.4% and 6% respectively.

The higher average bill size indicates that the group still has pricing power with its patients and can afford to increase the selling price of its services.

Consequently, the group’s revenue and core net profit after tax surged by 7.3% and 13.6%, respectively, in its 2018 financial year.

Growth through hospital expansion and acquisitions

In addition to its organic growth in its existing services, the group is also actively seeking avenues for acquisition and expansion.

In May this year, it completed its 62.5% acquisition of StarMed Specialist Centre, a one-stop ambulatory care centre in Singapore. Although the group expects to incur gestation losses for the first two to three years of operation, StarMed will diversify the group’s services and should be earnings-accretive in the future.

The group is also looking to expand its hospitals in Malaysia. Over the last 12 months, it has recruited new specialist consultants in the Mahkota Medical Centre and is in the midst of expanding its radiology and other departments.

Health Management International is also planning a new hospital block in Regency Specialist Hospital that will double the existing capacity. Upon its target completion in 2021, Regency will become a 380-bed tertiary hospital, with the potential to expand to 500 beds.

Share price valuation

Health Management International shares now trade at S$0.58 apiece, which translates to a price-to-earnings ratio of around 24. The valuation is below its five-year average earnings multiple of 37 and below other healthcare peers such as Raffles Medical Group Ltd (SGX: BSL) and IHH Healthcare Bhd (SGX: Q0F), which have price-to-earnings multiples of 27.7 and 61.1 respectively.

The Foolish conclusion

Health Management International has been one of the best-performing stocks in the past 10 years. That was largely because the company had grown its bottom line by 645% during that time frame. If the group can continue its impressive record of growth, its share price will likely follow suit.

From the above analysis, we can see that there continues to be engines of growth to propel Health Management’s earnings in the future. That said, there are also other factors to consider such as the company’s balance sheet strength, ability to generate free cash flow, management competency, and competitive advantages. Only by assessing each of these factors can we make a holistic investment decision.

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore contributor Jeremy Chia owns shares in Raffles Medical. Motley Fool Singapore has a buy recommendation on Raffles Medical.