Bumrungrad Hospital

Bumrungrad Hospital Plc (BH)
High-premium hospital. Cost control enhanced. Investment plan changed
Viewing that patient volume in the next one or two years is unlikely to grow as
impacted by the current sluggish economy, BH would instead focus on effective
cost control to increase its earnings growth. EBITDA margin is projected at
almost 28% this year and also next year. Meanwhile, BH has hiked its medical
and service fee by 5% at the beginning of 2013 and 3% more in the middle of
the year to upgrade its status to a high-premium hospital and it has also
increased the price of cosmetic surgery package by tens of percents in order to
reduce crowdedness and increase profitability. Moreover, revenue intensity has
risen over 3% from the same period last year. In addition, BH has changed its
investment plan by canceling a construction of a seven- to eight-storey building
in Soi Nana 1, 50 meter away from the hospital, and having a temporary
parking lot with a capacity of 200-300 cars built on the area instead. It is
because the new Bangkok’s City Planning Act allows a construction of a high
rise building in the area which has been planned to be a location of the second
expansion project of BH (on New Petchaburi road). According to the new rule,
BH is permitted to have a high-rise building with a service capacity of 9.6x of
the total land area of 8,200 sqm (versus 8x previously) built, so it has planned
to expand its service area capacity (floor area ratio) by 20% to 78,700 sqm
with a 22-storey building, which will use B6bn in investment (up B1bn from
previously). The construction is projected to start in mid-2014 and the service
will commence in 2017. BH’s plan is to use the building on New Petchaburi road
as a center for general illness treatment, medical center for women and
children, check-up center, and cosmetic surgery center and use the current
building on Nana road as a treatment center for serious and special illness only.
- Best profit growth among peers. Strong financial status can support expansion
Apart from the aforementioned positive factors, earnings of BH in 4Q13 are
projected to weaken only slightly from 3Q13 although it is an off-season period
because the negative effect has been negated by increasing patients due to
common illness in winter and tourism season. Consequently, normalized profit
would grow as much as 24% in 2013 and 16% in 2014, which is the biggest
growth among peers. Moreover, BH is ready for investing on a construction of
the new building on New Petchaburi road with a net cash of B6.3bn in hand.
Furthermore, BH is currently seeking locations and conducting a feasibility
study for acquisition of other hospitals in Bangkok to be the second brand of
middle-level hospitals and expand its income base; this issue has still not been
included in our forecast.
- Improving gradually, outshining peers. Buy
Profit margin of BH is improving gradually and is likely to outshine peers’, while
the hospital has an aggressive capacity expansion plan since 2013 onward.
2014 fair value under the new forecast, DCF, is B120, implying 31.5% upside.
We recommend buying BH and selecting it as a top pick of the sector.