Bumrungrad Hospital

Valuation catch-up play

Bumrungrad Hospital Plc (BH)



Investment thesis

Although BH's acquisition plan is less aggressive than that of BGH, the valuation spreads between Thailand's two leading hospitals are now much wider than their 2006-12 means. BH currently trades at an FY13 PER of 26.2x versus 32.2x for BGH; Its FY13 PEG is 1.4x against 1.7x for BGH. Furthermore, the risk-reward trade-off is more attractive for BH than for regional peers. Despite having the best ROE in the region (26percent for BH versus 18percent for peers), BH's PER is much cheaper than the 30x Asian mean. Our BUY rating stands with an unchanged DCF-derived YE13 target price of Bt98.

4Q12 earnings and final DPS to be announced on Friday

We expect BH to announce both 4Q12 earnings and a 2H12 DPS on Friday. Thanks to the low base set by 4Q11 flooding in Bangkok, it should report 20% YoY growth in patient volume. Pricing is expected to post a rise of 7% YoY for the quarter. Thus, we estimate 4Q12 revenue growth of 27% YoY and a core profit of Bt376m, up 21% YoY (but down 35% QoQ on seasonality). BH will resume both YoY and QoQ earnings expansion in 1Q13, driven by both volume and pricing.

Bt6bn in cash on-hand for new investments

The firm will post cash on-hand of Bt6bn as of YE12, its strongest balance sheet yet and the cleanest in the sector. We expect management to use the cash to fund new acquisitions. BH could double its capacity without upsetting its creditors. We assume that a new investment would be a second location and in a lower price segment. News of a new acquisition would constitute a positive market surprise.

Expansion will start in March

In late 1Q13, BH will boost OPD capacity by by 38% with the launch of 80 new diagnostic rooms (to 292 rooms) on the upper four floors of Bumrungrad International Building. It will also add 7% IPD capacity (20 IPD beds and 14 ICU) by YE13. By YE15, BH plans to expand IPD capacity by 22% in total (61 IPD and 44 ICU berths to bring the total number of beds to 589). The expansion plan will ensure long-term earnings growth capacity.

Scope for profit upside

BH has yet to announce its FY13 business plan. We forecast 14% revenue growth this year, above its FY06-12 CAGR of 10% (organic growth). Both pricing and volume will drive top-line expansion. GM will stay above 40% (the best GM among Thai healthcare operators). BH will fully benefit from the 3% headline corporate tax cut, which came into effect this year. The second hospital on Petchaburi Road is not fully factored into our model (150-200 inpatient beds and 4-5 years for construction completion).