The Nation



Bangkok Dusit Medical

We revise up BGH's earnings forecast to reflect efficiency improvement of cost control. New fair value of B19 implies a limited upside. However, added value from acquisition plans of seven additional hospitals has not been included in our forecast yet. We recommend buying when the price weakens.

Bangkok Dusit Medical Plc (BGH)

- 2Q14 normalized profit grows 24%yoy, better than expected

2Q14 net profit was reported at B1,501m, rising 11.4%yoy. Excluding

B131m extraordinary gain on fair value adjustment of investment in 2Q13,

2Q14 normalized grew by 23.5%yoy (better than expected). 2Q14 total

income increased by only 9.4%yoy; income from Thai and international

patients grew by 10%yoy and 8%yoy, respectively. However, owing to

efficiency improvement of cost control, BGH’s gross profit margin rose from

31.5% in 2Q13 to 31.8% in 2Q14, and SG&A/Sales decreased from 15.9%

in 2Q13 to 14.7% in 2Q14.

- 2H14 profit to increase from 1H14

1H14 net profit made up 53% of FY2014 earnings forecast. BGH sets

FY2014 total income growth target at13%yoy. 2H14 net profit is projected

to improve from 1H14, especially in 3Q14 (high season), thanks to better

control on expense. In addition, BGH would regain confidence from

international patients after the political tension receded, and Thai patient

volume would increase as the economy recover. Profit from Sanamchan

Hospital group would be included from August 15 on, but it would be

partially negated by loss at the beginning of acquisition of seven new

hospitals in 2H14. We revise up BGH’s FY2014-2015 earnings forecast by

5.2%p.a.; normalized profit is expected to grow by 17.7%yoy to B7,163m

in 2014, then jump by 13%yoy in 2015. At present, BGH has planned to

possess 50 hospitals in total by the end of 2015; 34 hospitals are currently

providing services, nine hospitals are ready to open or under a construction

process, totaling 43 hospitals, and seven other acquisition deals remain

unveiled. BGH is expected to purchase or acquire seven new hospitals to

enlarge its income and profit base in the long run.

- Buy when price weakens

Under the new forecast, BGH’s fair value is revised up from B17.5 to B19,

implying a limited upside. However, there would be added value from BGH’s

future acquisition plans. We might derive FY2015 fair value after 3Q14

earnings report. We reiterate BUY when the price weakens.

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