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What Investors Should Know About Health Management International Ltd’s FY2018 Earnings

Health Management International Ltd (SGX: 588) is a small hospital operator that owns and manages two hospitals in Malaysia and a healthcare education institute in Singapore.

It was one of the top 15 stock performers in Singapore over the past decade, as shares have increased an astounding 387.5% over the period. Its earnings per share have spiked more than six-fold since then.

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Let’s see how it has done in its latest financial year, which ended on 30 June 2018.

Financial performance

It was another good year for Health Management International. Its revenue rose by 7.3%, while earnings before interest, tax, depreciation and amortisation (EBITDA) increased by 19.1%. Core net profit after tax climbed 13.6%.

The higher revenue was due to increased patient load and bill size, while the profit margin expansion was achieved through higher average bill size per patient and better cost efficiencies.

Below is a table highlighting the growth in key metrics in FY2018 and the last quarter of the financial year:

Source: Health Management International Ltd FY2018 Press Release

Financial position

As of 30 June 2018, the group had a net debt of MYR 137.5 million. I would usually prefer to see companies have a net cash position. However, its net-debt-to-equity ratio was 55%, which is still reasonable. Also, its net-debt-to-EBITDA was 1.2 times, which is low and may indicate that the group generates a profit that can pay off its debt easily if it wishes to.

It had a net asset value per share of 30.1 RM cents, up from 20.54 RM cents a year earlier.

Health Management International generated a healthy cash flow from its operations of RM74 million and spent RM 30 million on capital expenditure. This works out to RM44 million in free cash flow during the year.

Operational metrics

Operationally, there were positives all around. Patient load increased in each quarter of the year.

Source: Health Management International Ltd FY2018 Earnings Presentation

The growth was largely driven by higher outpatient load. The higher foreign patient load was also a key contributor to growth. Foreign patients made up 24% of patient load in the fourth quarter, compared to 23% the corresponding period last year.

The group also managed to increase its price point with average patient bill size increasing. Average inpatient and outpatient bill size grew 9.4% and 6.0%, respectively, in the fourth quarter of the year. There is also a steady sequential increase in outpatient bill size each quarter.

Source: Health Management International Ltd FY2018 Earnings Presentation

Growth drivers

The group is working to expand both its two hospitals in Malaysia. New specialist consultants have been hired in Mahkota Hospital, which is also undergoing refurbishment to expand the radiology and other departments for more clinical space. Its Regency hospital will also undergo expansion that will nearly double its capacity. Upon the target completion in 2021, Regency will become a 380-bed tertiary hospital (potentially increasing to 500) from its current bed capacity of 218.

In May, it also purchased StarMed Specialist Centre in Singapore. It will begin operations in the second half of 2018. This is the group’s re-entry into the Singapore private healthcare market and demonstrates its willingness to seek opportunities for growth.

The Foolish bottom line

It was another good year for Health Management International, as it delivered growth in all the key areas of its business. Despite being in a net debt position, its debt load looks manageable in comparison with its earnings and cash flow. At the time of writing, shares of Health Management International trade at S$0.58 per share. This translates to a price-to-earnings ratio of 25.3 and price-to-book of 6.2.

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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 doesn't owns shares in any companies mentioned.