20140528-Maybank_KERPL-Stretched_valuation,_d_g_to_HOLD_12页_520kb

Bumrungrad Hospital (BH TB) Summary

Core Content

Bumrungrad Hospital (BH TB) is a leading healthcare provider in Thailand with a strong focus on international medical tourism. The document provides an analysis of its financial performance, valuation, and strategic initiatives, particularly in the context of political instability and its expansion into Mongolia.

Main Points

• Share Price and Valuation:

  • Current share price: THB113.00
  • Target price (TP): THB115.00 (+2%)
  • Market capitalization (USD): 2.5B
  • Average daily trading volume (USD): 3M
  • The stock has seen significant performance, with a 31% increase year-to-date (YTD) and 18% increase month-to-date (MTD).

• Downgrade to HOLD:

  • The stock has been downgraded to HOLD due to stretched valuation, with the TP implying 32x PER, 7.7x PBV, and 3.2x PEG for 2014F.
  • The positive catalysts have already been priced in, resulting in limited upside potential.

• Impact of Political Uncertainty:

  • Political turmoil and martial law have led to adverse travel advisories, particularly affecting Middle East patients, who account for 15% of BH's revenue.
  • The high season (Q3) could see a more severe impact on international patients compared to the state of emergency.
  • Management is concerned about the potential for international patient volume to decline, especially in the second half of 2014.

• 1Q14 Performance:

  • Hospital revenue: THB3,589m (up 4% YoY)
  • Net profit: THB639m (up 2% QoQ, 5% YoY)
  • EBITDA margin maintained at 27.7% due to price increases and cost efficiency.
  • Outpatient (OPD) and inpatient (IPD) volumes declined by 8% and 2% YoY, respectively.

• Investment in Mongolia:

  • BH acquired a 51% stake in UB Songdo, a hospital in Mongolia, through Bumrungrad Mongolia LLC.
  • Expected to contribute THB30m to BH's 2014 profit, with the consolidation starting in 2Q14.
  • The hospital is intended to act as a referral center for patients from Mongolia, China, and Russia.

• Capacity Expansion:

  • BH plans to build a 220-bed hospital on Petchburi Road, expected to start in early-2015 after receiving an EIA in 3Q14.
  • The project is estimated to cost THB6-8B and is scheduled for completion by end-2016.
  • Total capacity will increase from 543 beds to 743 beds by 2018.

• Balance Sheet:

  • Strong financial position with THB6.2B in cash and cash equivalents at the end of 1Q14.
  • Net debt to EBITDA dropped to -0.2x, indicating a net cash position.
  • Interest coverage ratio improved to 17.5x, reflecting better financial flexibility.

• Valuation Analysis:

  • Valuation is not attractive, with the share price close to fair value.
  • The stock trades at a premium to regional and global peers in terms of PER and PBV.
  • Despite strong fundamentals, the current valuation is considered unattractive, leading to the downgrade to HOLD.

Key Information

• Financial Highlights:

  • Revenue: Expected to grow from THB12,982.5m in FY12A to THB23,054.8m in FY16E.
  • Core net profit: Expected to grow from THB1,699.9m in FY12A to THB4,084.6m in FY16E.
  • Core FD P/E: 61.3x in 1Q14, declining to 25.5x in FY16E.
  • P/BV: 9.7x in 1Q14, declining to 5.6x in FY16E.
  • Net dividend yield: Increased from 1.6% in 1Q14 to 2.7% in FY16E.

• Outlook:

  • Short-term risks from political issues and travel warnings.
  • Long-term growth potential from medical tourism recovery and domestic demand increase.
  • Management maintains expansion strategy despite challenges.

• Analyst Recommendations:

  • Market recommendations: 12 Buy, 11 Neutral, 0 Negative.
  • Maybank's recommendation: HOLD.
  • The proportion of Buy recommendations declined from 86% in 1Q14 to 46% in May14.

• Peer Comparison:

  • Bumrungrad Hospital's PER is higher than the average Thai hospital and its peers.
  • Its PBV is significantly higher, indicating overvaluation.
  • The EV/EBITDA is also higher than peers, suggesting a rich valuation.

Summary of Valuation Metrics

Key Takeaways

• Bumrungrad Hospital is a key player in Thailand's healthcare sector with a strong focus on international medical tourism.
• Political instability and martial law have raised concerns about the impact on international patient volumes.
• Despite a strong balance sheet and growth prospects, the stock is overvalued, leading to a downgrade to HOLD.
• The acquisition in Mongolia is expected to provide some additional revenue and growth.
• The company is investing in capacity expansion, which could support long-term growth.