Bangkok Dusit Medical Services

Bangkok Dusit Medical Services Plc 

 

We maintain our BUY call on BDMS. Thus far in 2Q15, revenue from existing hospitals is growing at a rapid rate off last year’s low base and because international patients are returning. The recent headlines about price controls at private hospitals concerns investors, but BDMS feels any impact would be limited. 

 

Accelerating revenue from hospital operations. To date in 2Q15, BDMS says revenue from existing hospitals grew 5-6% YoY in April and 7-8% YoY in May, far better than the 4% YoY in 1Q15. The stronger organic growth is driven by improving operations, mainly at its flagship hospital on Soi Soonvijai, Bangkok (21% of 1Q15 revenues) and hospitals in tourist destinations such as Pattaya (7% of 1Q15 revenue) and Phuket (5% of 1Q15 revenue) backed by returning international patients.  

 

Positive on growing non-hospital business. In 1Q15, the beat in profit came from higher revenue from the sale of goods and food. Revenue contribution from its non-hospital ventures, including a laboratory, pharmaceuticals, food supplements and medical supplies and equipment grew to 5% of revenue from hospital operations in 1Q15 from 3% in 2014. We are positive toward the growth in the non-hospital business since it not only adds revenue but also supports the core hospital business by providing competitive cost for these items. 

 

Maintains 2015 targets. BDMS expects 2015 revenue growth (both hospital and non-hospital) of 12-13% YoY with an EBITDA margin of 22-23% and net margin of 12% (both stable from 2014). It continues to expand from the 43 facilities now in operation, with one to be added in mid-2015 and two in 2016. It is on track to achieve its goal of 50 hospitals in 2017-18. Not only is it adding new hospitals, but it also plans to expand existing hospitals by adding 1,667 beds or a 30% bed capacity increase over the next two years as bed utilization rate at some facilities is high at ~80%. 

 

Little impact if government moves on private hospital charges. Recent newspaper headlines about patient complaints over private hospital charges have given rise to concerns that the government will control pricing. BDMS views that monitoring prices of medical treatment is a good thing for patients. See it believes its charges are in line with level of care provided, it thus expects little impact. An added buffer is the fact that BDMS covers several hospital segments from the high end to serving patients under the social security scheme, giving patients a broader choice. As with any action of this type, in our view, it will take some time to set up a standard median price, particularly given the number of variables that need to be considered. For example, the price control may force private hospitals to lower service quality and this would erode Thailand’s competitive advantage: more than 2mn international patients fly each year to Thailand for medical tourism because of its reputation for excellent healthcare service. 

 

Maintain BUY on BDMS with TP of Bt24/share. We like BDMS, upholstered by a clearly visible earnings growth pattern underwritten by its large hospital network that will serve the steady growth in healthcare demand. BUY at TP of Bt24/share.