Bangkok Dusit Medical Services

Bangkok Dusit Medicall Services Plc (BGH)
2Q13 profit projected to drop 28.2% qoq due to low season
Due to low season, 2Q13 revenue is projected to fall 4.8% yoy, but growing 10%
yoy. Main factors are 10% yoy increase in Thai patients and 10% yoy rise in
international patients. Average income per treatment is projected to stay
unchanged yoy, as consumers' confidence has decreased, making patients more
cautious on their spending. Gross profit margin and SG&A/Sales are likely to stay
unchanged yoy. Rise in maximum wage in hospitals in Chantaburi and Trat from
early-2013 on would be compensated by depreciation and funding cost that grow
in weaker rate than BGH's revenue growth. However, decrease in income tax
rate from 23% to 20% would boost 2Q13 net profit to B1.399bn, rising only
8.1% yoy and falling 28.2% qoq, due to seasonal effect.
- Expanding from 30 to 50 hospitals in end-2554 for AEC
BGH's executive activated an aggressive strategy to open 20 more hospitals by
end-2014, earlier than previously planned to open at 2016, increasing BGH to
have 50 affiliated hospitals, with beds increasing from 4,285 to 6,000 to
completely prepare for AEC within the beginning of 2016. Currently, the list of 10
hospitals have been revealed to be opened officially: 2 hospitals in Bangkok
(Yaowarat and Rangsit), 3 hospitals in the East (Chonburi, Rayong and Pattaya),
2 hospitals in the South (Surat Thani and Phuket), in other regions (Chiang Mai
and Khonkaen) and abroad (Panom Penh and Luangprabang), at the total CAPEX
of B7bn. Another 10 hospitals will be revealed later. Over the next 3 years,
EBIDA margin is projected to fall 0.5-1% due to high cost of the opening of 10
hospitals, especially employment cost. 1H13 revenue is projected to grow 11.3%
yoy, lower that projected at 14-15%, causing the company to revise down
FY2013 profit growth at only 12-13%. However, FY2013 profit is likely to be
lower than our projection by 5%, so we maintain our projection that FY2013
norm profit would grow 23% and grow continuously 18% further in 2014.
- Blissful in long term, at risk to undergo collection along with SET, reiterate "HOLD"
Though strong aggressive strategy to prepare for AEC in 2017 would boost longterm
growth, new hospitals take at least 2-3 years to pay back, which would
pressure profitability over the next 3 years. 2013 DCF-based fair value is at
B185. Though upside from the current fair value is 19%, Expect PER is as high
as 33.3x, likely to be sold to take profit. We reiterate "HOLD".