Bangkok Chain Hospital
Another link in its chain OUTPERFORM - Maintained Share price: Bt9.20; target price: Bt12.60
Bangkok Chain Hospital Plc (BCH)
We view BCH’s move into the high-end segment positively as this will allow it to tap the high-margin medical tourism market. Meanwhile, BCH continues to be a prime beneficiary of a change in Social Security Scheme payments, which are now linked to illness severity. As such, we view the current share price weakness due to concerns about its new hospital as a good buying opportunity. We reiterate our Outperform call and end-CY13 target price, still based on 12.6x CY14 EV/EBITDA (implying 13.8x CY13 EV/EBITDA), 1.5SD above its 3-year historical average. We believe BCH deserves a re-rating on the back of consistently strong performance.
World Medical Centre
BCH plans to open its high-end World Medical Centre (WMC) on 24 Jan 2013. Although we do not expect it to make money in the first couple of years, we view the move positively as this will allow BCH to cover all segments. This move will also allow BCH to tap the high-margin medical
tourism market.Even with WMC, we still expect BCH to show positive earnings growth in
CY13-14. Its strong cashflows from operations plus a healthy balance sheet will continue to allow BCH to expand both organically and through M&A.
Prime beneficiary of change in SSS payment
With the new Social Security Scheme (SSS) payment system linked to illness severity, BCH has benefited handsomely given that it is the largest private hospital under the scheme and hence more likely to treat more complex cases than its smaller counterparts. In addition, BCH has to-date added more than 56,000 people registered under SSS who use BCH as their primary hospital.
Stay invested
We believe that EV/EBITDA is a better benchmark for BCH’s valuation over the next couple of years as it is to open the large WMC, which will take a couple of years to break even. Based
on this yardstick, BCH is trading at 10x CY13, which is more than a 40% discount relative to BH and BGH.We believe that the discount will narrow once WMC is opened and its operations smooth.
