Bumrungrad Hospital

Bumrungrad Hospital Plc (BH)

Investment thesis: We have a conviction BUY call on BH with a YE13 target price of Bt98, pegged to a 20% discount to DCF value (10% WACC and 2% terminal growth). In the near-term, 2Q-3Q12 profits will out-perform the SET and the firm will post record earnings for 3Q12. We see scope for earnings upside from expansion (potential acquisitions). BH’s multiples have room to re-rate, as Its PEG is 0.7x, far below the 0.8-1.0x range in which BH traded at in Aug-Dec 2011. It trades at an FY12 PER of 21x, cheaper than the global mean of 24x.
2Q-3Q12 profits will beat the SET: We expect BH to post strong YoY earnings growth for 2Q12, while the SET will report a bottom-line contraction. In 3Q12, its bottom-line will double, both YoY and QoQ, while the SET will see only moderate YoY and QoQ growth.
46% YoY jump in 2Q12 net profit estimate: BH should post a net profit of Bt501m for 2Q12, up 46% YoY (but down 14% QoQ on seasonality). Stripping out an extra item in 2Q11 (a Bt50m FX loss from a capital reduction for Bumungrad International Ltd), core earnings for 2Q12 should rise 28% YoY. The profit jump was fueled by 15% healthcare revenue expansion (volume up 6%; pricing up 9%). We assume that GM fattened by 70 bps to 40.8%. The headline corporate tax cut to 23% from 30% will outweigh the effect of higher labor costs in 2Q12.
All-time high 3Q12 core and net profits: 3Q12 core profit will be the best of the year and a new record, boosted by high season for Middle Eastern patients and rainy season. We expect core profit growth of 30% YoY 20% QoQ. Our 3Q12 net profit forecast is another record of Bt1.2bn, up by 170% YoY and 150% QoQ, boosted by a Bt676m gain from divesting KH in July.
BH’s cleanest ever balance sheet: Thanks to a net cash gain of Bt3.6bn from the KH divestment, BH will report a net cash position at end-Sept. The surplus cash will support expansion. We conducted a sensitivity analysis in order to gauge the scope for expansion. Based on an IPD bed range of Bt10-20m, we estimate that BH could add another 51-67% of capacity without upsetting its creditors.

Bumrungrad Hospital
Bualuang Securities
BUY ahead of record earnings
BUY (maintained)
Target Price: Bt98.00
Price (06/08/12): Bt78.00
Bumrungrad Hospital Plc (BH)
Investment thesis: We have a conviction BUY call on BH with a YE13 target price of Bt98, pegged to a 20% discount to DCF value (10% WACC and 2% terminal growth). In the near-term, 2Q-3Q12 profits will out-perform the SET and the firm will post record earnings for 3Q12. We see scope for earnings upside from expansion (potential acquisitions). BH’s multiples have room to re-rate, as Its PEG is 0.7x, far below the 0.8-1.0x range in which BH traded at in Aug-Dec 2011. It trades at an FY12 PER of 21x, cheaper than the global mean of 24x.
2Q-3Q12 profits will beat the SET: We expect BH to post strong YoY earnings growth for 2Q12, while the SET will report a bottom-line contraction. In 3Q12, its bottom-line will double, both YoY and QoQ, while the SET will see only moderate YoY and QoQ growth.
46% YoY jump in 2Q12 net profit estimate: BH should post a net profit of Bt501m for 2Q12, up 46% YoY (but down 14% QoQ on seasonality). Stripping out an extra item in 2Q11 (a Bt50m FX loss from a capital reduction for Bumungrad International Ltd), core earnings for 2Q12 should rise 28% YoY. The profit jump was fueled by 15% healthcare revenue expansion (volume up 6%; pricing up 9%). We assume that GM fattened by 70 bps to 40.8%. The headline corporate tax cut to 23% from 30% will outweigh the effect of higher labor costs in 2Q12.
All-time high 3Q12 core and net profits: 3Q12 core profit will be the best of the year and a new record, boosted by high season for Middle Eastern patients and rainy season. We expect core profit growth of 30% YoY 20% QoQ. Our 3Q12 net profit forecast is another record of Bt1.2bn, up by 170% YoY and 150% QoQ, boosted by a Bt676m gain from divesting KH in July.
BH’s cleanest ever balance sheet: Thanks to a net cash gain of Bt3.6bn from the KH divestment, BH will report a net cash position at end-Sept. The surplus cash will support expansion. We conducted a sensitivity analysis in order to gauge the scope for expansion. Based on an IPD bed range of Bt10-20m, we estimate that BH could add another 51-67% of capacity without upsetting its creditors.