Bangkok Dusit Med Service

Bangkok Dusit Med Service Plc (BGH)

The disposal of 2m shares by a major shareholder does not make us ill; BGH is likely to grow faster than its peers as illness intensity is expected to increase at its low- and mid-end hospitals while it continues to expand its network. Now is a great buying opportunity. We believe the sector will continue to re-rate on the back of the defensive business model, more M&A opportunities and a strong earnings outlook. We therefore raise our target price from THB102 (based on 22x CY13 P/E) to THB126, now based on 27x CY13 P/E (one SD above the historical average). Reiterate Outperform. 
What Happened
On 11 Jul, Dr Prasert
Prasarttong-Osoth sold 2m BGH
shares at THB102.75 each, receiving
THB205.5m from the sale and
pocketing about THB57.5m in capital
gains.
He is one of the group’s founders and
its biggest shareholder with a
combined stake of 23.8% (367m
shares) between him and his family.
What We Think
We do not think that the sale suggests
that management is selling out as Dr
Prasert has been simultaneously
accumulating the hospital’s shares.

After this sale, he will have purchased
17.6m shares to date on a net basis
with an average cost of THB74 per
share. He is sitting on almost
THB500m in paper gains from his
investment in the stock this year. As
such, we view the transaction as
simple profit-taking.
What You Should Do
We believe that its valuation of 22x
CY13 P/E and 16x CY13 EV/EBITDA
is not stretched given its anticipated
29% EPS CAGR over the next three
years.
With a hearty earnings outlook and
defensive business models, healthcare
stocks are looking good.
We therefore raise our target price
from THB102 (based on 22x CY13
P/E) to THB126, now based on 27x
CY13 P/E, which is one SD above its
historical average. We believe that the
group’s strong earnings outlook and
potential for more M&A deals will
drive up its share price. We maintain
Outperform.

Dr Prasert sold 2m shares on 11 July
Dr Prasert Prasarttong-Osoth sold 2m BGH shares at THB102.75 each,
receiving THB205.5m from the sale. Dr Prasert is one of BGH’s major
shareholders with a combined 23.8% stake (367m shares) between him and his
family. He has bought 17.6m shares to date on a net basis, which in total are
worth THB1.3bn. Thus, his investment cost averages THB74/share. We are not
too concerned about his recent sale as he has been actively buying the hospital’s
shares and this sale is a simple profit-taking exercise given that he is sitting on
almost THB500m in capital gains from his investment in the stock this year.

Expecting decent 2Q12 performance
We expect BGH to post THB1.3bn in core net profit in 2Q12, up 45% yoy but
down 8% qoq (due to seasonality). Strong top-line growth, higher margins and
lower interest expense were probably the main drivers for robust yoy earnings
growth.
However, as BGH booked THB479m in revaluation gains from acquiring
Phyathai Group in 2Q11 and THB1.8bn in revaluation gains from acquiring
more Bumrungrad shares in 1Q12, its bottom line is likely to be lower both yoy
and qoq as we do not expect BGH to book any major non-recurring items in
2Q12.

Hale and hearty
Although BGH’s share price has run up 24% year-to-date, outperforming the
SET’s 17% gain, we believe that its valuation of 22x CY13 P/E and 16x CY13
EV/EBITDA is not too stretched given its anticipated 29% EPS CAGR over the
next three years.
With a strong earnings outlook and defensive business models, healthcare
stocks are likely to continue re-rating, especially with the upcoming listing of a
large regional peer. BGH is likely to grow faster than its peers as it will continue
to increase illness intensity at its low- and mid-end hospitals by adding centres
of excellence, including quaternary care, while it continues to expand its
network.
We therefore raise our target price from THB102 (based on 22x CY13 P/E) to
THB126, now based on 27x CY13 P/E, which is one standard deviation above its
historical average. We believe that the group’s strong earnings outlook and the
possibility of more M&A deals will keep its share price on its upward trend. We
maintain Outperform.