Bumrungrad Hospital
Resilient to a slow GDP environment; acquisitions are anticipated
Bumrungrad Hospital Plc (BH)
Investment thesis
New acquisitions by YE13 would be a share price catalyst. BH’s earnings have proved resilient to a slowing Thai economy. Its FY13 PER of 27.4x is significantly lower than BGH’s 31.0x and the Asian mean of 30.4x. Our BUY rating stands with an unchanged YE13 target price of Bt98.
Resilient to Thai GDP slowdown - 3Q13 profit will be best of year
Despite slowing GDP growth, BH will deliver strong healthcare revenue growth for FY13, as there is little correlation between Thai GDP and BH’s income streams. We forecast 14% FY13 revenue growth (the management target range is 10-15%). Note that 60% of BH’s patients are foreign and its Thai customers are dominated by high income demographics. The firm has reported YoY healthcare revenue growth every quarter for the years FY06-12, regardless of coups, global financial collapses and civil uprisings.
BH’s best quarter of the year will be 3Q13. We preliminarily forecast 3Q13 core profit growth of 10% YoY and 15% QoQ, due to seasonality (rainy season and a surge in patients from the Middle East). However, net earnings are unlikely to beat the 3Q12 number, when a Bt598m gain was booked from divesting BCH.
Unlocking capacity in 2H13
On May 23, BH added about 30% to its OPD capacity by opening 80 new diagnostic rooms on the upper four floors of Bumrungrad International Building. It will also add 4% IPD capacity (21 IPD beds) in 3Q13. These additions will enable greater volume growth in 2H13 onward. Despite flat YoY volume in 1H13, BH delivered YoY revenue growth of 10% and core profit expansion of 12%, led by a double-digit rise in pricing (billing per head) and efficiency enhancements.
Acquisition expected by YE13
BH has had a net-cash position for a year. We expect acquisitions in 2H13. One deal might involve a lower price segment and a location outside of Bangkok. BH has also identified opportunities elsewhere in ASEAN. Acquisitions should involve hospitals with at least 100 beds (operating assets). We guesstimate that a new investment would add about 5% of BH’s revenue per year.
2-3 years for two land plots to be developed
BH will open a new OPD center (physical therapy, dental, dialysis and health screening) on a land plot on Sukhumvit Soi 1 and a new Women’s & Children’s Hospital on Petchaburi Road. Construction will take at least two years for the Soi 1 property and three years for the Petchaburi Road location. We have yet to factor this future capacity into our model.
