Bangkok Dusit Medical

BGH’s Board has approved the acquisition of Siriroj Hospital in Phuket Province, adding up the total number of hospitals under BGH’s operation to 44. This, however, would not have an effect on profit forecast in the short term. We maintain 2014 fair value at B19 and will switch to use 2015 fair value of B21 after 3Q14 earnings report. Buy on weakness.

- Approve acquisition of hospital in Phuket

BGH yesterday approved the establishment of a subsidiary company under the name

Bangkok Phuket International Hospital Company Limited to support its investment

expansion and hospital business in Phuket Province, with registered capital of B3,610m or

361 million common shares at par value of B10 each (BGH holds 99.99% stake). BGH also

approved that Bangkok Phuket International acquires and receives the transfer of the entire

business of Phuket International Hospital Company Limited, which operates a private

hospital in Phuket Province under the name Siriroj Hospital. In this regard, Bangkok Phuket

International will receive the transfer of all assets and liabilities of Phuket International

existent as of the date of the business transfer. Bangkok Phuket International will pay no

more than B3,607.5m in cash to Phuket International and receive all of its liabilities, which

will be in the amount of not exceeding B416m.

- No effect on earnings forecast in next one year

At present, 34 hospitals of BGH are in operation and other nine are under construction

process or opening plan, adding up the number of hospitals under BGH’s operation to 43;

combined with Siriroj Hospital in Phuket Province, the total number is 44. Siriroj Hospital is

a private hospital with 151 registered beds and have a capability to accommodate an

expansion to 281 beds. At end-2013, total assets of the hospital were B939m, total

liabilities were B300m, and shareholders’ equity was B639m, while total revenue was

B1,033m and net profit was B110m. Since the acquisition requires as much as B3.6bn in

cash and will incur liabilities of around B416m, BGH will have to bear additional interest

expense in the amount of not less than B120m per year, which may be close to the

company’s profit this year. Nevertheless, after two to three years of operation and

expansion, profit generated from this business will substantially surpass the interest

expense arisen from the acquisition deal. BGH will be able to give service to medium-end

patients, both foreign and local, in the South of Thailand through the hospital, particularly

benefiting medial tourism in Phuket Province, and use it as a channel for patient referral to

its network hospitals. Since the deal will not have a significant impact on the earnings, we

maintain our forecast, projecting normalized profit to grow 17.7%yoy in FY2014 and

13%yoy in FY2015.

- Buy on weakness

The current share price is already fully valued, but we will switch to use 2015 fair value,

preliminarily estimated at B21, after 3Q14 earnings report while there is also additional

value from six acquisition deals in the future. Therefore, we reiterate to buy BGH when the

price weakens.