Bangkok Dusit Medical Services

Bangkok Dusit Mediicall Services Plc (BGH)

Q2 2012 norm profit projected to fall only 13.4% though in low season

Although Q2 2012 is a low season for the hospital business, BGH’s patient volume has
declined slightly from the previous quarter. Compared with the same quarter of
last year, the number of international patients has risen significantly (an increase
of 19% YoY for inpatients and 12% YoY for outpatients) and the numbers of
domestic inpatients and outpatients have increased by 9% YoY and 6% YoY
respectively. Combined with the benefits from gradually increased medical service
charge at around 5% and the more intensifying admission, the total revenue from
service charge is projected to grow by 16.5% YoY but is still slightly lower than the
previous quarter. Though there are impacts (especially for Phayathai-Paolo Group)
from the government’s policy of minimum wage and salary, the service cost and
administrative expense tend to increase with a rate that is lower than the revenue.
Moreover, Q2 2012 is the first quarter that BGH will recognize profit sharing for full
quarter from adjustment for valuation of investment in BH, resulting in B1.240bn
of BGH’s Q2 2012 norm profit which is an increase of 36.7% YoY but 13.4% QoQ
decreasing along with the seasonal effects. Nevertheless, BGH had recognized an
extra profit in Q1 2012 at B1,795 due to the adjustment for valuation of first-lot
investment in BH to equate with the second lot of share price before recognizing
profit based on equity method and the company has recognized an extra profit in
Q2 2012 at B479m from adjustment for valuation of investment in Phayathai Hospital
based on the same way with BH. Accordingly, Q2 2012 net profit is projected to
decrease by 10.5% YoY and 61.6% QoQ.

Norm profit tends to grow constantly in long term due to plan to expand service capacity

According to Q3 2012 which is a peak of high season followed by Q4 2012 and the
company’s plan for gradual expansion of service capacity with 530 examination
rooms from the current 480 rooms for outpatients and 603 inpatient beds from the
current 484 beds that will be completed within this year, we project 2nd half 2012 norm
profit to grow continuously from 1H12. For 1st half 2012 norm profit, it stands at 49%
from FY2012 net profit, so we are likely to revise up our 2012 net profit forecast
after Q2 2012 earnings result is announced. In a long term, BGH plans to expand the
number of beds from the current 4,130 units to 6,000 units within 3-5 years. At
present, the company has planned to open 3 hospitals in other provinces which are
1) Bangkok Chingmai Hospital with capacity of 200 beds approximately that is
projected to open in the middle of 2014, 2) Bangkok Udon Hospital with capacity of
120 beds that will officially open at late of 2012 and 3) Sunthorn Phu Rayong
Hospital with capacity of 140 beds that will open as a middle-low class hospital in
October 2013. In addition, there is a possibility that BGH might make acquisition of
other domestic hospitals to expand the network and long-term income base. The
norm profit in 2012, based on the current forecast, will grow by approx 40.5% and
continuously 16% in 2013.

Reiterate “HOLD” though price fully valued. Forecast and fair value might be revised up

The fair value, using DCF, is B88.00 which is lower than the current share price.
However, we are likely to revise up our profit forecast and fair value after the
announcement of Q2 2012 earnings result. Preliminary, the new fair value will be
revised up to B100 which is close to the current share price, so we reiterate
recommendation of “HOLD” to wait for the fair value that has a chance to increase
in the following year along with the growth of business and new chances of
acquisitions in the future.