Bangkok Dusit Hospital

Bangkok Dusit Hospital Plc (BGH)

Investment thesis
BGH has proved resilient to the political chaos. Its healthcare revenue expanded 7% YoY in 4Q13 and almost 10% YoY in Jan 2014.  Its core strategy is to sustain YoY EBITDA margin for FY14, which implies a margin bounce in 2H14. A core margin recovery should start manifesting in 2Q14 (core margin bottomed out at 10.5% in 2Q13), boosting the share price. The downside risk to our FY14 model is limited, as we conservatively forecast only 6% core profit growth. Our BUY rating stands with a DCF-derived YE14 target price of Bt144.     
4Q13 earnings likely to decline YoY and QoQ
A core profit of Bt1.4bn is expected for 4Q13, down by 2% YoY and 7% QoQ.  Healthcare revenue is modeled of Bt12.5bn, up 7% YoY but down 2% QoQ on seasonality. Billing per head was the driver of the assumed YoY income expansion (YoY price growth of 10% for IPD and 7% for OPD). In 4Q13, patient volume was slow (IPD admissions dipped 4% YoY and OPD volume inched up just 2% YoY). The utilization rate declined from 73% in 4Q12 and 75% in 3Q13 to 66% in 4Q13. Core margin is assumed to have fallen from the high base of 15.9% set for 4Q12 to 11.6%, due to expenses tied to BGH’s aggressive expansion. 
What is the political impact so far?
In January 2014, healthcare revenue achieved high single-digit YoY growth. Patient volume for the month is guided to have expanded by 5-6% YoY. Pricing (billing per head) has risen 3% YoY. The outperforming hospitals are non-CBD Bangkok and upcountry locations (double-digit YoY growth). We anticipate that BGH will post a YoY profit contraction for 1Q14 (very high NM in 1Q13), but seasonally driven QoQ growth. 
Efficiency improvements in focus
BGH targets FY14 organic revenue expansion of 2-3x Thai GDP growth. We assume healthcare revenue growth of 9% this year, which would be comparable to that achieved in FY10—the year of the Red Shirt uprising. The FY14 core strategy is efficiency enhancements and cost savings. The first priority is to sustain YoY EBITDA margin in FY14. The SG&A/sales ratio peaked in FY13 when BGH prepared the doctors and nurses to staff an additional nine new hospitals (to open in FY14-15).
To open six new hospitals this year
Six new hospitals are to launch in FY14—four in 1H14 (Bangkok Hospital Chinatown, Deebuk Phuket, Sri-Rayong, and Chiangmai) and two in 2H14 (Khonkaen and Phnom Penh, Cambodia). The six hospitals will add 14% to IPD capacity (762 beds). But management plans to open only about 200 new IPD beds in FY14. The additional revenue from the six new hospitals is forecast at 2% (topping up the firm’s organic healthcare revenue growth).