20140502-Maybank_KERPL-Margins_won_t_hold,_lofty_valuations_11页_731kb

Bangkok Dusit Medical Services (BGHTB) Summary

Core Content

Bangkok Dusit Medical Services (BGHTB) is a healthcare company based in Thailand, with a current share price of THB14.80 and a target price of THB14.00, implying a -5% target price adjustment. The company has a market capitalization of USD708M and an average daily trading volume of USD2M. The firm is currently rated as HOLD by Maybank, based on its current performance and future expectations.

Main Points

• Financial Performance:

  • 1Q14F net profit is estimated at THB1,932m, up 36% QoQ and flat YoY.
  • Hospital revenue is expected to rise by 10% YoY to THB13,208m, with a 4% QoQ increase.
  • Utilisation rate increased to 75% in 1Q14F, up from 66% in 4Q13 and 73% in 1Q13.
  • EBITDA margin improved to 23.2%, up 340 bps from 4Q13 but down 80 bps from 1Q13, due to effective cost control.

• Growth Drivers:

  • Volume growth is a key factor in earnings growth, with OPD visits increasing 5% YoY and IPD increasing 11% YoY.
  • Pricing also contributed to revenue growth, with both OPD and IPD revenue rising by 5% YoY.
  • International patient visits were expected to increase, despite the impact of political unrest.

• Outlook for 2014:

  • BGH plans to open 6 hospitals in 2014 (4 in 2Q, 2 in 2H), which will increase total beds by 31% over three years.
  • The company expects a 9% increase in net profit to THB6,816m for 2014.
  • However, the firm is cautious about maintaining the current margin levels due to the expansion and associated costs.

• Valuation:

  • The company is currently trading at a high valuation, with a PER of 34x (above 5-year mean by +1.5sd) and an EV/EBITDA of 22.5x.
  • The target price of THB14.00 implies a 4.8x PBV and 30.1x PER, which is considered stretched compared to peers.
  • BGH has the highest multiple among the four hospital stocks covered, but the slowest profit growth.

Key Financial Metrics

Share Price Performance

• Absolute Return (1Mth): 10.4%
• Relative to Index (1Mth): 8.3%
• Absolute Return (3Mth): 25.4%
• Relative to Index (3Mth): 13.0%
• Absolute Return (12Mth): -12.4%
• Relative to Index (12Mth): -1.1%

Key Insights

• Political Impact: The political unrest in Bangkok had minimal impact on BGH due to its nationwide network, with international patient visits still growing despite the state of emergency.
• Cost Control: Effective cost management improved margins, contributing to the strong net profit growth.
• Expansion Strategy: BGH is expanding with new hospital openings, which may lead to increased revenue but also higher costs, affecting margins.
• Valuation Concerns: Despite strong performance, BGH's high valuation multiples make it vulnerable to market corrections, especially if earnings growth slows or margins decline.

Peer Comparison

Outlook

• 2Q14: Expected to be a low season with a 5% QoQ drop in patient traffic, but prices are still rising.
• Margin Concerns: While margins improved in 1Q14, they are expected to decline in 2Q14 and 2H14 due to new hospital openings.
• Valuation Risk: The firm's high valuation multiples suggest it may be overpriced, and a HOLD rating is maintained.

Key Hospitals in Pipeline

Conclusion

Despite a strong performance in 1Q14F with improved margins and revenue growth, BGH's high valuation multiples and upcoming expansion plans raise concerns about its long-term growth prospects. The firm is currently rated HOLD with a target price of THB14.00, reflecting the analysts' caution regarding stretched valuations and the potential impact of new hospital costs on margins.