THURSDAY, March 28, 2024
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Bangkok Chain Hospital

Bangkok Chain Hospital

Earnings on the way up

Bangkok Chain Hospital Plc (BCH) 
 
2019 will be a banner year for BCH when World Medical Center (WMC) finally reports a profit. As soon as 2016, however, WMC will turn from a drag to a driver as losses come down. Expansion for the next three years will focus on leveraging its area of expertise, implying less earnings pressure. BCH is trading at 1.4x 2016PE to earnings growth, a discount to the regional average of 2.0x. We maintain BUY on BCH with a new end-2016 TP of Bt10/share (up from mid-2016 TP at Bt8.5/share). 
 
WMC moving up. After Friday’s analyst meeting, we are more positive toward World Medical Center hospital (WMC), BCH’s first high-end hospital, opened in 2013. Operations at the hospital are improving and losses are coming down: in 9M15, WMC’s loss fell to ~Bt190mn from ~Bt210mn in 9M14. This has been the primary drag on BCH’s earnings, equivalent to 36% of BCH’s 9M15 net profit. Management reports average visits at WMC rose to 159/day in 9M15 from 132/day in 9M14, though inpatient traffic remains small at an average ~20 beds/day. With patient traffic still low, revenue per patient will be pivotal: OPD revenue/patient is ~Bt3,100, up 13% p.a. since 2013, and IPD revenue/patient/day is ~Bt18,600, up 6% p.a. since 2013. WMC is working to bring in more international patients, a high-yield segment accounting for 30% of revenue. Oman is one of its top international markets – it has a contract with the Oman government to refer patients from Oman to WMC. Other markets are China, Cambodia and Myanmar. Management reports that so far in 4Q15, WMC’s EBITDA is positive and it expects a net profit in 2H16. We see this as possible since that is high season for international patients but on a full year basis we do not expect profit until 2019.  
 
2016-18 expansion will leverage its expertise. BCH’s expansion in 2016-18 will increase bed capacity by 9% with a focus on mid- to low-income earners, its main area of expertise. In January 2016, BCH will open a new OPD building at Kasemrad Sriburin, Chiang Rai to serve cash patients; the existing building will be for social security patients. In 1Q17, BCH will upgrade Kasemrad Sriburin Poly Clinic at Maesai, Chiang Rai to a 30-bed hospital. In 2018, it will open Kasemrad Ramkhamhaeng with 144 beds in Jan and Kasemrad Chiang Khong Hospital with 30 beds. Since these investments are small and are aimed at a market in which BCH has long years of experience, we do not expect a huge earnings drag as there was from WMC. 
 
25% core earnings jump in 2016. We maintain our projection of a jump of 25% in BCH’s core earnings in 2016 to Bt577mn after trending down since 2013. Of the strong earnings growth, 6% will come from BCH’s existing hospitals and the remainder from lower losses at WMC of Bt182mn from Bt253mn in 2015.  
 
Buy. Trading at discounted valuation. Move TP to end-2016 and Bt10/share. We roll our valuation to end-2016 with a new TP of Bt10/share (up from mid-2016 TP Bt8.5/share) consisting of Bt9/share for BCH ex. WMC and Bt1/share for WMC. BCH’s share price has rallied by 20% since November after reporting better profit in 3Q15. Valuation remains attractive, however, at 1.4x 2016PE to earnings growth, a large discount from the regional average of 2.0x. The strong earnings recovery in 2016 will further support share price.  
 
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