Bangkok Dusit Medical Services

Bangkok Dusit Medical Services Plc (BGH)

Maintain BUY with new 2013 TP at Bt135/share. BGH is our top pick in the
healthcare service sector and we maintain our BUY call with 2013 TP at Bt135/share
(from mid-2013 Bt115/share) after raising forecasts and rolling over valuation base.
We do not see valuation as expensive - trading at 23x 2013PE - given its strong
earnings growth of 53% in 2012 and 21% in 2013. We also see good growth potential
down the road from BGH’s strategy to break into upper ASEAN countries.
Strong growth in 4Q12 and 2013. BGH revealed that revenues QTD grew 20% YoY,
above the 15% in 9M12 and its full-year target of 16%. We note that BGH was not
significantly impacted by the flooding last year, with 4Q11 revenues slipping just 6%
QoQ, meaning operations themselves were strong, not simply off a low base. For 2013,
BGH maintains its revenue growth target of 14-15% with stable net profit margin at
13%. Although there will be an initial cost burden from the opening of two new
hospitals (Bangkok Hospital Udon in December 2012 and Soonthornpoo Hospital at
Rayong in 2Q13), strong operations at existing hospitals will dilute the pressure and
allow net margin to remain stable in 2013.
Existing campus expansion. In 3Q12, BGH’s bed utilization rate hit 78% - close to its
tight level of 80-85%, and crowds of patient traffic are seen at its hospitals offering
tertiary service such as Bangkok Medical Center, its flagship in Soi Soonvijai, as well as
Samitivej Sukhumvit and Bangkok Hospital Rayong. For Bangkok Medical Center, BGH
plans to increase capacity, raising number of beds to 600 in 2013 from 480 now and
examination rooms to 380 from 280. The capacity expansion will give room for BGH to
handle more severe cases and thereby raise revenue intensity.
Potential growth from upper ASEAN market. We like BGH’s strategy to break into
upper ASEAN countries (Myanmar, Laos, Cambodia and Vietnam), markets that have
good potential, particular after AEC starts. BGH already operates two hospitals in
Cambodia and it is building hospitals near the border: Bangkok Hospital Udon (in the
northeast, adjoining Laos) and Bangkok Hosptial Chiang Mai (in the north, adjoining
Myanmar). BGH is interested in building a hospital in Myanmar to get in on the
anticipated demand for good quality healthcare now that the country is opening up.
We are positive toward that strategy as the hospital in Myanmar could act as a referral
center for its hospitals in Thailand, such as Bangkok Hospital Chiang Mai. In 9M12,
revenue from patients from Myanmar contributed 1.5% of BGH’s total revenues – a
low figure that has ample room to grow.
Raising forecasts. We raise earnings forecast by 4% in 2012 and 5% in 2013 to
incorporate the strong 3Q12 earnings and continuity of strong momentum in 4Q12.
Our new 2012 earnings projection suggests 4Q12 core earnings of Bt1.6bn, up 74% YoY
but down 9% QoQ on seasonality. Our 2013 TP is Bt135/share based on SOTP valuation
consisting of; Bt120/share from BGH’s own operations (based on 29x PE), Bt10/share
for its investment in BH and Bt5/share for its holdings in RAM.