Bangkok Dusit Medical Services

Bangkok Dusit Medical Services Plc

Event: We attended a meeting with Dr. Prasert Prasarttong-Osoth, President and
Group CEO of BGH and remain positive toward the hospital group’s solid prospects for
the long term. BGH is our top pick in the Thai healthcare service sector, as it is well
positioned with a broad hospital network blanketing the country and we expect it to
deliver the strongest earnings growth at 21% in 2013 vs. the sector average 12%. We
BUY with 2013TP at Bt135/share.

Key takeaways:
Organic revenue growth at 15% p.a. through 2015. BGH expects 2012 revenue
growth at 17% in 2012 or Bt44bn, in line with our estimate. BGH views that it will
be a challenge to maintain this strong momentum through 2015 off an ever
increasing revenue base. However, it expects its broad hospital network and
synergy through patient referrals within the network to provide organic revenue
growth of 15% p.a. or Bt70-75bn in 2015.

Target: 50 hospitals in three years. BGH has a goal of 50 hospitals by 2015 from
29 now. It will add three new hospitals in 1H13 to the two already announced -
Soonthorn Plu Hospital in Rayong, to open in 2Q13, and Bangkok Chiang Mai
Hospital, to open in 2014. These newly announced facilities will be sited in strategic
areas: Phitsanulok (north), Khon Kaen (northeast) and Phnom Penh in Cambodia.

More international patient flow in the future, upper ASEAN is key. BGH sees
itself as able to compete with regional hospitals, e.g. Singapore, since its medical
charges are lower yet its quality of care meets international standards. It also
believes AEC implementation in 2015 will be a plus by bringing in more patients,
particularly from upper ASEAN countries (Myanmar, Laos, Cambodia and Vietnam).
To this end, BGH has already staked out its claim in strategic areas, specifically in
the northeast part adjoining Laos and in the north part adjoining Myanmar and
Cambodia. Currently revenue contribution from international patients is 27% vs.
60% for direct peer BH, implying room to increase.

Increase workforce to drive top-line growth, but margin stable. To drive
revenue growth in the long term, BGH has to add physicians and nurses, especially
those with specialties. In 2015, it will increase the number of physicians to 13,400
(2,400 full-time and 11,000 part-time) from 9,400 currently (1,700 full-time and
7,700 part-time) and boost the number of nurses to 14,400 from 9,600 currently.
Adding more professionals to its staff and raising compensation for its nursing
staff as well as new investments will make it difficult, BGH says, to expand margin
and it expects net margin to maintain at 13% in 2013.

Interested in smaller platform such clinics to penetrate lower segment. To
make headway into the lower income segment in Thailand, BGH is interested in
engaging in a smaller platform such as clinics. This platform will also be a benefit
in terms of patient referrals to the hospital facilities.