FRIDAY, March 29, 2024
nationthailand

Bangkok Chain Hospital

Bangkok Chain Hospital

Earnings turnaround on the way BUY

Bangkok Chain Hospital Plc (BCH)
 
Though the lackluster 2014 led us to cut our 2015-2016 forecasts and TP, BCH’s earnings are heading back up and we still BUY. We see the bad news as discounted in the 19% fall over the past six months. It is trading at 31x 2015PE, 10% below the 34x regional average. 
 
Weak 2014 with net profit of Bt522mn, down 11% YoY, pulled down by the slow economy and losses at high-end World Medical Center (WMC), opened in March 2013. WMC contributed a loss of ~Bt280mn in 2014, down from ~Bt290mn in 2013 but higher than the Bt187mn we estimated, on higher cost of operations. Excluding the loss at WMC shows a net profit of Bt802mn, down 8% YoY from Bt873mn in 2013. 
 
WMC to turn to profit in 2018. Patient volume at WMC climbed to average ~180/day in 2014 from ~70/day in 2013. The year spent building brand awareness locally has paid off, with more Thai patients. International patients are up through a collaborative agreement with a hospital group in Myanmar to refer patients and through an international patient department to serve markets such as China and the Middle East. Average billing/visit was ~Bt2,500, beating our expectation of Bt2,000, due to a higher proportion of international patients, the high yield segment. 
 
While WMC’s revenues are stronger than expected, this comes with rising expenses for more clinical and supporting staff, marketing and costs related to JCI accreditation. This leads us to revisit our WMC earnings projection (Figure 1). We now expect the higher expenses to push losses up to Bt172mn in 2015 (earlier Bt132mn), Bt74mn in 2016 (Bt54mn) and Bt15mn in 2017 (Bt13mn). We assume steady improvement in WMC operations to steadily lower losses and then a profit in 2018.  
 
Earnings revision. We cut core earnings by 28% in 2015 and 17% in 2016 to factor in higher cost at WMC and gradual recovery at existing hospitals. We estimate Bt684mn in 2015 core earnings, up 31% YoY, with 7% YoY growth at existing hospitals and lower loss at WMC (loss of Bt172mn in 2015 vs. loss of Bt280mn in 2014).  
 
Investment in Sotaravej Hospital. BCH has entered into an agreement to acquire at least 75% (via a subsidiary) of the assets of Sotaravej Hospital, a 200-bed private hospital in Chachoengsao. The asset value is ~Bt400mn. It will conduct due diligence and expects to complete the transaction this year. Sotaravej Hospital serves mid- to low-income clients; about half of its revenue comes from social security (SC) patients.  
 
We like this investment. 1) At Bt2mn/bed it is not expensive, similar to BCH’s greenfield project, Karunvej Rattanathibeth Hospital serving SC patients. 2) It is already profitable with 2013 profit of Bt3mn on revenue of Bt210mn (1.4% net margin), thus no loss burden. 3) There is room to improve margin given BCH’s long experience in serving SC and middle income segment. We do not yet put this hospital into our projection, waiting for completion of due diligence. However, we expect little contribution.  
 
Maintain BUY with new end-2015 TP at Bt9.2/share (WACC at 8.6%), down from mid-2015 TP of Bt9.5/share due to the earnings cut. We still BUY on anticipation of an earnings turnaround this year. We believe the negatives are in the price in view of the 19% drop over the past six months vs. +8% for BDMS and +7% for BH and it is trading at 31x 2015PE or a 10% discount from regional peer average of 34x. 
 
 
nationthailand