Bangkok Dusit Medical Services

New FV is B153, reflecting increased growth in future BUY

Bangkok Dusit Medical Services (BGH)

KDH shares purchased more by 24.96% at B55, making tender offer for the rest

BGH has made an announcement that its subsidiary Royal Bangkok

Healthcare PCL., (BGH holds 100percent stake) will acquire 3,741,737 shares

of Krungdhon Hospital (KDH) or 24.94% of the total paid-up shares from

the previous shareholder Sukkapan Photaram Group at the price of

Bt55/share, considered B205,795,535m in total. The transaction is

projected to occur via big lot trade on 31 January 2013. After purchasing

the mentioned shares, BGH's shareholding in KDH would increase from

20.01% to 44.96%, triggering the required tender offer for remaining

KDH shares at B55 afterward.

KDH to help enlarge revenue base, spreading throughout Thonburi

KDH is a small-sized hospital with the revenue base of B300m/year, and

only B3m of net profit in 9M12. However, KDH is outstanding for its own

location (around 5 rais) on Thonburi side, Thanksin Rd., which is close to

Wong Wian Yai and Taksin bridge (BGH has no hospital network in this

area). Accordingly, BGH can renovate the place to start operation

immediately. Apart from some of existing clients, new client base would

increase due to BGH's medical reputation. Moreover, the company aims

to enlarge KDH's revenue base from B300m to B800m within 5 years,

rising to 10% in a long term. According to holding more shares of KDH

which wouldn't benefit BGH's earnings result in the first 2-3 years and

the shareholding still that has to be made clear after offering to retail

investors, we maintain our forecast.

New FV is B153, reflecting quality growth. Reiterate "BUY"

From buying enough shares to be able to manage KDH, the value BGH's

share price is projected to increase only B3/share under following

assumptions. 1) BGH takes 100percent stake in KDH's shares, with the cost of

the 1st lot (20.01%) at B33.06 and the cost of 2nd lot (79.99%) at B55.

2) The net present value from net added-value operation in KDH in 10

years is B4.2bn. 3) The market value of land price is higher than the

book value by around B500m. Nevertheless, we believe that BGH's plan

of more inquisitions is likely to be announced in the near future which

would help raise the fair value. Combined with being the company that's

fully ready to benefit from the Asean Economic Community (AEC), we

revise up the new fair value, using DCF (the terminal growth rate

switching from 4% to 5%), to B153 with 18.6% upside. We reiterate our

recommendation of "BUY" for BGH.