Bumrungrad Hospital

Bumrungrad Hospital Plc (BH)

Beat all estimates
BH posted a record core profit of Bt681m for 3Q13, up by 17% YoY and 20% QoQ. Net profit was Bt703m, up 21% QoQ but down 40% YoY—in 3Q12 the firm booked a Bt579m net-of-tax gain from divesting BCH shares. The 3Q13 bottom-line was 8% above our estimate and 12% ahead of the consensus, due to fatter-than-expected margins.     
Results highlights
The record core earnings were led by unprecedented revenue and the fattest NM since 4Q05 (18.6%, up by 1.0% YoY and 2.4% QoQ). Healthcare revenue hit a new record of Bt3.7bn for 3Q13, growth of 11% YoY and 5% QoQ. The top-line was driven by a 12.3% YoY rise in OPD income (billing per head rose 8.4% YoY) and a 9.5% YoY increase in IPD receipts (billing per head rose 8.9% YoY). Patient volume growth was in low single digits for both OPD and IPD. 3Q13 healthcare revenue comprised 60% foreign and 40% Thai patients. GM rose by 2.9% YoY and 2.0% QoQ to 38.9% in 3Q13. The SG&A/sales ratio dropped by 1.0% YoY and 1.1% QoQ to 16.2%. The effective tax rate was 20%.
BH posted a net-cash position for the fifth straight quarter at end-Sept.
Outlook
For 4Q13, we expect core earnings to rise YoY (led by the top-line and a fatter NM), but drop QoQ on seasonality. Profit will resume strong YoY and QoQ expansion in 1Q14, we believe. BH’s new OPD capacity (80 new diagnostic rooms—a 38% OPD capacity expansion) will enable greater patient volume growth over the long-term.
What’s changed?
9M13 net profit comprises 80% of our FY13 forecast (79% of the consensus number), which we conservatively maintain unchanged. There may be scope for upside to our projection from new acquisitions.
Recommendation
Our BUY rating stands, due in part to the Healthcare sector’s proven resilience to economic slowdowns. BH has a high FY13 ROE profile of 26% versus a 17% global mean. The firm’s fatter prevailing margins will make it outperform BGH’s profitability ratios for the next six months or so (BGH’s margins have been squeezed by the blistering pace of its expansion program). BH trades at an FY14 PER of 22.8x, far below the global healthcare mean of 26.0x or BGH’s multiple of 26.6x. We have a YE14 target price of Bt100, pegged to a 5% discount to DCF value (9% WACC and a 1% terminal growth rate).
BH is actively seeking new acquisitions, as it has had a net-cash position since end-Sept 2012 (Bt6.3bn in cash on-hand at end-Sept 2013). A deal might involve a lower price segment (the firm is currently exposed only to the high-end). BH may also identify opportunities elsewhere in ASEAN.