Bangkok Dusit Medical Services

Bangkok Dusit Medical Service Plc (BGH)

- 1Q14 profit to grow 2%yoy and 40%qoq
As a result of the political turmoil, January service revenue grew by only
9%yoy (targeted at 12-13%). However, it returned to normal and
reached the target in February and March. Thus, 1Q14 service revenue
grew by 11.5%yoy (revenue from Thai patients grew by 14%yoy: Thai
patient volume increased by 9%yoy and income per treatment rose by
5%yoy; revenue from international patients grew by 4%yoy: income per
treatment rose by 4%yoy while international patient volume stayed
flat). BGH's expense has jumped since 2Q13, mainly due to preparation
on medical teams and personnel for 20 new hospitals planned to be
opened within the next three years. However, as BGH has started its
efficient expenses control policy since early-2014, SG&A is expected to
increase by 12.2%yoy, slightly more than revenue growth. Thus, we
project BGH's normalized profit (excluding share of profit from
associates) to grow by 7.5%yoy (the first growth since 2Q13). However,
share of profit from associates would drop from B312m in 1Q13 to
B225m in 1Q14; in 1Q13, RAM (BGH holding 38.24% stake) booked
B160m profit from selling of investment. Overall, we project 1Q14 net
profit at B1,985m, growing 1.9%yoy and 40%qoq.
- 2Q14 profit to skyrocket yoy
Though 2Q14 (low season) profit is likely to be the year's lowest, 2Q14
net profit growth is projected to be most outstandingly yoy. This is
mainly due to 2Q13 profit base is fairly low as a result of preparation on
medical team and hospital renovation in order to request JCI
accreditation, while BGH is would have a good control on expense in
2Q14. Cost of operations and depreciation are expected to increase in
2H14 as a result of the opening of six new hospitals. Thus, 2H14
normalized profit is expected grow at the same rate of revenue. Overall,
we revise up FY2014-2015 net profit forecast by 7%p.a. FY2014
normalized profit is projected to grow by 11.3%yoy.
- Turnaround starts. Buy
BGH's profit is expected to make a turnaround from 1Q14 on. We revise
up FY2014 fair value (DCF) from B13.9 to B17.5 (raising terminal growth
rate from 3% to 4.5%), implying 18.7% upside. BGH's plan to acquire
10 hospitals in three years (mainly in provinces) which would raise the
fair value has not been included in our earnings forecast and fair value.
We upgrade our recommendation from holding to buying.