Health Management International (HMI)

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#11
Why is HMI not offering the sale of the entire company but just the Mahkota Medical Hospital?

This is especially when so much is done to refurbish this hospital and the recent announcement of a new hospital with 500 rooms next to it when it will be a few years later before this new one is completed.

If HMI needs new funding for the expansion surely selling the Malacca hospital is not the best way.

And why not sell this new hospital too?

Will the entire staff move to the new owner?

What is left of HMI is so small that it is difficult to operate efficiently with no economy of scale at all.

So I appreciate to receive some comments from members here especially from Nick.

Thanks
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#12
(01-06-2015, 03:54 PM)aclee8888 Wrote: Why is HMI not offering the sale of the entire company but just the Mahkota Medical Hospital?

This is especially when so much is done to refurbish this hospital and the recent announcement of a new hospital with 500 rooms next to it when it will be a few years later before this new one is completed.

If HMI needs new funding for the expansion surely selling the Malacca hospital is not the best way.

And why not sell this new hospital too?

Will the entire staff move to the new owner?

What is left of HMI is so small that it is difficult to operate efficiently with no economy of scale at all.

So I appreciate to receive some comments from members here especially from Nick.

Thanks

With regards to Mahkota Hospital, it's all speculation at this point. I suspect they would sell both the land site and the existing hospital since it makes little sense to run 2 competing hospital next to each other.

Assuming they do divest Mahkota, they will be left with their 61% owned freehold Regency Hospital in Johor which was developed in 2009. This is the grower in HMI portfolio with revenue increasing substantially from RM 2 million in 2009 to RM 79 million in 2014. It also turned profitable in 2014.

(Vested)
Disclaimer: Please feel free to correct any error in my post. I am not liable for anything. Do your own research and analysis. I do NOT give buy or sell calls and stock tips. Buy and sell at your risk. I am not a qualified financial adviser so I do not give any advice. The postings reflects my own personal thoughts which may or may not be accurate.
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#13
(01-06-2015, 04:08 PM)Nick Wrote:
(01-06-2015, 03:54 PM)aclee8888 Wrote: Why is HMI not offering the sale of the entire company but just the Mahkota Medical Hospital?

This is especially when so much is done to refurbish this hospital and the recent announcement of a new hospital with 500 rooms next to it when it will be a few years later before this new one is completed.

If HMI needs new funding for the expansion surely selling the Malacca hospital is not the best way.

And why not sell this new hospital too?

Will the entire staff move to the new owner?

What is left of HMI is so small that it is difficult to operate efficiently with no economy of scale at all.

So I appreciate to receive some comments from members here especially from Nick.

Thanks

With regards to Mahkota Hospital, it's all speculation at this point. I suspect they would sell both the land site and the existing hospital since it makes little sense to run 2 competing hospital next to each other.

Assuming they do divest Mahkota, they will be left with their 61% owned freehold Regency Hospital in Johor which was developed in 2009. This is the grower in HMI portfolio with revenue increasing substantially from RM 2 million in 2009 to RM 79 million in 2014. It also turned profitable in 2014.

(Vested)

Thanks Nick.

To have a turnover of less than RM100 million a year, HMI will find it hard to make money as there are costs not shared out with the two hospitals once Mahkota Medical Centre is sold. It will be less attractive to invest in such a small company even though it has a lot of cash, some will no doubt be returned to shareholders.
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#14
CIMB's latest non rated updates on HMI:

Vested
GG

Amputating its key hospital?
HMI confirmed that it has received offers for its key asset, Mahkota
Medical Centre. We deem the reported asking price of US$250m (75%
of market cap, for its 48.95% stake) as a princely sum at RM3.1m/bed,
relative to the RM475k/bed KPJ paid for Sri Manjung in May 2013.
IHH and Sime Darby are among the
interested parties. An asking price of
US$250m for Mahkota values it at a
trailing P/E multiple of 25-30x. This
is below HMI’s current valuation of
35x and below the peer hospital
average of 44x. Given that Mahkota
forms the bulk of earnings (>90%),
the sale would have a big impact on
future operations.
Overview of HMI
HMI owns and operates two hospitals
(98% of group revenue) and two
healthcare training institutes (2% of
group revenue). The two hospitals are:
1) the 288-bed Mahkota Medical
Centre in Malacca, and 2) the 218-bed
Regency Specialist Hospital in Johor.
Mahkota is fairly mature and has been
operating since 1995. Regency opened
in 2009 and only just turned
profitable in FY14.
Mahkota Medical Centre
HMI owns 48.95% of Mahkota but
has board control and the power to
cast majority votes. Mahkota is HMI’s
primary asset, forming ~70% of FY14
group revenue and at least 90% of
group earnings by our estimates.
Mahkota is also a big beneficiary of
medical tourism; foreign patients
make up ~25% of total patient volume,
with the majority coming from
Indonesia. We think this high foreign
patient ratio partially explains its high
revenue per inpatient of RM5,986 in
1H13, higher than KPJ’s RM5,023 and
IHH’s RM4,493. With such a profile,
it is easy to see why IHH, a hospital
group with a big presence in medical
tourism, would be interested in
Mahkota.
Why sell Mahkota?
First, we exclude the possibility that
the group is facing liquidity issues
given its net gearing of 0.02x as at
3QFY6/15 and strong free cash flows.
We think possible reasons for
disposing of its main revenue
generator include: 1) cashing out at a
time when healthcare valuations are
at a high, 2) change of company
strategy, and 3) more competition.
Big special dividend?
If the sale proceeds are not reinvested,
shareholders could be in for a huge
special dividend. At US$250m and
assuming a 100% payout, this
translates into a DPS of 28.6 Scts, a
yield of 75%. However, given that
Mahkota forms the bulk of HMI’s
earnings, the sale would have a big
impact on HMI’s future operations.


Attached Files
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#15
http://infopub.sgx.com/FileOpen/HMI_Upda...eID=370808

HMI decided against selling Mahkota Medical Centre in the end. The reason given was "due to the current volatile macroeconomic conditions".

Share price have corrected from a high of 41.5c to 25.5c. Annualised PE is ~17x

http://infopub.sgx.com/FileOpen/HMIInves...eID=369114

Revenue
2011-2015 CAGR of 18.7%

EBITDA margin

2011: 10.8%
2012: 14.0%
2013: 17.1%
2014: 20.8%
2015: 21.6%

http://infopub.sgx.com/FileOpen/HMI_FY20...eID=367461
FY2015 results.

FY revenue +18% 
PAT +48%

On page 5 of the cash flow statement, Dividends paid to non-controlling interests by a subsidiary amounted to MYR$ 6.7M. So the subsidiary paid a dividend to the non-controlling interests but no dividend was declared at the Group level.

Note that company has cash & cash eq of MYR$ 39M against total debt of MYR$ 40M and with FCF of MYR$ 37M, so the Company could have gone ahead and declared a dividend to reward shareholders and still be in a good shape.

I find it puzzling why no dividend was declared at Group level and hope fellow buddies can share their thoughts.


(not vested but monitoring)
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#16
It is unlikely a dividend will be declared at Group level for two reasons:

1) Bulk of the profits and cash are generated at the underlying assets (which are not 100% owned). If we look at the Company level, it only holds RM 2 million debt against RM 16 million debt. Insufficient to pay a dividend. Granted, cash could be upstream via dividend declaration from the underlying subsidiaries but this brings us to point 2.

2) There are plans to invest in capex to expand the hospitals in the near future so it is likely cash is being retained at asset level to finance it.

I expect continued growth in the Group's revenue and profit in the future. Forex risk remains the major risk.

(Not Vested)
Disclaimer: Please feel free to correct any error in my post. I am not liable for anything. Do your own research and analysis. I do NOT give buy or sell calls and stock tips. Buy and sell at your risk. I am not a qualified financial adviser so I do not give any advice. The postings reflects my own personal thoughts which may or may not be accurate.
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#17
To all of you who didn't attend the AGM last week, the chairwomen took great lengths in answering shareholders re the sale of Mahkota rumour. The co has continuously receive offers all the time but lately it has been coming in fast and furious. Understandable considering the M&A that's going on. In the past the co has informally reject all these offers. However lately with so many serious offers the board took a decision that they should have a formal process to entertain and review all these offers to be fair to minority shareholders which I thought is considerate of them in case a ridiculous high offer is thrown to them. Hence an outside banker is appointed to help them screen for them and handle it formally. The board is not seriously thinking of selling any part of the business. Their emphasis right now is grow, grow, grow the co and they are quite optimistic(growth demand is assured with the aging population) even though they pain a pessimistic picture from the upcoming few hospitals that is coming up in Melaka and JB. these new hospitals has started poaching their staffs.

As for div, many shareholders was pressing for one(including mano). Mgt explained 2 factors that is restraining it.

1. they need cash to grow; both the hospitals are expanding and will need more than just the bldgs. although this was a strong argument b4 but not with the co going into net case this coming FY.So the co is quite conservative in this aspect which is qood.

2. the weakening RM force them not to repatriate/convert to S$(needed to pay div). this I think makes sense at this time when the RM has already weaken so much. shouldn't be selling RM and play the forex game. wait for a better time to do so. Currently the co is naturally hedge.

after all said and done, the bd heard loud and clear that the co should consider paying a div no matter how small and they will seriously consider it. My sense is they will in next FY if the RM stabilises.

Overall I am quite positive of the co and believed that OPMI is aligned with the owners. Just hope that the co don't get bought out by a bigger player. Its a case of 1 time gain vs a continuous growth story. HMI reminds me of Riverstone. Took 5 yrs b4 it skyrocketed. I am prepared to wait 5 yrs for HMI....long term investing right?
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#18
(26-10-2015, 01:29 PM)Jacmar Wrote: To all of you who didn't attend the AGM last week, the chairwomen took great lengths in answering shareholders re the sale of Mahkota rumour. The co has continuously receive offers all the time but lately it has been coming in fast and furious. Understandable considering the M&A that's going on. In the past the co has informally reject all these offers. However lately with so many serious offers the board took a decision that they should have a formal process to entertain and review all these offers to be fair to minority shareholders which I thought is considerate of them in case a ridiculous high offer is thrown to them. Hence an outside banker is appointed to help them screen for them and handle it formally. The board is not seriously thinking of selling any part of the business. Their emphasis right now is grow, grow, grow the co and they are quite optimistic(growth demand is assured with the aging population) even though they pain a pessimistic picture from the upcoming few hospitals that is coming up in Melaka and JB. these new hospitals has started poaching their staffs.

As for div, many shareholders was pressing for one(including mano). Mgt explained 2 factors that is restraining it.

1. they need cash to grow; both the hospitals are expanding and will need more than just the bldgs. although this was a strong argument b4 but not with the co going into net case this coming FY.So the co is quite conservative in this aspect which is qood.

2. the weakening RM force them not to repatriate/convert to S$(needed to pay div). this I think makes sense at this time when the RM has already weaken so much. shouldn't be selling RM and play the forex game. wait for a better time to do so. Currently the co is naturally hedge.

after all said and done, the bd heard loud and clear that the co should consider paying a div no matter how small and they will seriously consider it. My sense is they will in next FY if the RM stabilises.

Overall I am quite positive of the co and believed that OPMI is aligned with the owners. Just hope that the co don't get bought out by a bigger player. Its a case of 1 time gain vs a continuous growth story. HMI reminds me of Riverstone. Took 5 yrs b4 it skyrocketed. I am prepared to wait 5 yrs for HMI....long term investing right?
HI Buddy,

U are absolutely spot on...

The only macro risks is the weak RM that is the result of dishonest leaders... just bear in mind...

Odd Lots Vested
GG
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#19
(26-10-2015, 01:29 PM)Jacmar Wrote: To all of you who didn't attend the AGM last week, the chairwomen took great lengths in answering shareholders re the sale of Mahkota rumour. The co has continuously receive offers all the time but lately it has been coming in fast and furious. Understandable considering the M&A that's going on. In the past the co has informally reject all these offers. However lately with so many serious offers the board took a decision that they should have a formal process to entertain and review all these offers to be fair to minority shareholders which I thought is considerate of them in case a ridiculous high offer is thrown to them. Hence an outside banker is appointed to help them screen for them and handle it formally. The board is not seriously thinking of selling any part of the business. Their emphasis right now is grow, grow, grow the co and they are quite optimistic(growth demand is assured with the aging population) even though they pain a pessimistic picture from the upcoming few hospitals that is coming up in Melaka and JB. these new hospitals has started poaching their staffs.

As for div, many shareholders was pressing for one(including mano). Mgt explained 2 factors that is restraining it.

1. they need cash to grow; both the hospitals are expanding and will need more than just the bldgs. although this was a strong argument b4 but not with the co going into net case this coming FY.So the co is quite conservative in this aspect which is qood.

2. the weakening RM force them not to repatriate/convert to S$(needed to pay div). this I think makes sense at this time when the RM has already weaken so much. shouldn't be selling RM and play the forex game. wait for a better time to do so. Currently the co is naturally hedge.

after all said and done, the bd heard loud and clear that the co should consider paying a div no matter how small and they will seriously consider it. My sense is they will in next FY if the RM stabilises.

Overall I am quite positive of the co and believed that OPMI is aligned with the owners. Just hope that the co don't get bought out by a bigger player. Its a case of 1 time gain vs a continuous growth story. HMI reminds me of Riverstone. Took 5 yrs b4 it skyrocketed. I am prepared to wait 5 yrs for HMI....long term investing right?

I find pt2 quite illogical if 'play the forex game' came from their mouths. If converting a weakening RM is 'playing' the forex game, so would converting a strengthening RM. A 'play' works both ways.

Nonetheless, Mgt owns slightly more than 50% of the ~577mil outstanding shares. A 1ct payout is ~5.77mil (or ~36% FY14 NP payout ratio) and Mgt will take home about 2.88mil. This should be slightly more than 2years of the couple's combined annual salary. So on paper, it does seem that OPMI is aligned with the owners.

Is HMI the couple's only single business and/or do they have children working in this company (whom they will want to groom)?. Since they own >50% of the company, they are in absolute control and have discretion on whether they want to sell or not. My guess is that if the answer is 'Yes' to any of the earlier questions, they will hang on for a long time to come...
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#20
Not playing the forex game is my word since the Chairwoman emphasised a few times that they are naturally hedge.

the succession is already in the works with the daughter as the CEO and the son as finance director. Both are pretty capable and down to earth hard working people. My gut feel is that they really are not looking for the exit but then again if someone throws in a ridiculous high offer price they are prepared to put this to the shareholders to decide. this is why I think it is fair to OPMI.

One more question that did came up was why didn't HMI offer to buy out the Mahkota partner as the Minority Interest for HMI is very high. The answer was that they are reluctant to sell out either. the other party wants to continue to partner with HMI. In my opinion why should they as it is printing lots of cash for them.
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