By Bualuang Securities
Bumrungrad Hospital Plc (BH)
Investment thesis: We maintain our TRADING BUY rating and have upgraded our YE12 target price to Bt58 (from Bt46), based on a 20% discount to DCF value (unchanged 11% WACC and 2% terminal growth). Our new target price reflects increased earnings forecasts because a convertible bond’s (CB) maturity date will be postponed and new inpatient capacity in FY15 onward. We think BH deserves a re-rating for an impressive FY12 EPS jump of 22% YoY, outperforming broad SET growth of 13% and a regional hospital mean of 18%. Its PER lags those of peers—17.6x for BH versus 20.7x for regional hospitals and 25.1x for BGH. The stock looks cheap, as FY12 earnings will hit an all-time record, but it trades at a 16% discount to its FY06-10 PER mean.
Strong FY12 EPS jump: We have revised up our core EPS forecasts for FY12-16 (FY12 EPS upgrade from Bt2.20 to Bt2.58) by assuming that CB conversion (137m common shares, a 16% dilution effect) will be postponed. We expect the Dec 8 EGM to approve amendments to the CB (Figure 1); the new features will favor existing BH shareholders. Current shareholders should vote to lengthen the CB’s maturity date to August 23, 2017 from 2012, which would postpone stock dilution, so maintain the current DPS. Note that the CB issue is fully held by Bangkok Bank.
Unlocking long-term earnings growth with new inpatient capacity: We have factored in new capacity due to debut in 2015-16—46 ICUs and 60 IPD beds (equal to 20% of existing capacity). BH will able to add new inpatient capacity once the construction of a new support building (back office and nurses’ dormitory) on Petchaburi Road is completed in 2014, freeing up space in the hospital building. ICU and IPD services generate fat margins and the location is excellent.
Healthy balance sheet to be sustained: The firm plans to issue new debentures not exceeding Bt5bn at a fixed coupon rate and a maturity of 7-10 years this month. Despite the debt issue, BH’s balance sheet will remain strong—the proceeds will be used to refinance Bt4.7bn of interest-bearing debt as of end-Sept 2011 (76% of it is of a one-year duration). We estimate a net gearing ratio of 0.5x end-Dec 2011 (stable QoQ). The healthy balance sheet will support new investment in mid-range hospitals in Thailand over the longer-term.