Bangkok Chain Hospital

Bangkok Chain Hospital Plc (BCH)

Earnings recovering and valuation undemanding

- Despite the 7.5% jump in share price yesterday, valuation is attractive with
23% discount to average of regional peers; excluding loss from WMC gives
deep discount of 38%
- WMC is pivotal in 2014: 1Q14F to be last quarter of YoY drop
- BUY maintained at 2014 DCF TP at Bt9/share

BUY maintained as earnings recover and valuation offers upside. BCH’s share
price jumped 7.5% yesterday, outperforming its sector’s gain of 0.5%. In our view, the
main catalyst for BCH this year is an earnings turnaround as losses from World Medical
Center (WMC) ease. Even factoring in yesterday’s price increase, share price fell large
32% over the past year in response to 2013’s poor showing. BCH is trading at 20x 2014
PE or a 23% discount to the average of regional peers. Excluding losses from WMC,
BCH’s 2014 PE comes down to 16x, a 38% discount to regional peer average.
WMC improving this year. BCH’s 2013 net profit was Bt585mn, down 36% YoY. At
fault was the slower than expected ramp up of WMC, its new higher end hospital. We
estimate WMC turned in losses of Bt300mn, equivalent to 51% of BCH’s 2013 net profit.
This year, operations at WMC will continue to improve and this will be reflected in
earnings. Operationally, after the hospital upped its marketing with promotional and
health packages, average visits more than doubled to 120/day in 4Q13 from 50/day in
2Q13. After a year of this marketing, we expect average visits to rise to 200/day, lifting
revenues and lowering net loss to Bt180mn, nearly half 2013’s net loss of Bt300mn.
1Q14F to be final quarter for YoY drop. WMC is a new hospital with no established
clientele. As a new hospital, revenues were low but costs high since it still had to be
fully staffed. Thus, from its 1Q13 opening, it pulled BCH into a YoY fall in net profit for
the whole year. We should see no more YoY drops after 1Q14, as WMC losses will be
lower.
Jan-Feb strong. A talk with the company revealed that revenues in January-February
were good despite the political uncertainty, growing 10% YoY, with 12% YoY growth in
revenues from cash service and 8% YoY growth in revenues from the social security
scheme. For WMC, average visits are approximately the same as 4Q13 at 120/day.