Bangkok Dusit Med Service

Bangkok Dusit Med Service Plc (BGH)

BGH is likely to meet its 50-hospital target in mid-2014, half a year earlier than the original plan. Most of the 20 new hospitals will be greenfield, rather than acquired through M&As. BGH will then plan to add five more sub-specialty hospitals to prepare for AEC. But since it takes longer for greenfield hospitals to break even and as 2Q13 earnings are likely to be weak, we cut our forecasts by 4-8% for CY13-15 and trim our target price from THB204 to THB192, still based on 34x CY14 P/E, an 8% discount to its 2006 peak. But we believe its outlook is still bright and it will become the leader in Southeast Asia. Maintain Outperform. Stronger earnings growth in 2H13 would catalyse its share price.
 
What Happened
BGH’s CEO and President, Dr Prasert Prasarttong-Osoth, said that 15 hospitals were under construction or refurbishment and should be functional by the end of this year, and the rest by mid-2014. These new hospitals will come up across Thailand, including Bangkok, and in major cities in the region such as Luang Prabang, Yangon and Phnom Penh. Then BGH plans to build five sub-specialty hospitals to draw more patients from neighbouring countries when the Asian Economic Community (AEC) starts in late 2015.  
 
What We Think
What surprised us was not only the speed, but the number of greenfield hospitals BGH is planning. Previously, we expected BGH to acquire a few hospitals each year over the next three years to achieve its target. Now it seems that only a couple will be acquired through M&As/brownfield. However, M&A deals still cannot be ruled out as BGH has grown tremendously over the past decade through M&As.Although greenfield hospitals would take longer to break even, we are not too concerned as it could be a cheaper alternative.