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Bangkok Dusit Medical Services

Political unrest and branch expansion to depress profit HOLD

Bangkok Dusit Medical Services Plc (BGH)

- 4Q13 profit to drop 5.7%yoy due to political unrest and higher expense

BGH’s 4Q13 service revenue is projected to grow by only 7.2%yoy, the lowest

increase in 2013. December 2013 service revenue would rise by only 4%yoy due

to the political turmoil. In 4Q13, outpatient volume is projected to increase by

2%yoy (+2%yoy for Thai outpatients, +6%yoy for international outpatients),

whereas inpatient volume is expected to drop by 4%yoy (-4%yoy for Thai

inpatients, -1%yoy for international outpatients). 4Q13 average income per

treatment (outpatient) is predicted to grow by 7%yoy, and average income per

day (inpatient) is projected to rise by 10%yoy. However, cost of service and

SG&A are projected to increase at much higher rate than income: 8.3%yoy and

21%yoy, respectively, mainly due to preparation on medical teams and

personnel for new hospitals planned to be opened in the next few years (six in

2014 and three in 2016). Accordingly, 4Q13 net profit is projected at B1,356m,

falling 5.7%yoy and 12.5%qoq as a result of low season.

- Prolonged political problem to affect FY2014 earnings

BGH’s service revenue during the first 21 days of 2014 grew by 10%yoy.

However, as a result of the Emergency Decree invoked on 23 January 2014,

many countries have warned their people to avoid visiting Thailand, lowering

international patient volume. Moreover, due to the protest, FY2014 GDP growth

is projected at only 3%. As income from hospital business tends to grow two or

three times faster than GDP growth, BGH’s income is expected to grow by only

6-8%yoy. Furthermore, BGH’s profit would be depressed because six new

hospitals are planned to be opened in 2014 (four of them will be opened in

1H14), and they are likely to face loss during their first couple years of

operation. Thus, FY2014 net profit is projected to grow by 4.7%yoy.

- Short-term pressure from politics and branch expansion plan. "HOLD"

The aggressive branch expansion to prepare for AEC liberalization in 2015

provides a long-term benefit. However, as a breakeven time of a new hospital is

two or three years, the expansion will suppress the company's profitability in the

next few years. Also, BGH's net profit would be pressed below target by the

political turmoil. We reiterate "HOLD" despite 18.8% upside.


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