HMI has committed SGD40m to acquire a 62.5% stake in StarMed @ Farrer Square, a new ambulatory care centre in Singapore. HMI could tap into the positive trend of more day procedures being done outside of hospitals and expand its presence in the ASEAN region. We expect startup losses of SGD1-2m for the first two years of operations, but this deal should be positive over the long term. Accordingly, we trimmed our FY19-20E EPS by 4-7% but maintain our DCF-based TP of SGD0.80 (WACC 7.4%, LTG 2.0%) as we expect earnings contribution in FY21E onwards to compensate for the start-up losses with upside potential on good startup.
Tapping into global trend of day surgery
Through StarMed, HMI aims to tap into the growing global trend towards procedures being done outside of hospitals. StarMed will be the first private one-stop ambulatory care centre in Singapore, with an initial focus on cardio-vascular, digestive, minimally invasive surgeries and diagnostic services. The 16k sf facility is conveniently located above Farrer Park MRT station. The minority shareholders consist of seven specialist doctors who aim to contribute their specialties as well. According to Singapore Department of Statistics and BMI, the growth in day procedures outpaced inpatient procedures, with a 16-year CAGR of 7.6% vs 2.1% for the latter.
The total commitment of SGD40m comprised of 3 components:
1) purchase consideration of SGD6.9m for a 62.5% stake and an existing SGD10m shareholder’s loan;
2) new shareholder loan of SGD1.9m to support the start-up of the business; and
3) guarantees limited to SGD31.2m loan obligations.
The cash consideration of SGD.8m will be funded from proceeds from Heliconia’s SGD11.0m placement in Nov 2017. We expect HMI’s net gearing to exceed 60% from the 10% level currently. However, given the robust FCF of HMI’s Malaysia operations, its net interest cover will remain at more than 10x.
Source : Maybank Kim Eng Research