Bumrungrad Hospital

In line with our estimate

BH posted a record core profit of Bt760m for 3Q14, up by 12% YoY and 22% QoQ. Earnings were in line with our estimate and the consensus. The firm has again proved the resilience of its bottom-line, despite martial law. 

Results highlights

Seasonality and the consolidation (in April) of Ulaan Baatar Songdo Hospital (UBSH; about 2% of revenue) helped push healthcare revenue to an unprecedented Bt4bn, up by 11% YoY and 8% QoQ. Total patient volume increased by 13% YoY for OPD and by 14% for IPD. Excluding UBSH, total patient volume was up by 1% YoY for both OPD and IPD. The foreign patient proportion of revenue was a normal level of 60%, as foreign patient volume improved and UBSM was consolidated. 

GM rose by 1.0% YoY and 1.4% QoQ to 39.9% in 3Q14, led by pricing and cost control. The effective tax rate was 19.9%. Core margin grew by 0.1% YoY and 2.2% QoQ to 18.7% (the highest level since 2005), driven by efficiency improvements during high season. BH posted its ninth straight net-cash position at end-Sept. 

Outlook

For 4Q14, we expect earnings to rise YoY (driven by patient volume) but decline QoQ on seasonality. Foreign patent volume fully normalized in 3Q14 following weak numbers in 1H14. The firm will continue to control costs well, so fatter YoY margins are anticipated for the quarter. 

What’s changed? 

9M14 core profit represents 73% of our full-year forecast (76% of the street number), which we maintain unchanged. Our revenue growth assumption for FY15 is 18% (roughly BH’s income growth in FY12, a year of political stability). The historical record shows that the firm’s foreign volume bounced by 10% in FY11 and 12% in FY12, supported by a stable political climate. 

Recommendation

We prefer BH and have a DCF-derived YE15 target price of Bt146 (9.1% WACC and a 2% terminal growth rate). The stock is the best play on the inbound foreign patient recovery theme, due to its high exposure to foreign patients (about 60% of its healthcare revenue). Foreign patient volume to BH has normalized. Weak foreign patient volume in FY14 sets the scene for a strong volume bounce in FY15. The firm will maintain a net-cash position at YE14. The clean balance sheet will support new investments and acquisitions. BH trades at an FY15 PER of 29.3x, cheaper than the 30.6x Asian mean. Note that it has the highest FY15 ROE outlook in the sector of 29.2% against a 17.2x ASEAN average.