JS Securities Limited – JS Research (10-10-2019)

Karachi, October 10, 2019 (PPI-OT): SHFA: FY19 Corporate Briefing Takeaways

Shifa International Hospitals Limited (SHFA) recently held a Corporate Briefing to discuss its FY19 performance. To recall, SHFA announced PAT of Rs777mn (EPS: Rs14.25) during the year, up 40% YoY.

Key highlights of the briefing included (1) SHFA is increasing its inpatient capacity and has also invested in increasing its diagnostic capacity, (2) it has managed to increase its revenues per occupied bed by a CAGR of 10% during FY14-FY19, and (3) management expects that in 3-5 years, Shifa Ambulatory Surgery and Diagnostic Center in Islamabad and the 250-bed Shifa National Hospital, Faisalabad will become operational.

Shifa International Hospitals Limited (SHFA) recently held a Corporate Briefing to discuss its performance during FY19. To recall, the company announced PAT of Rs777mn (EPS: Rs14.25) during the year, up 40% YoY from FY18’s PAT of Rs557mn (EPS: Rs10.21). Growth in earnings mainly originated from 14% YoY increase in net revenue, whereas operating costs increased by only 12% YoY in comparison, leading to gross margins jumping from 7.4% to 9.5%. Growth in net revenues stemmed from each of their major segments, namely Inpatients (+20% YoY), Outpatients (OPD, +15% YoY) and Pharmacies (+10% YoY).

Key highlights from the corporate briefing included:

The company is increasing its inpatient capacity and has also invested in the latest radiology equipment to increase its diagnostic capacity.

The company has no plans to finance current and near term projects (CAPEX of Rs2.6bn) through issuance of right shares.

The company expects that in 3 to 5 years, Shifa Ambulatory Surgery and Diagnostic Center in Islamabad and the 250-bed Shifa National Hospital Faisalabad will become operational. Moreover, the company expects that construction of Pakistan’s first state-of-the-art Shifa Institute of Neurosciences will also commence in the coming years.

Due to higher capacities and hospitals in different locations, the company expects to benefit from shared costs and higher discounts at all its hospitals.

The company has managed to increase its revenues per occupied bed by a CAGR of 10% during FY14-FY19, whereas during FY19, this number increased by 19% YoY. OPD visits have grown by a CAGR of 5% during FY14-FY19.

International Finance Corporation (IFC) recently acquired 12% stake in SHFA.

SHFA is the only hospital in Pakistan to offer liver transplant surgery. So far, their hospital has completed more than 850 liver transplants. Such surgical procedures offer higher margins compared to most other hospital and healthcare services.

The management reiterated its resolve to further improve its operations and also expressed the desire that if relations with neighbouring countries such as Afghanistan were improved, it would result in an influx of medical tourism.

The management expects that the recent initiative of health insurance, namely Sehat Insaf Cards could prove fruitful in boosting revenues, if expanded and designed appropriately.

There are only three hospitals in Pakistan which are JCI accredited and SHFA is the only private sector hospital in the country with this gold seal.

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