Bangkok Dusit Medical Services

Bangkok Dusit Medical Services Plc (BDMS)

 

Profit is continuing to move higher, with 1Q15 core profit estimated at Bt2.2bn, up 5% YoY and 29% QoQ. Earnings growth is undergirded by strong operations at existing hospitals that are able to offset losses at new ones. Over the past month, BDMS’ share price increased 3% vs. 26% for BH, its direct peer. In our view, BH’s overshoot positions BDMS as an attractive laggard play. We maintain BUY with TP of Bt24/share. 

1Q15F: Core profit estimated at Bt2.2bn, up 5% YoY and 29% QoQ. Excluding a Bt196mn extra item in 4Q14 (Bt205mn dividend income from subsidiary Phyathai 1 Hospital and Bt9mn impairment on investment), uncovers core profit growth of 5% YoY and 29% QoQ. This growth is backed by; 1) total revenue of Bt15bn, up 12% YoY and 4% QoQ thanks to a growth of ~7% YoY in patient volume at existing and new hospitals and a ~4% YoY increase in revenue per patient and 2) EBITDA margin at 24.7%, little changed from 24.8% in 1Q14 but up from 21.7% in 4Q14. We note that the lack of EBIDTA growth YoY - despite revenue growth - arises out of slow operations at newly-opened hospitals (EBITDA still negative). These include Bangkok Hospital Phitsanulok, Bangkok Hospital Chiangmai, Bangkok Hospital Khonkaen, Bangkok Hospital Chinatown, Sri Rayong Hospital and Dibuk Hospital. Thus, the earnings growth in 1Q15 represents strong operations at existing hospitals to the level where this is able to offset losses from new hospitals.  

Expansion in high-yield segment. Since the beginning of the year, BDMS has opened three hospitals with 115 beds in the first phase (to eventually total 455 beds) 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%, adding 360 beds, doubling the current 343 beds, or 5% to BDMS’s total beds of 7,691. This will be opened phase by phase, with details announced in 2Q15. 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.  

BUY maintained, TP at Bt24/share. BDMS’ valuation is not cheap as it is trading at a 15PE of 35x, aligning with the regional average. However, we believe the resilient earnings growth underwritten by its large hospital network and the steady growth in demand will support further premium to valuation. Over the past one month, BDMS’ share price has increased by 3% vs. 26% for BH, its direct peer. We believe this overshoot of BH’s share price positions BDMS as an attractive laggard play. We maintain BUY on BDMS with TP of Bt24/share.