Healthcare
Earnings resilient to economic swings
Healthcare
Expansion is continuing, moving up with healthcare demand. Though share prices have come up substantially, we believe the resiliency of earnings in this sector supports premium valuation. BDMS tops our list.
Healthy earnings in 4Q14. In 4Q14, core earnings growth in the Thai healthcare sector accelerated to 17% YoY, beating out the 11% YoY for 9M14, backed by rising revenue and improving margin. In its sector, BDMS stood out with 21% YoY core profit growth in 4Q14 (vs. 8% for BCH and 9% YoY for BH). In 2014, sectoral core earnings growth was 13% YoY vs. a 9% YoY drop in SCBS universe, representing the inherent resilience in healthcare that makes it less sensitive to economic bumps.
1Q15 stronger, 2Q15 seasonally lower. This year’s first quarter is a higher season for the Thai healthcare sector than last year, driven by increasing patients, both Thai (better economy) and international (political stability). The return of confidence in Thailand is reflected in the first positive YoY growth in tourist arrivals in 4Q14 after YoY drops for three quarters. Note that 60% of BH’s revenues are from international patients, 30% for BDMS and negligible for BCH. We expect earnings to soften in 2Q15 on seasonality as the quarter contains long public holidays.
Rising demand, expansion continues. QTD, BDMS has opened three hospitals with 115 beds in the first phase (455 beds in total) and will open one in mid-2015 and two in 2016. It also plans to expand its flagship, Bangkok Hospital at Soi Soonvijai, as bed utilization rate is high at ~80%. The entire project will add 360 beds, doubling the current 343 beds, or adding 5% to 7,691 BDMS’s total beds. This will be opened phase by phase, with exact details not yet available. We see this as a good move, as this hospital provides tertiary care and EBITDA margin is high (~26% vs. the overall average of 22%) with OPD billing/visit at ~Bt6,000, double BDMS’s overall average of ~Bt3,000.
BH will convert three floors in a residential building on its existing campus in 2Q15 into clinical area. This will take approximately one year. It has received the EIA for its new hospital on Petchburi Rd. and will start construction in November 2015. Assuming two years for construction, the new hospital will open in 2018.
BCH plans to open a new hospital to serve social security patients (SC), Karunvej Rattanathibeth Hospital, in 2Q15. Recently, it entered into an agreement to acquire at least 75% (via a subsidiary) of the assets of Sotaravej Hospital, a 200-bed private hospital serving mid- to low-income clients and SC patients in Chachoengsao. It will conduct due diligence and expects to complete the transaction this year.
Premium valuation deserved. Healthcare stocks have rallied strongly over the past 12 months: +66% for BH, +55% for BDMS and +20% for BCH, to now trade at a high valuation of 36x for BH, 36x for BDMS, and 30x for BCH. We like the sector, despite this and believe the market will continue to assign it a premium valuation in recognition of its healthy and resilient earnings. In 2015, we estimate 22% YoY core profit growth for the sector. We trim BDMS’s earnings by 2% in 2015-16 to factor in higher depreciation in 2014. We also roll valuation over to end-2015 (from mid-2015) and this raises our TP to Bt24 (from Bt22). Rolling BH’s TP to end-2015 also raises it to Bt120 (from Bt110).
BDMS is top pick. Though trading at a high PE, valuation is still attractive with lower 2015PE-to-earnings growth of 1.3x vs. the 2.0x regional average. We estimate 2015 core earnings growth of 26% YoY and believe it has a promising long-term earnings growth path, undergirded by its large hospital network covering all types of medical services and patient groups. Earnings upside could come from M&As.
Healthcare
Expansion is continuing, moving up with healthcare demand. Though share prices have come up substantially, we believe the resiliency of earnings in this sector supports premium valuation. BDMS tops our list.
Healthy earnings in 4Q14. In 4Q14, core earnings growth in the Thai healthcare sector accelerated to 17% YoY, beating out the 11% YoY for 9M14, backed by rising revenue and improving margin. In its sector, BDMS stood out with 21% YoY core profit growth in 4Q14 (vs. 8% for BCH and 9% YoY for BH). In 2014, sectoral core earnings growth was 13% YoY vs. a 9% YoY drop in SCBS universe, representing the inherent resilience in healthcare that makes it less sensitive to economic bumps.
1Q15 stronger, 2Q15 seasonally lower. This year’s first quarter is a higher season for the Thai healthcare sector than last year, driven by increasing patients, both Thai (better economy) and international (political stability). The return of confidence in Thailand is reflected in the first positive YoY growth in tourist arrivals in 4Q14 after YoY drops for three quarters. Note that 60% of BH’s revenues are from international patients, 30% for BDMS and negligible for BCH. We expect earnings to soften in 2Q15 on seasonality as the quarter contains long public holidays.
Rising demand, expansion continues. QTD, BDMS has opened three hospitals with 115 beds in the first phase (455 beds in total) and will open one in mid-2015 and two in 2016. It also plans to expand its flagship, Bangkok Hospital at Soi Soonvijai, as bed utilization rate is high at ~80%. The entire project will add 360 beds, doubling the current 343 beds, or adding 5% to 7,691 BDMS’s total beds. This will be opened phase by phase, with exact details not yet available. We see this as a good move, as this hospital provides tertiary care and EBITDA margin is high (~26% vs. the overall average of 22%) with OPD billing/visit at ~Bt6,000, double BDMS’s overall average of ~Bt3,000.
BH will convert three floors in a residential building on its existing campus in 2Q15 into clinical area. This will take approximately one year. It has received the EIA for its new hospital on Petchburi Rd. and will start construction in November 2015. Assuming two years for construction, the new hospital will open in 2018.
BCH plans to open a new hospital to serve social security patients (SC), Karunvej Rattanathibeth Hospital, in 2Q15. Recently, it entered into an agreement to acquire at least 75% (via a subsidiary) of the assets of Sotaravej Hospital, a 200-bed private hospital serving mid- to low-income clients and SC patients in Chachoengsao. It will conduct due diligence and expects to complete the transaction this year.
Premium valuation deserved. Healthcare stocks have rallied strongly over the past 12 months: +66% for BH, +55% for BDMS and +20% for BCH, to now trade at a high valuation of 36x for BH, 36x for BDMS, and 30x for BCH. We like the sector, despite this and believe the market will continue to assign it a premium valuation in recognition of its healthy and resilient earnings. In 2015, we estimate 22% YoY core profit growth for the sector. We trim BDMS’s earnings by 2% in 2015-16 to factor in higher depreciation in 2014. We also roll valuation over to end-2015 (from mid-2015) and this raises our TP to Bt24 (from Bt22). Rolling BH’s TP to end-2015 also raises it to Bt120 (from Bt110).
BDMS is top pick. Though trading at a high PE, valuation is still attractive with lower 2015PE-to-earnings growth of 1.3x vs. the 2.0x regional average. We estimate 2015 core earnings growth of 26% YoY and believe it has a promising long-term earnings growth path, undergirded by its large hospital network covering all types of medical services and patient groups. Earnings upside could come from M&As.
