BH leads the sector in terms of ROE (28% in FY13 for BH versus a 17% regional peer mean) and efficiency (record core margin in FY13). The FY13 net profit is likely to beat the consensus estimate by 9%. BH trades at an FY14 PER of 22.2x, lower than BGH’s 30.5x and the Asian mean of 25.9x. Our BUY rating stands with an unchanged YE14 target price of Bt100 (DCF framework).
Enhanced efficiency will make for YoY profit jump for 4Q13
We expect BH to post a core margin rise from 12.5% in 4Q12 to 17.0% in 4Q13 (the best fourth-quarter core margin in eight years). The enhanced efficiency is driven by cost control. GM should have fattened 1.3% YoY to 35.5% in 4Q13. The SG&A/sales ratio is assumed to have fallen from 19.4% in 4Q12 to 15.2%. We estimate a 4Q13 net profit of Bt606m, up 47% YoY but down 14% QoQ on seasonality (the best quarter of the year was 3Q13). 4Q13 core profit is assumed at Bt586m, up 45% YoY but down 14% QoQ (note that we earlier forecast only Bt520m). Thus, we have upped our FY13 net profit projection by 4% to Bt2.5bn.
Regardless of the state of the economy or politics, BH has proved healthcare revenue growth resilience—a 12% CAGR for FY03-13 (8% growth in FY10, the year of the Red Shirt uprising). The key top-line expansion driver is billing per head, led by price increases and a rising proportion of intensity cases. For FY13, we assume double-digit growth in billing per head and record core margin of 17.3% in our model.
The best play on an inbound foreign patient recovery
The number of Middle Eastern patients (15-20% of BH’s sales) continued to rise, despite political unrest in 2Q10—proven by 18% YoY growth in Middle Eastern arrivals to Thailand versus a 13% YoY drop for total foreign tourists. In FY10, BH’s international patient volume increased 4% YoY to 423,793 people. If the current political chaos were to ease, BH would be the best play on a foreign patient recovery. The historical record shows that its foreign volume bounced by 10% in FY11 and 12% in FY12, when the stable political climate had stabilized.
Capacity expansion plan to enable long-term growth
In FY13, BH added 58 IPD beds (up 12%), 18 ICU beds and opened five upper floors of OPD capacity (an additional 80 diagnostic rooms). The firm also has two land plots for long-term capacity expansion. Firstly, BH plans to build 88,683 sq.m of floor space for a new Women’s & Children’s Hospital on Petchburi Road (construction starts this year; the facility should open in about three years). Secondly, it has a land plot on Sukhumvit Soi 1 that it can build on when it needs more hospital space). We have yet to factor this future capacity into our model.