Bangkok Dusit Medical Services

Bangkok Dusit Medical Services Plc (BGH)

Maintain BUY with new 2013 TP at Bt195/share. BGH has outperformed the market by 31% YTD and we expect this strong momentum to continue based on BGH’s earnings resiliency, upside from new investments and improving asset utilization. BGH’s earnings are in an up-cycle with strong core earnings at 21% CAGR in 2013-14. We maintain BUY with new 2013 TP of Bt195/share (from Bt180/share), pulled up by including five new hospitals in the pipeline.
Expansion on track to achieve ambition. BGH plans to have 50 hospitals with a total of 6,000 beds by 2015 and is on the way to achieving this, with five new hospitals scheduled to open in 4Q13-2014: 1) the 120-bed Royal Phnom Penh Hospital in Cambodia, 2) the 59-bed Bangkok Hospital Chinatown, 3) the 100-bed Bangkok Hospital Phuket 2, 4) the 200-bed Bangkok Hospital Chiang Mai and 5) the 143-bed Soonthornphu Hospital in Rayong, which will bring its total hospitals to 35 with ~4,900. We like its expansion throughout the country and overseas (Cambodia), seeing the larger hospital network as strengthening the brand, particularly as they tap into the healthcare needs for all segments of the population, generate economies of scale and diversify location concentration risk.
Earnings revision to factor in five hospitals, 2013 TP raised. We lowered our 2014 projection by 2% and our 2015 by 1%, but raised projections by 1-6% in 2016-18 to factor in the five new hospitals in the pipeline since visible progress is being made on these. The reduction in earnings in 2014-15 comes from the cost drag of new hospitals upon opening, before a clientele is built up, but we expect these hospitals to make positive contribution from 2016. The revision leads to a raise in 2013 TP to Bt195/share (from Bt180/share), consisting Bt180/share for BGH’s own operations and Bt15/share for its investment in BH and RAM.
1Q13A – Record core earnings and above expectations. BGH reported record core earnings of Bt1.9bn, up 39% YoY and 36% QoQ, 11% above SCBS and market consensus. The outperformance came from higher equity income (from BH and RAM) and lower SG&A expense. 1Q13 accounts for 27% of our projection; we leave it unchanged.
2Q13F outlook. BGH said revenues grew 10% YoY in April and that 2Q13 earnings are likely to be seasonally lower QoQ. It plans to boost revenue intensity by launching healthcare packages and promotions and create greater coordination between its specialty units, i.e. heart, cancer and spine centers. BGH will book non-cash items of gain on fair value adjustment of the investment in KDH (holding raised to 44.96%) from 20.01% and Medic Pharma (ownership lifted to 84% from 49%).