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Bumrungrad Hospital (BH TB) Summary

Core Content

Bumrungrad Hospital (BH TB) is a leading healthcare provider in Thailand, currently trading at THB135.00 with a target price of THB130.00, reflecting a 4% decline. The company has a market capitalization of USD3.1B and an average daily trading volume of USD4M. It is listed in the Health Care sector and currently rated as HOLD.

Key Financials

Main Points

• Revenue Growth Adjustment: BH reduced its 2014F revenue growth target from 10-13% to 7-10% due to lower-than-expected international patient growth. EBITDA margin remains at 27-28% for 2014.

• Petchburi Project Delay: The 220-bed hospital project has been delayed for a year due to EIA issues, now expected to start operations in 2018. This delay could impact the growth outlook.

• Competition and Valuation: BH faces increasing competition from Middle East and ASEAN hospitals, including Al Noor, Dar Al Shifa, and Universal hospital. The company's current valuation is considered rich, with a 14% premium over regional peers and a 23% premium over global peers. The stock has outperformed regional and global peers by 28% and 38% respectively, but positive catalysts have already been priced in.

• Earnings Forecast: Despite the revenue target cut, BH's earnings are upgraded by 4-7% for 2015-2016, primarily due to adjustments in occupancy rate and pricing. The fair value is estimated at THB130, implying a 35.5x FY15 PE, 7.5x P/BV, and 1.5x PEG.

• Market Performance: The share price has risen by 53% year-to-date, outperforming the SET index, Asia Pacific Health Care peers, and global peers. However, the market has downgraded BH from BUY to HOLD, with an average target price of THB120.

• Strategic Initiatives: BH is expanding its services through the acquisition of UB Songdo, which is expected to contribute THB30m in 2014 and THB40m in 2015. The company is also focusing on pricing strategies and cost control to maintain profitability.

• Balance Sheet: BH maintains a strong financial position with a net cash balance and a low net debt-to-EBITDA ratio. Operating cash flow to capital employed is expected to rise from 32% in 2013 to 48% in 2016F.

• Competitive Landscape: The UAE market has seen a decline in revenue contribution from BH, from 12% in 2011 to 6% in 1H14, due to increased competition. Middle East and ASEAN hospitals are expanding and investing in technology, which poses a threat to BH's market share.

• Political Impact: BH is well-positioned to recover from the political crisis in Thailand, as international patients contribute 45% of volume and 60% of revenue. However, the recovery may be delayed, and the company is concerned about the Thai Baht appreciation affecting its competitiveness.

Key Viewpoints

• HOLD Recommendation: Despite positive earnings upgrades, BH is rated HOLD due to intense competition and rich valuation. The new DCF-based target price of THB130 is maintained, indicating a fair value of THB130.

• Preferred Alternative: BGH is preferred over BH due to its superior nationwide network, strong volume growth, solid earnings growth, and potential M&A opportunities. BGH's target price is THB22, which is significantly higher than BH's.

• Growth Strategy: BH's growth is expected to be driven by rising prices rather than volume growth. The company is focusing on price intensity and occupancy rate improvements to meet its revenue targets.

• Valuation Concerns: BH's current valuation is not compelling, and the lack of short-term catalysts makes it less attractive compared to BGH. The company's PE and EV/EBITDA multiples are higher than its peers, indicating overvaluation.

• Investment Risks: The main risks for BH include slower-than-expected international patient recovery, delays in the Petchburi project, and higher-than-expected competition from regional and Middle East markets.

Conclusion

Bumrungrad Hospital (BH TB) is a significant player in Thailand's healthcare sector, with a strong balance sheet and strategic initiatives. However, the company faces intense competition and a rich valuation, leading to a HOLD recommendation. The growth outlook is medium-term and driven by pricing strategies rather than volume growth. While BH has shown strong earnings performance, the stock's valuation and lack of short-term catalysts make it less attractive compared to BGH. The Petchburi project delay and potential Baht appreciation are key concerns that may impact BH's future performance.