Bangkok Dusit Medical Services

Bangkok Dusit Medical Services Plc (BDMS)

 

BDMS’ ultimate goal is to be one of the region’s premier hospitals, able to serve the growing demand for advanced healthcare in the region. It targets revenue growth of 12-13% with a wider EBITDA margin in 2016 signaling stronger earnings ahead. It stands by its goal of 50 hospitals but will add new hospitals gradually to dilute the earnings impact. We see BDMS as an earnings play with 17% core earnings growth in 2016. BUY at TP of Bt23/share. 

Positive target in 2016. Mr. Prasert Prasarttong-Osoth, M.D., CEO and president of BDMS and his management team presented the company’s analyst meeting last week and guided to better earnings in 2016. BDMS targets 2016 revenue growth at 12-13% YoY with a widening in EBITDA margin to greater than 22%. We now assume an EBITDA margin of 22% in 2016 from 21.3% in 2015, backed by a return to a healthier economy, fostering operational improvement with lower losses at newly-opened hospitals. The burden of new investment will also be lighter as it officially plans to open only one new hospital in 2016. Therefore, the guidance of an EBITDA margin of greater than 22% implies upside to our earnings forecast.  

Hospital expansion. BDMS is operating 42 hospitals and of these 14 have been treating patients for less than two years. It plans to open only Paolo Rangsit in 2016. This hospital is near Future Park Rangsit shopping mall and will provide secondary care for middle income clients living in the Rangsit and Pathum Thani area. BDMS plans to spend Bt4.0-5.0bn over the next three years to expand facilities and capacity at its flagship, Bangkok Hospital at Soi Soonvijai (19% of total revenue and 25% of total EBITDA in 9M15). We see this as a good move, as this hospital provides tertiary care and EBITDA margin is high (~26% vs. the overall average of 22%). BDMS maintains its long-term goal of 50 hospitals in its network but the expansion will be gradual to mitigate the impact on earnings.  

Developing key hospitals to serve demand in the region. For the longer-term, BDMS is positioning itself as a top medical care facility in Asia-Pacific to meet the rising demand for more advanced healthcare in the region, particularly from China and CLMV countries, where population is sizable, economies are growing and with it, rising wealth that makes top quality healthcare affordable. To serve this BDMS is broadening its services and improving the quality at eight key hospitals designated as regional hubs: Bangkok Hospital Chiang Mai, Bangkok Hospital Udon Thani, Royal Phnom Penh Hospital, Bangkok Hospital Phuket, Samitivej Sukhumvit, BNH Hospital and Phyathai 1 Hospital, all of which will serve as referral centers for flagship Bangkok Hospital on Soi Soonvijai in metropolitan Bangkok. 

Stronger earnings in 2016. BUY at TP of Bt23/share. After unexceptional core earnings growth of 3% YoY in 2015, in 2016 it is morphing into an earnings play with expected exceptional core earnings growth of 17% YoY in 2016. We also like BDMS’ long-term prospects with its large and widespread network that will serve healthcare demand in Thailand and overseas. We maintain BUY BDMS with TP of Bt23/share.