Bumrungrad Hospital

Bumrungrad Hospital Plc (BH)
Event
- According to local newspaper reports today, BH’s management is considering spending Bt5bn to acquire sizable stakes in a hospital in Phitsanulok (Thailand) and one in Mongolia. Our view on this is mixed. We are positive location-wise on Phitsanulok but still uncertain on the Mongolian hospital. We maintain our OP rating based on its existing projects.
Impact
- In talks and feasibility studies underway. Mr. Chai Sophonpanich, BH’s chairman, said that both deals are in talks and under a feasibility study. The deals are expected to be finalized by the end of this year and financing will come from cash from the sale of its Bangkok Chain Hospital (BCH TB, Bt7.20, Neutral, TP: Bt8.00) stake and a recent issue of debentures worth Bt5bn.
- Acquisition plan in Phitsanulok. BH is in talks for a 51% stake in a private hospital in Phitsanulok in lower northern Thailand. The deal is expected to be worth Bt2-3bn. We do not know the size of the hospital.
- Acquisition plan in Mongolia. BH plans to conduct a feasibility study for a more than 50% stake in a Mongolian hospital and expects to pay Bt2bn. It said that Mongolian patients account for a big portion of the company’s total patient base and so the acquisition would add value to the company.
Earnings and target price revision
- No change
Price catalyst
- 12-month price target: Bt93.00 based on a DCF methodology.
- Catalyst: High seasonality in Q3 and M&A announcement
Action and recommendation
- Our view on the potential acquisition announcement is mixed. We are positive on the Phitsanulok hospital as we expect BH would benefit from the low hospital supply and high demand there. However, the initial indicator of an investment cost of Bt2-3bn seems expensive for a 51% stake in an upcountry hospital. Expanding in Thailand’s provinces is also a deviation from BH’s current market positioning.
- On the Mongolia hospital, we still doubt that it can derive synergy with BH’s existing hospitals. However, if BH acquires a good asset at a reasonable price, it would be positive in our view.  
- For financing, if BH uses debt to finance the entire Bt5bn acquisition cost, net debt to equity will increase to 45% in 2013E (vs. -13% previously).