Bangkok Dusit Medical Services

Bangkok Dusit Medical Services Plc (BH)

Q3 2012F: Record core earnings. We estimate net profit at Bt1.8bn, up 41% YoY and
38% QoQ, bolstered by an extra item through equity income from BH (23.9% held by
BGH) of Bt158mn. Excluding this extra item, it is still expected to report record core
earnings of Bt1.6bn, up 28% YoY and 26% QoQ. This will bring 9M12 core earnings to
75% of our full-year forecast.

Key items of 3Q12F:

Healthy revenues from healthy volume. We estimate revenue from hospital
operations at Bt11.5bn, up 14% YoY and 11% QoQ, mainly from higher patient
volume. We expect total patient volume to grow 8% YoY, backed by the large
hospital network that leads to patient referrals within the group plus an increase
of 12% QoQ from the flu season in Thailand. Average billing per patient is expected
to grow YoY but decline QoQ due to a high proportion of low-yield ailments such
as flu.

QoQ improved EBITDA margin. EBITDA margin is estimated at 25.1% in 3Q12,
down from 26.3% in 3Q11 but up from 23.4% in 2Q12. The YoY decline in margin is
expected because of higher staff expenses brought by the rise in minimum wage
and staff recruitment, especially specialty nurses, since the beginning of the year.
However, margin should improve QoQ as the magnitude of the rise in expenses is
lower, plus healthy revenue growth.

Strong equity income. We estimate Bt362mn equity income in 3Q12, up from
Bt107mn in 3Q11 and Bt206mn in 2Q12, boosted by a Bt158mn extra item from BH
(23.9% held by BGH), as we estimate BH will have Bt660mn gain on the sale of its
holding in BCH and tax benefit from the sale of BH subsidiary BMC.

Q4 2012F outlook – Strong operations in October. BGH said revenues grew 20% YoY in
the first 20 days of October, underwritten by increasing patient volume and rising
billing per patient – to a growth that is higher than BGH’s full-year target of 15%. We
note that BGH was not significantly impacted from the flooding last year, as its 4Q11
revenues slipped just 6% QoQ, meaning operations themselves were strong, not simply
off a low base.

Maintain BUY and top pick in the sector. We view BGH as well set with a broad
hospital network positioning it to capture demand throughout Thailand, particularly
upcountry where growth potential is good. BGH’s expansion in the north and
northeastern parts of Thailand will be gateways to upper ASEAN countries Myanmar,
Laos, Cambodia and Vietnam – where potential of becoming good markets upon the
implementation of AEC is high. BGH is trading at 24x 13PE, which is its historical
average, with strong core earnings growth at 48% in 2012 and 19% in 2013, and at the
same time, is in a sector where earnings are by nature resilient. We maintain BUY on
BGH with mid-2013 TP at Bt115/share.