Bangkok Dusit Medical Services

Bangkok Dusit Medical Services Plc (BDMS) 

 

Over the next three years, BDMS will focus on improving quality of care in its key hospitals across the country as it positions itself as one of the region’s premier hospitals. The expansion of its flagship Bangkok Hospital gives BDMS the opportunity to serve rising demand in a high-yield segment, which means better earnings. We like its earnings resiliency and promising growth outlook at 15% YoY in 2016. We rate BUY with end-2016 TP at Bt25/share. 

 

2016 target signaling stronger earnings. In 2016, BDMS targets revenue growth at 10-11% YoY with a wider EBITDA margin of 23% (from 22% in 2015). Keys are stronger revenue, particularly from high-yield international patients (~30% of revenue in 2015), and improving operations that will lower losses at newer hospitals.  

 

Expansion slowed to focus on improving quality of care. After blanketing the country with its network of hospitals, this year it is adding only one hospital (Paolo Rungsit), which opened in January. It is developing two more hospitals, in Suratthani and Pattaya, which will open in a few years, and has three pieces of land for future expansion. Placing expansion on the back burner, it will turn its focus to enhancing quality, beginning with key hospitals in regional hubs (Figure 1), making them “centers of excellence” to serve the rising demand for more advanced healthcare in the region, particularly from China and CLMV countries.  

 

Flagship Bangkok Hospital expansion. BDMS plans to spend Bt4.5bn over the next three years to expand its flagship facility, Bangkok Hospital at Soi Soonvijai. It will add 220 beds (+45% from 488 beds currently) by 4Q18. Investment cost is high at Bt20mn/bed as this facility provides tertiary care, with Neurology, Orthopedics and Spine specialty centers. We are positive toward this investment as hospitals offering tertiary care gain higher revenue per patient and a healthier EBITDA margin. Bangkok Hospital at Soi Soonvijai contributed 21% of revenue and 25% of EBITDA in 2015, implying stronger EBITDA margin at 26% vs. its overall average of 22%.  

 

Earnings revision. To reflect the outstanding results in 4Q15, we raise core earnings by 3% in 2016 and 1% in 2017 on a change in EBITDA margin to 22.6% in 2016 (from 22%) and 23.1% in 2017 (from 22.8%). This has such a small impact on our end-2016 DCF TP that we leave it unchanged at Bt25/share. After the earnings revision, we expect BDMS to deliver strong core earnings growth of 15% YoY in 2016. 

 

BDMS is our top buy in healthcare sector. Within the healthcare service sector, BDMS is our top buy, underwritten by the sound fundamentals provided by its large hospital network at which it is polishing quality of care which will grow both volume and revenue per patient. We BUY with end-2016 TP at Bt25/share. 

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