A 91% stock rally, and now a unit of Temasek is knocking

[SINGAPORE] After a 91 per cent surge in its share price since 2016, Health Management International has gained an important new supporter - a unit of Singapore's state investment firm.

Heliconia Capital Management Pte will consider investing with the operator of Malaysian hospitals as it seeks to expand through acquisitions, according to Derek Lau, chief executive officer at the unit of Temasek Holdings.

On Nov 13, the investment firm announced that it acquired a 2 per cent stake in Singapore-headquartered Health Management International for S$11 million.

"From our perspective we hope to co-invest with them, alongside them, if there's an acquisition target," Mr Lau said in an interview in Singapore.

Heliconia's International Partnership Fund was "precisely" launched to help Singapore companies looking to "scale up, internationalise" their businesses, he said, referring to the S$600 million fund announced in February.

Health Management International is "actively seeking out" inorganic growth opportunities to supplement its two existing hospitals, Chin Wei Jia, the company's chief executive officer, said in the joint interview.

While she expects to see an increase in patient volume on the back of rising medical tourism and health-care spending in Malaysia, the hospital operator is looking for more opportunities to grow within the country and in Indonesia, where it sees an increasing demand for quality health-care services, she said.

Shares of the company rose as much as 1.5 per cent in Singapore trading on Wednesday.

The company's stock surged last year after it reported a then-record revenue in August as its two hospitals in Malaysia received more patients. It's set to benefit from an increase in medical tourism in the country as Prime Minister Najib Razak allocated RM30 million (S$9.8 million) to boost the industry as part of his 2018 budget.

The industry is expected to grow 30 per cent this year to RM1.3 billion, the Malaysia Healthcare Travel Council said in February.

MEDICAL TOURISM

Medical tourists made up about 24 per cent of Health Management International's patients in the last quarter and on average spend 1.5 times more than local patients as they tend to visit hospitals at a later stage of their treatment, Mr Chin said.

In Southeast Asia, "the demographics, the increasing affluence as well as the aging population, growing access to an increasing range of private healthcare insurance products, bode very well for the growth of the private healthcare sector," she said.

"They're well-positioned to capture the growing medical tourism, especially from cost-conscious medical tourists from Indonesia," Joel Ng, an analyst at KGI Securities Singapore Pte, said by phone. However, the market has likely priced in these drivers and there isn't yet a visible pipeline of growth after two to three years, he said.

Health Management International has buy rating recommendations from all five of the analysts covering the stock, with an average 12-month target price of 82 Singapore cents, implying that the sell-side expects an average share price increase exceeding 20 per cent. Most brokerages initiated coverage on the company within the past year.

Heliconia declined to comment on when discussions started between both parties on a minority stake purchase.

While Health Management International's share price surged 86 per cent last year, it has risen only 3.6 per cent this year. The company trades at 26 times estimated earnings for the next 12 months, matching the average of health-care companies in Asia excluding Japan.

BLOOMBERG