Bangkok Dusit Medical Services

Bangkok Dusit Medical Services Plc (BGH)

- 4Q13 profit to drop 5.7%yoy due to political unrest and higher expense
BGH's 4Q13 service revenue is projected to grow by only 7.2%yoy, the lowest
increase in 2013. December 2013 service revenue would rise by only 4%yoy due
to the political turmoil. In 4Q13, outpatient volume is projected to increase by
2%yoy (+2%yoy for Thai outpatients, +6%yoy for international outpatients),
whereas inpatient volume is expected to drop by 4%yoy (-4%yoy for Thai
inpatients, -1%yoy for international outpatients). 4Q13 average income per
treatment (outpatient) is predicted to grow by 7%yoy, and average income per
day (inpatient) is projected to rise by 10%yoy. However, cost of service and
SG&A are projected to increase at much higher rate than income: 8.3%yoy and
21%yoy, respectively, mainly due to preparation on medical teams and
personnel for new hospitals planned to be opened in the next few years (six in
2014 and three in 2016). Accordingly, 4Q13 net profit is projected at B1,356m,
falling 5.7%yoy and 12.5%qoq as a result of low season.
- Prolonged political problem to affect FY2014 earnings
BGH's service revenue during the first 21 days of 2014 grew by 10%yoy.
However, as a result of the Emergency Decree invoked on 23 January 2014,
many countries have warned their people to avoid visiting Thailand, lowering
international patient volume. Moreover, due to the protest, FY2014 GDP growth
is projected at only 3%. As income from hospital business tends to grow two or
three times faster than GDP growth, BGH's income is expected to grow by only
6-8%yoy. Furthermore, BGH's profit would be depressed because six new
hospitals are planned to be opened in 2014 (four of them will be opened in
1H14), and they are likely to face loss during their first couple years of
operation. Thus, FY2014 net profit is projected to grow by 4.7%yoy.
- Short-term pressure from politics and branch expansion plan. "HOLD"
The aggressive branch expansion to prepare for AEC liberalization in 2015
provides a long-term benefit. However, as a breakeven time of a new hospital is
two or three years, the expansion will suppress the company’s profitability in the
next few years. Also, BGH’s net profit would be pressed below target by the
political turmoil. We reiterate "HOLD" despite 18.8% upside.