Bumrungrad Hospital

Bumrungrad Hospital Plc

In line with our estimate
BH posted a core profit of Bt617m for 4Q13, up 59% YoY but down 9% QoQ. Earnings were in line with our estimate, but were 13% ahead of the consensus, due to fatter-than-expected margins. FY13 core profit hit a record of Bt2.5bn, up 27% YoY. Note that the firm realized a Bt567m net gain from selling of BCH shares in 3Q12, but posted no significant extra gains last year.
BH announced a final DPS of Bt1.20 for 2H13 (we had assumed only Bt1.0), implying a simple yield of 1.4% (XD on March 4; payout on May 28).     
Results highlights
4Q13 healthcare revenue rose 13% YoY to Bt3.6bn, driven by pricing (billing per head grew on price rises and a higher proportion of intensity cases). It comprised 61% foreign and 39% Thai patients. Core margin jumped from 12.0% in 4Q12 to 16.9% in 4Q13. GM fattened by 4.1% YoY to 38.1% in 4Q13. The SG&A/sales ratio fell from 19.1% in 4Q12 to 16.2%. BH capitalized the interest expenses tied to the cost of renovating and equipping five floors of new IPD capacity. Thus, the firm reversed Bt35m in interest expenses in 4Q13. The effective tax rate dipped from 24.4% in 4Q12 to 20.7%. On a QoQ basis, despite low season, healthcare revenue was stable QoQ. However, core margin dipped from 18.6% in 3Q13 to 16.9% on seasonality. At YE13, BH posted its sixth consecutive net-cash position.
Outlook
1Q14 profit is expected to be flattish YoY and QoQ. Despite slower patient volume during this period of political unrest, the top-line should expand on higher pricing and a rising proportion of intensity cases. BH’s policy is to adjust up its prices every January. 
What’s changed?
We maintain our model unchanged. We assume 7% revenue growth in FY14—the growth rate in FY10 (the year of the Red Shirt uprising).
Recommendation
BH is the best play on an inbound foreign patient recovery when the political chaos eases. The historical record shows that its foreign volume bounced by 10% in FY11 and by 12% in FY12 in a stable political climate (Red Shirt uprising in FY10). The capacity expansion (80 new diagnostic rooms and 58 new IPD beds) will enable the firm to service a greater patient volume over the long-term. Our BUY rating stands with YE14 target price of Bt100, pegged to a 5% discount to DCF value (9% WACC and a 1% terminal growth rate). BH trades at an FY14 PER of 21.7x, far below the global healthcare mean of 26.9x and BGH’s PER of 29.6x.