Bangkok Dusit Medical Services

Bangkok Dusit Medical Services Plc (BGH)

Q3 2012 norm profit projected to grow 28.9% QoQ due to seasonal benefits

According to high season, the total revenue from service charge in Q3 2012 is projected to increase by 11.6% QoQ due mainly to the growth of patient volume, especially international patients (30% of total revenue) that have outgrown the number of domestic patients. The international patients with highest growth rate are the German, Burmese, and Qatari. Moreover, there’s been an outstanding growth of Phyathai Hospital after opening cancer and heart centers. For the service cost and administrative expense, they are projected to rise at a rate that is lower than the revenue, resulting in an increase of B1,667m of Q3 2012 norm profit or 28.9% QoQ increase. In Q3 2012,BGH would recognize profit sharing of BH as an extraordinary item of B140m due to BH’s profit recognition of selling of investment of KH at around B600m (BGH holds 23.9% stake in BH). If the mentioned item is included, BGH is projected to have Q3 2012 net profit at B1,807m or 39.7% QoQ increase.

Service expansion plan boosts long-term growth
Although the norm profit of the first 9 months is projected 78% of FY2013 norm profit forecast, Q4 2012 profit tends to significantly weaken from Q3 2012. We maintain our 2012 net profit forecast because the company often has SG&A expense in Q4 2012 that is higher than usual although the Q4 2012 revenue would weaken very slightly from 3Q12. However, there are positive factors
from the expansion of service capacity to meet the number of future patients from normal growth and the growth after the AEC liberalization. The target of bed expansion stands at 6,000 units in 3-5 years ahead from the current 4,130 units. Furthermore, BGH has prepared to open 3 new hospitals which are 1) Bangkok Chingmai Hospital with capacity of 200 beds approximately
that is projected to open in the middle of 2014, 2) Bangkok Udon Hospital with capacity of 120 beds that will officially open at late of 2012 and 3) Sunthorn Phu Rayong Hospital with capacity of 140 beds that will open as a middle-low class hospital in October 2013. As a result, BGH would be able to thrive at a high level continuously since 2013 onward. Accordingly, we’re likely to revise up our 2013 net profit forecast after the announcement of Q3 2012 earnings result. Under the current forecast, 2012 norm profit would grow by 43.4% and continually 13.7% in 2013.

Reiterate “HOLD”, waiting for FV to rise along with long-term growth
Although the current share price is already fully valued, we might revise up our 2012 net profit forecast and use 2013 fair value after the announcement of Q3 2012 earnings result. Preliminary, 2013 fair value before revisal stands at B120 with 13.2% upside. We reiterate our recommendation of “HOLD” in order to wait for the fair value to rise in the following year along with the growth of business.