Bangkok Chain Hospital

Bangkok Chain Hospital Plc (BCH)  
 
A visit to World Medical Centre cements our belief that BCH’s  expansion into the high-end market will be successful and that it will remain a prime beneficiary of the change in SSS payment calculations. Its plan to add more hospitals further boosts its growth outlook. We believe that the stock will rerate once World Medical Centre’s (WMC) operations smooth. We revise up our CY14 earnings estimate by 4% to account for the addition of hospitals. We reiterate our Outperform call with an unchanged THB12.6 target price, now based on 21.5x CY14 P/E, 2SD above its  3-year historical average. 

WMC to break even in 2015
BCH opened its high-end hospital,World Medical Centre (WMC), over the past weekend. We expect it to break even in the third year, i.e. 2015, while the management expects it to
break even next year. Even with WMC, we still expect BCH to show positive earnings growth in
CY13-14. BCH’s strong cashflow from operations plus a healthy balance sheet will continue to allow it to expand both organically and through M&A.

Prime beneficiary of change in SSS payment
With the Social Security Scheme (SSS) payment system now 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, as of 10M12, 52,000 more people have made BCH their primary hospital.

Reiterate Outperform
Investors have been worried about losses during WMC’s initial phase. As a result, BCH underperformed peers,especially in 2H12. Now that WMC is up and running, we believe that
investor confidence will improve. This should lead to a rerating on the stock. The stock is attractive at 17x CY14 P/E, which is a 25% discount relative to the sector. Thus, we believe this offers a good buying opportunity.