Bangkok Dusit Medical Services

Bangkok Dusit Medical Services Plc (BGH)

Outstanding growth stock with resiliency. We maintain our BUY call on BGH with a new mid-2013 TP at Bt115 (from Bt105). BGH is an outstanding growth stock, with high core earnings growth of 48% in 2012 and 19% in 2013, and at the same time, is in a sector where earnings are by nature resilient. In the longer term, BGH has sound fundamentals, with a broad hospital network positioning it to capture demand throughout Thailand and also gain from the birth of the AEC in 2015 in terms of more patient flow and ability to increase revenue per patient. BGH is trading at 27x 12PE and this will come down over time. We believe BGH deserves to trade at a high PE multiple in view of its solid earnings outlook, resilient earnings and sound fundamentals.

Raises 2012 guidance. After the strong 1H12 (16% organic YoY growth and 35% inorganic YoY growth), BGH has revised up its 2012 revenue organic growth to 16% (from 11%) and net profit margin to 12% (from 11%). Key drivers for revenues are a 7% growth in volume and an 8% rise in revenue per patient. The momentum seen in 1H12 is continuing with total revenues from hospital operations growing 17% YoY in July and 14% YoY in the first 20 days in August. On this basis, BGH’s earnings are on the way to achieving yet another high in 3Q12, backed by its own operations and equity income from BH.

Earnings raised by 7% for 2012 and 8% for 2013. We raise our core earnings projection by 7% in 2012 and 8% in 2013 to factor in the outperforming earnings in 2Q12 and continuing strong operational momentum. Our new earnings projection is above market consensus by 5% for 2013. Our new forecast has BGH delivering core earnings growth of 48% in 2012 and 19% in 2013.

Stronger network. BGH is now developing its three new hospitals. We like its investments in Bangkok Udon Thani Hospital and Bangkok Chiang Mai Hospital, since these give BGH an entry into two areas it which it has little presence – the north and northeast. This will broaden BGH’s coverage and eventually draw in patients from Myanmar and Laos who are looking for good quality care outside their countries.

Prime beneficiary of healthcare demand trending up. BGH is a worthwhile longterm investment, with a large network of 29 hospitals throughout the country and coverage of most patient segments. BGH is also positioned to benefit from AEC when it comes into effect in 2015 in terms of more patient flow and ability to increase revenue per patient. Revenue contribution from ASEAN patients (excluding Thailand) is only 3% of total revenues in 2Q12, implying room to increase given the 600 mn population in the grouping. With medical charges in Thailand 10-15% lower than Singapore on average, plus its increasingly high profile for quality care, AEC should
bring more patients from ASEAN to Thailand and still allow BGH to increase revenue per patient.