Bangkok Dusit Medical Services

Bangkok Dusit Medical Services Plc (BGH)

Beat all estimates
BGH announced a core profit of Bt2bn for 1Q13, up by 40% YoY and 36% QoQ. The core result was 14% above our estimate (and 11% ahead of the street), due to a lower SG&A/sales ratio and greater equity income (from Ramkamhaeng Hospital Plc [RAM]) than we assumed. As such, 1Q13 core margin was 2% above our projection.
Although BGH’s core profit jumped 40% YoY, net profit inched up just 2% YoY—in 1Q12 the firm posted a Bt1.8bn marked-to-market gain on its stake in BH; in 1Q13 it marked no gain.  
Results highlights
The strong core earnings were led all-time high healthcare revenue of Bt12bn, up by 13% YoY and 3% QoQ. Healthcare receipts comprised 68% Thai patients (up 12% YoY) and 32% foreign (up 14% YoY). Healthcare GM dipped from 35.5% in 1Q12 to 34.5%, due to higher wage costs. The SG&A/sales ratio declined 1.6% YoY to 18.8% in 1Q13, due to the high top-line. Profit-sharing from associates jumped by 313% YoY and 150% QoQ to Bt311m, boosted by Bt175m in equity income from BH (cost method in 1Q12) and Bt124m in profit-sharing from RAM (up 95% YoY, due to a Bt52m gain from an asset sale). The effective tax dropped from 24.7% in 1Q12 to 19.3% in 1Q13 (a lower headline corporate tax rate).
On a QoQ basis, the impressive profit growth was driven by 4% core margin expansion to 16.3%. Net gearing was flat QoQ at 0.4x at end-March.
Outlook
BGH’s 2Q13 core profit will increase YoY (revenue-driven), but will slip QoQ on seasonality. The firm is expected to post record earnings for 3Q13, which is the best quarter of the year for healthcare revenues in Thailand. 
What’s changed?
1Q13 core earnings represent 27% of the full-year forecasts of both BLS and the consensus. We will revisit our model after the analyst meeting on May 16. Our projection has yet to factor in a planned new hospital in Chinatown (59 IPD beds), which is expected to open in 1Q14. 
Recommendation
We maintain a BUY rating, premised on scope for earnings upside (better-than-expected margin). For the time being, our target price is Bt192, a 5% discount to DCF value. The stock trades at an FY13 PER of 35.3x, 1.5SD above BGH’s FY06-12 mean.