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Bangkok Chain Hospital

Earnings recovering and valuation undemanding BUY

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.


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