Bumrungrad Hospital

Bumrungrad Hospital Plc (BH)

In line with all estimates: BH reported a net profit of Bt501m for 2Q12, up 46% YoY but down 14% QoQ.  The result was in line with our estimate and the consensus. Excluding a Bt25m FX gain, core profit would be Bt475m, up 24% YoY but down 17% QoQ.
BH announced an interim DPS of Bt0.60, a 1.6% annualized yield. XD on August 24, payment on Sept 7.
Results highlights: The strong YoY profit growth was led by 14% healthcare revenue expansion to Bt3.2bn—the best second-quarter number on record—and the headline corporate tax cut to 23%. Thus, core margin rose by 1.3% YoY to 15.0% in 2Q12. The SG&A/sales ratio increased 0.6% YoY (due to higher labor costs). On a QoQ basis, despite the quarter being low season, healthcare revenue was flat—a positive surprise. The QoQ core profit weakness was because GM fell 2.1% and the SG&A/sales ratio rose by 1.2%. The profit contribution from KH (BH has a 25% stake) was Bt52m, up 19% YoY but down 5% QoQ. Net gearing was flat QoQ at 0.37x at end-June.
Outlook: 3Q12 core profit will be the best of the year and a new record, driven by high season for patients from the Middle East and the rainy season. We expect core earnings growth of 30% YoY and 20% QoQ. Including nearly Bt590m in net-of-tax gains from sales of KH shares in July, our 3Q12 we forecast a record net profit of Bt1.2bn, up by 170% YoY and 150% QoQ.
What’s changed? 1H12 earnings represent 52% of our model (50% of the consensus), which we maintain unchanged. There could possibly be scope for upside, depending on new acquisitions and/or expansion.
Recommendation: BH’s recent share price correction presents an opportunity to BUY. The stock trades at an FY12 PER of 20.5x, a discount to its FY06-11 mean of 21x. Our BUY call stands with a YE13 target price of Bt98, pegged to a 20% discount to DCF value (10% WACC and 2% terminal growth). Given a net-cash position at end-Sept, the balance sheet will support new expansion and/or acquisitions, which would mean scope for earnings upside.