Bangkok Dusit Medical Services

No surprises in Q4 2012 numbers;seasonally strong Q1 2013 profit

Bangkok Dusit Medical Services Plc (BGH)

In line with our estimate

BGH announced a core profit of Bt1.4bn for 4Q12, up 58% YoY but down 30% QoQ. The result was in line with our estimate and the street. However, net profit was Bt1.9bn, due to a Bt634m gain from reappraised land value. FY12 core profit set a new record of Bt6.1bn, up 57% YoY, as did net earnings at Bt7.2bn, due to a Bt1.8bn gain from the marked-to-market value of BGH's holding in BH.

Results highlights

The strong core number was led by 19% YoY healthcare revenue expansion to Bt11.7bn and a fatter core margin (from 9.1% in 4Q11 to 12.0% in 4Q12). Healthcare revenue comprised 70% Thai patients (up 17% YoY) and 30percent foreign (up 41% YoY). GM improved from 32.4% in 4Q11 to 33.7% in 4Q12. The SG&A/sales ratio dropped by 2.4% YoY to 20.7% on revenue expansion. In 4Q12, profit-sharing from associates rose 27% YoY to Bt125m (Bt97m from BH and Bt15m from RAM). On a QoQ basis, the 4Q12 core earnings contraction was due to a higher SG&A/sales ratio and a higher effective tax rate—from 15% in 3Q12 (a tax credit for Udornthani Hospital) to 21%. Net gearing was flat QoQ at 0.4x at YE12.

Outlook

BGH's will post both YoY and QoQ core profit growth for 1Q13 (seasonality). Healthcare revenue in Jan 2013 proved double-digit YoY expansion. Equity income will jump YoY in 1Q13, due to an accounting policy change for the holding in BH (from the cost method in 1Q12 to the equity method since 2Q12).

What's changed?

For the time being, we maintain our forecast unchanged. We will revisit our model after the analyst meeting on March 7. Our projection has yet to factor in new investments in 1H13—management guides that the firm will either buy or build three hospitals: one in Khonkaen (Northeastern Thailand), another in Pitsanulok (North) and a third Phnom Penh (Cambodia). Assuming initial IPD capacity of about 100 beds per facility, BGH would add 6% IPD capacity to 5,608 beds.

Recommendation

Our BUY rating stands, premised on scope for earnings upside. We will re-visit our target price following BGH's unveiling of its new business plan on March 7. The stock trades at an FY13 PER of 31.8x, 1.5SD above its FY06-12 mean.