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Bangkok Dusit Medical Services

Sep 07. 2012
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By SCB Securities

BUY Hong Kong NDR: Robust health confirmed

Bangkok Dusit Medical Services Plc (BGH)

Hong Kong NDR: Positive on strong prospects. We hosted an NDR for BGH on 3-4

September to meet investors in Hong Kong. Investor interest focused on the strong

operations in 2H12 and future expansion, mainly upcountry. Management’s

presentation confirmed our view on BGH’s healthy prospects. We see BGH as well

positioned, with its broad network placing it to capture demand throughout Thailand

and also to gain from the birth of the AEC in 2015. We maintain our BUY call on BGH

with mid-2013 TP at Bt115.

Highlights from NDR:

Strong momentum continues. Management guided that operations continue

strong in 3Q12, with revenues up ~15-16% in July-August vs. 16% organic growth in

1H12. The third quarter is normally the high period for BGH, backed by higher

patient volume, both local and international, driven by the flu season during

Thailand’s rainy season plus the onset of the tourism season.

Improving profitability. Investors were concerned about the decline in EBITDA

margin (23.4% in 2Q12 from 25.9% in 1Q12). Management explained that this came

from higher staff expenses as it raised remuneration for specialty nurses to keep

them, particularly once AEC comes into being, since pay scale in other countries

such as Singapore is higher (~15%). Lower cost pressure and margin improvement

should be seen going forward since the gap between it and Singapore has

narrowed after BGH raised the compensation for its nurses.

Benefits from a large hospital network. In the longer-term, BGH targets

organic revenue growth of 12% p.a. from patient volume growth and increasing

revenue per patient – offshoots of its large hospital network. BGH sees room to

increase patient volume from patient referrals among hospitals in the group and

revenue per patient will increase from specialized physician recruitment and the

creation of a cooperative specialty care network within the group, for example,

heart, cancer and spine centers.

Future expansion will focus on upcountry. We felt investors were positive

toward BGH’s expansion plans that focus primarily outside Bangkok, since health

demand is always present and expanding in-country carries less risk than abroad.

Management guided that future expansion will focus on the north and northeast

as BGH has little exposure there – and these areas border Myanmar, Laos,

Cambodia and Vietnam, all potential markets after AEC comes into being. If it does

venture outside Thailand, it will focus on Myanmar, Laos and Vietnam, and

expansion will be conservative, i.e. management contracts, small clinics and JV. To

date it has yet to solidify overseas expansion.

Medical staff shortage not great concern. Investors were concerned about a

shortage of medical staff, specifically doctors and nurses. BGH agreed that this is a

concern, but not serious since BGH strives to offer competitive compensation for

its medical staff. BGH’s large hospital network that provides the entire gamut of

medical care from primary to tertiary also gives doctors a greater opportunity to

meet a variety of cases and broaden their expertise in their chosen fields.

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