Bumrungrad Hospital

Bumrungrad Hospital Plc (BH)
In line with estimate
BH announced a net profit of Bt579m for 2Q13, up 16% YoY but down 6% QoQ. The result was in line with our estimate and the consensus. 
The firm will pay an interim DPS of Bt0.70 for 1H13 operations, implying a 1.6% annualized yield. XD on August 26; payment on Sept 5.
Results highlights
The YoY profit growth was led by 10% healthcare revenue expansion to Bt3.5bn and an 85 bps NM increase to 16.6%. The top-line was driven by growth of 14.0% YoY in OPD income (IPD receipts rose 6.5%). In 2Q13, patient volume was flat YoY, but billing per head rose. 2Q13 healthcare revenue comprised 61.2% foreign and 38.8% Thai patients. GM fattened from 35.7% in 2Q12 to 36.9% in 2Q13. The SG&A/sales ratio dipped from 18.0% in 2Q12 to 17.3%. The effective tax rate dropped from 23.6% in 2Q12 to 20.2% in 2Q13. Top-line growth and resilient margins were more than sufficient to offset the effect of lower equity income (only Bt1m in 2Q13 versus Bt58m in 2Q13)—BH sold its stake in BCH in July 2012. 
The QoQ profit contraction was due to a GM decline of 1.1% (fewer intensity cases as a result of seasonality). The firm posted a net-cash position for the fourth straight quarter at end-June.
Outlook
BH’s best quarter of the year will be 3Q13. Core profit will rise YoY and QoQ, due to seasonality, but net earnings are unlikely to beat the 3Q12 number, when a Bt598m gain from divesting BCH was booked. In 2H13, BH’s new OPD capacity (80 new diagnostic rooms—38% OPD capacity expansion) could help boost patient volume growth.
What’s changed?
1H13 net profit represents 50% of our model (and the consensus forecast), which we maintain unchanged. There may be scope for upside to our projection from new acquisitions. Besides, the developments of two land plots (on Petchaburi Road and Sukhumvit Soi 1) will enable long-term earnings growth.
Recommendation
We expect BH to seek new acquisitions in 2H13, as it has had a net-cash position since end-Sept 2012 (Bt6.1bn in cash on-hand at end-June 2013). A deal might involve a lower price segment (the firm is currently exposed only to the high-end). BH may also identify opportunities elsewhere in ASEAN. We maintain our BUY rating with an upgraded YE13 target price of Bt98 (up from Bt94), pegged to a 5% discount to DCF value, which puts the firm in line with BGH (BH’s discount was previously 10%). The stock trades at an FY13 PER of 27.2x, far below the global healthcare mean of 30.4x or BGH’s PER of 33.5x. BH has a high FY13 ROE profile of 26% versus a 17% global mean and 18% for BGH.