Bangkok Dusit Medical Services

Bangkok Dusit Medical Services Plc (BGH) 

 

Core profit was In line with our estimate

BGH posted a core profit of Bt1.7bn for 4Q14, up 22% YoY but down 12% QoQ. The core result was in line with our estimate and the street number. However, net profit—Bt1.9bn, up 33% YoY, down 2% QoQ—beat our estimate and the consensus, due to a Bt196m one-time gain on the acquisition of Phuket Hospital in 4Q14. The firm has proved a record profit of Bt7.2bn for FY14, up 18% YoY, despite the 5M14 political chaos. 

Results highlights

The YoY profit growth was driven by record healthcare revenue of Bt14.4bn (up 15%) and a 60 bps fatter core margin to 11.8%. Healthcare revenue comprised 72% Thai patients (up 14% YoY) and 28% foreigners (up 13% YoY). Thai volume rose by 9% YoY for OPD and by 17% for IPD; foreign volume increased by 5% YoY for OPD and by 6% for IPD. The QoQ profit slippage was due to a 2.0% slimmer healthcare GM to 31.6%. The SG&A/sales ratio declined by 2.0% YoY and 2.1% QoQ to 19.5%. Profit-sharing from associates jumped 25% YoY (but was down 35% QoQ) to Bt228m. Net gearing was stable QoQ at 0.5x at YE14.

Outlook

We expect good YoY and QoQ earnings growth for 1Q15, driven by high season and contributions from new hospitals—BGH opened the first phases of four hospitals in 2H14 (Bangkok Hospital Chiangmai, Bangkok Hospital Khon Kaen, Royal Phnom Penh Hospital and Bangkok Hospital Chinatown) and two new hospitals in 1Q15 (Sri Rayong Hospital and Dibuk Hospital). Healthcare revenue is driving 1Q15 earnings growth. 

What’s changed? 

We maintain our FY15 model unchanged—core profit growth of 20% to Bt8.6bn, based on the current 43 hospitals in BDMS’s portfolio (37 operating facilities and six under construction). There is scope for upside from new acquisitions, as management targets buying a further seven hospitals by early FY16. We assume 16% top-line growth in FY15, slightly above BDMS’s guidance range of 13-14% (10% from existing hospitals and 3-4% from new hospitals that open FY14-15). We expect a stable YoY core margin for FY15 (in line with BDMS’s target). 

Recommendation

The firm will host an analyst meeting on March 3 after which we may adjust our model. In the near future, BDMS would need to announce a new acquisition if it were to boost its share price beyond our DCF-derived YE15 target price of Bt21 (8.9% WACC and 2% terminal growth). Its valuation is stretched, having fully priced in expected strong FY15 earnings growth—an FY15 PER of 38.1x, near its last peak and 2SD above its FY06-14 mean.