Bangkok Dusit Medical Services
Profit trips. Growth drops from aggressive network hospital expansions HOLD
Bangkok Dusit Medical Services Plc (BGH)
2013 normalized profit shifts only 6% from aggressive network expansions
BGH’s 4Q13 net profit was B1,417m, which includes non-recurring
items, which are B17m gain on fair value adjustment of investment in a
subsidiary, the Medic Pharma. The normalized profit alone was
B1,400m, slightly better than expected, weakening 9.6%qoq after
passing the high season and growing only 3.7%yoy. The service revenue
growth of 8.6%yoy was offset by the cost of operations and depreciation
that increased 12.8%yoy and 13.7%yoy, respectively, due to
continuously rising expenses since 2Q13 from the company’s aggressive
plan to open 20 new hospitals in 2014-2016. As a result, FY2013
normalized profit grew only 6%, while the net profit slumped 20.2%yoy
because non-recurring gain was recorded at only B148m this year,
versus B2,081m last year.
- Political unrest and new hospital opening to suppress 2014 profit at 5%
Although service revenue in the first 20 days of 2014 has grown
10%yoy, the number of foreign patients is projected to decrease
significantly subsequently as a result of the Emergency Decree
declaration. Therefore, service revenue in 1Q14 might grow at a slower
rate. Moreover, as profit base in the same period last year was high
because there were not expenses for aggressive network hospital
expansions like in this quarter, as mentioned above, 1Q14 net profit
might weaken from 1Q13. Service revenue in the rest of the year would
begin to show higher growth year on year when the political situation
starts to unfold; but it would still be partially negated by openings of five
new hospitals this year, which usually face loss in the first year of
operations and would take a few years to break even. Consequently, the
normalized profit in 2014 would escalate only 4.7% from last year and
then start to improve next year.
- No remarkable growth like old days. HOLD
Since the profit in 2014 tends to grow at a slower rate, while fair value
derived at B139 (DCF) provides only 8.6% upside, we reiterate to hold
BGH and wait for the fair value to increase in the following years along
with growing business.
