Bumrungrad Hospital

Bumrungrad Hospital (BH)

Q1 2013’s profit grows only 5.5%yoy from lack of profit sharing
from BCH since 3Q 2012
BH announced 1Q13’s earnings with a net profit of B613m, increasing only 5.5%yoy
because share of profit from subsidiaries plunged significantly to only B760,000 from
B57.76m in 1Q12 after a sale of investment in BCH since early 3Q12. Excluding the
item, norm profit still grew 17%yoy as a result of the hospital business income that
enlarged 9.6%yoy from an 8.5%yoy increase in outpatient volume, while the inpatient
volume stayed quite flat. In addition, the interest income rose from B8.3m in 1Q12 to
B37.9m in this quarter because of a B5bn increase in cash in hand from the
aforementioned BCH share sale, which could compensate for a 11.2%yoy increase in
selling and administrative expenses as a result of the minimum wage raise since 1 April
2012, the salary increase following the inflation rate, and temporary office building
rental fee and software installment fee for a business expansion.
- Yoy growth anticipated since 2Q13. Maintain forecast
With an attempt to enhance a service capacity for outpatients by 37% by increasing
outpatient examination rooms from 212 at present to 292 (80 new rooms; to be
effective since late February onward), BH will be able to receive more outpatients
during the peak season. Accordingly, the outpatient volume in 2013 is projected to
increase from almost 3,000 a day on average to 3,300 or the growth of 10%; the
benefit from the outpatient growth will be recognized for a full quarter since 2Q13
onward. At the same time, the effect from the minimum wage raise was already
realized in 2Q12, so selling and administrative expenses in 2Q13 would increase at a
slower rate from the same period last year compared with 1Q13. Consequently, we are
confident that the profit growth in 2Q13 would be better than in 1Q13 and the norm
profit would return to grow notably again in 3Q13 because BH had stopped recognizing
profit sharing from BCH since 3Q12. Accordingly, we maintain our earnings forecast,
projecting the norm profit growth in 2013 at 13.9%yoy. About a problem of limited
service capacity for inpatients, BH is solving it by changing the 12th floor (which is
meeting room and executive room area, and the 4th floor (which is accounting and IT
department areas) of the inpatient building into inpatient room areas, in order to
increase 44 ICU beds and 61 inpatient beds, which will be gradually complete since the
end of this year. Moreover, BH is having a 7-8 storey building built in Nana 1 alley 50
meters away from the hospital to use as a lab, check up center, and physical medicine
& rehabilitation center; the construction would take around 2 years. In addition, BH
also has a plan to have a high-rise building built on New Petchaburi Rd. to use as a
medical center for women and children; the construction would take around 3 years. All
these plans will be able to support the long-term growth of BH from increasing patient
volume after the AEC liberalization. In addition, BH is now seeking locations and
conducting a feasibility study for acquisition of other hospitals in Bangkok to step up as
the 2nd brand of middle-level hospitals to expand the income base; this issue,
however, has still not been included in our forecast.
- Laggard stock in health sector. Upside is 17.9%. Buy
The profit growth tends to improve gradually since 2Q13 onward and the company will
be engaging in aggressive service capacity increase since 2013. Moreover, BH is
substantially underperforming the sector, so it is considered as a laggard stock. We
therefore reiterate our BUY recommendation. 2013’s fair value, using DCF, is
B102/share, implying 17.9% upside.