Bangkok Dusit Medical Services
New FV is B153, reflecting increased growth in future BUYBangkok 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.