OYAK Securities Research initiated coverage of Medical Park Hospital Chain (MLP Care), the leading private healthcare provider in Turkey, with an Outperform rating. Its 12 month Target Price of TL18.30/s indicates an attractive 60% upside potential. “Operating in a defensive healthcare industry with a strong presence nationwide, we believe MPARK trades at an unwarranted 37% discount to its peers with 6.9x EV/EBITDA on our 2019 estimates. We believe strong 4Q18 financials ahead, improving FCF generation and on-going deleveraging would act as a catalyst for repricing in the stock, in the upcoming period”, wrote analyst Ms. Gulce Deniz.
MLP Care at a Glance
Being the largest private healthcare provider in Turkey with 5,879 bed capacity (11% share in private beds), MLP Care has a strong presence nationwide
MLP Care operates under three different concepts (Medical Park, VM Medical Park and Liv Hospitals), targeting different income groups. This positioning offers a well-diversified revenue base that supports the growth
Medical tourism is an important growth area for the Group thanks to strong position in Turkey in medical tourism and MLP Care’s strong presence with its JCI accredited hospitals
Affiliation with universities offers an ability to attract most skilled and experienced academicians to serve in MLP Care hospitals
EBITDA to post 22% CAGR in the next two years
We forecast MLP Care’s revenues to grow by an average of 15% per annum in the next two years, while EBITDA is expected to increase at 22% CAGR in the same period, reaching TL648mn by 2020 amid
We project the Company’s EBITDA margin to reach 16% by 2020 with utilization increasing to 71% in MLP Care’s hospitals (vs. 65% in 9M18).
Substantial fall in FX denominated debt to increase earnings visibility
Improving EBITDA generation is expected to yield further ease in the Company’s net debt to EBITDA to 0.5x by 2020YE, without any greenfield investment or acquisition. We project FCF yield to hover around 20% in the next two years. Ongoing deleveraging and lower FX exposure following the hedging transactions since Jul’18 that brought down the share of Euro denominated debt to 26% of total is likely to pave a way for higher visibility on the bottom-line and possible dividend payment starting from 2020.
4Q18 should yield solid EBITDA performance
In 4Q18, i) full quarter impact of SUT price amendments made in July, 2018, ii) ramp-up of recently added Pendik and Mersin hospitals, iii) full conversion of FX denominated building rent expenses into TL as of Oct’18, iv) improving contribution from ancillary business and medical tourism are expected to make positive contribution to the profitability, in our view. EBITDA margin is projected to improve by 230 bps y/y to 15.5%, carrying EBITDA to TL135mn, up 46% y/y. Apart from the solid operational profitability, bottom-line is likely to benefit from reversion of the some of the FX losses recorded in 3Q18, given stronger TL.