Bangkok Dusit Medical Services

Bangkok Dusit Medical Services Plc (BGH)
Discussion with BGH president: 50 hospitals by mid-2014. We attended a
meeting with Dr. Prasert Prasarttong-Osoth, President and Group CEO of BGH. BGH
disclosed that its goal of 50 hospitals will be achieved in mid-2014, ahead of its end-
2015 target. Currently, BGH is operating 30 hospitals and developing 10 more with
total CAPEX at Bt7bn (to bring registered beds up to 7,000 from 5,000); it will then add
five more by end-2013 and five by mid-2014. Though Thailand will continue to be its
base, BGH is expanding to upper ASEAN countries to tap demand and AEC
opportunities, opening its third hospital in Cambodia in March 2014. It also plans to
build a private hospital in Luang Prabang in Laos and one in Myanmar. BGH maintains
its target of Bt75bn in revenue in 2015, driven by its broad hospital network.
Expansion of specialty hospitals and supportive business. Aside from the goal of
50 hospitals, BGH said its next strategy is an expansion of specialty hospitals for more
sophisticated and specific treatments such as hospitals for children, the elderly and
cancer. Initially, BGH plans to have five to six 50-bed specialty hospitals. BGH is also
strengthening its supportive businesses such as pharmaceutical (via increasing its
ownership in Medic Pharma) and laboratories.
Revised down 2013 target. BGH has lowered its 2013 revenue growth target to 12-
13% from 15%. Revenue growth slowed to 11% in 1H13, eroded by a drop in revenue per
patient, implying tightening spending and/or putting off elective treatment, though
patient volume continues growing. BGH guides that its higher staff cost will push
EBITDA margin down by 0.5-1.0% over the next two years. In 2Q13, BGH began
preparing its staffing to handle its ambitious expansion.
Earnings revision. We revise down BGH’s earnings by 5% in 2013 and 2% in 2014 to
incorporate its lower revenue growth target and cut EBITDA margin to 23.8% in 2013
(from 24.7%) and 24.0% in 2014 (from 24.7%). After the revision, we estimate earnings
growth at 19% in 2013 and 21% in 2014. We cut 2013 TP to Bt190/share (from Bt195)
2Q13F preview. We estimate 2Q13F core earnings at Bt1.3bn, up 3% YoY but down
32% QoQ. Earnings were dragged down by: 1) low revenue growth at +10% YoY but -5%
QoQ and 2) drop in EBITDA margin to 21% (from 23% in 2Q13 and 26% in 1Q13) from
higher staff cost. It is likely to have extra gain of Bt100mn from revaluing the value of
its investment in Medi Phama and KDH. Including this, we expect 2Q13F net profit at
Bt1.4bn, up 10% YoY but down 27% QoQ.
BUY maintained. We see the soft earnings in 2Q13F as a short-term detour and
expect 3Q13F earnings to improve QoQ. We continue positive on BGH’s strong earnings
prospects compared to regional peers as it is well positioned with a broad hospital
network blanketing the country. BUY.