Bangkok Chain Hospital: In anticipation of a better 2H24
- Expect soft performance in 2Q24F before accelerating in 2H24F
- Key drivers are turnaround of three new hospitals, growth of COEs, and new SSO service to drive revenue intensity
- Revised down FY/24F/FY25F earnings by 3-4% on margin to reflect short-term hiccup of Kuwait patients
- Maintain BUY with lower DCF-based TP of THB24.00
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Key takeaways from 1Q24 analyst meeting on 27 May 2024: Overall had a mixed tone.
Management maintained double revenue growth guidance for FY24F, despite a 6% y/y growth in 1Q24. The key drivers are i) growth of its Centres of Excellence (COEs); ii) narrower losses from three new hospitals; iii) price increases of 3-5% in 2H24F; iv) higher SSO registered members and v) higher revenue intensity in SSO scheme from new services – including dental, cancer, sleep, and health check-up.
2Q24F performance to be soft from seasonality. Management expects revenue in Apr ‘24 to have been soft from the long holiday, with momentum to start pick up in May ‘24. We believe that 2H24F should see strong growth on both cash and SSO patients.
Prices increased 3-5% in 2H24. Management expects a 3-5% effective price increase in 2H24 to cope with cost pressure.
Two out of three hospitals to breakeven this year. KH Aranyaprathet and KH Vientiane reported positive EBITDA of THB1.1mn and THB5.9mn in 1Q24. Only KH Prachinburi posted a negative EBITDA of THB6.9mn. Management expects KH Vientiane and KH Aranyaprathet to breakeven at bottom line in FY24F, while KH Prachinburi’s performance is set to improve from higher SSO members and breakeven in FY25F.
Benefiting from new services in SSO scheme. BCH will benefit from new services under SSO scheme including:
- The 60%-owned Bangkok Chain dental for Mobile dental service, which expected to open in 3Q24 focusing on five provinces – Bangkok, Nonthaburi, Pathumthani, Rayong, and Nakhon Ratchasima
- The 51%-owned Kasemrad Ari Radiation Oncology Clinic is expected to start operation in 3Q24 as a centre for referring patients. BCH expect to generate revenue of THB70m yearly from this centre.
- Opening Sleep Lab Centre in seven affiliated hospitals with the reimbursement rate for sleep test of THB6,000-7,000.
Unpaid COVID revenue from UCEPCOVID reduced to THB318mn in 1Q24, from THB421mn in 4Q23. BCH expects to receive the full amount of these A/R in Sep 2024.
Progress on adj. RW ≥2 rate under SSO scheme. In 2023, all hospitals under the SSO scheme had already received THB12,000/adj. fee for 10 months in 2023. Thus, the remaining payment of Nov-Dec 2023 will depend on the RW budget, of which the rate will be revealed sometime in 2H24. Note that the revenue from adj. RW ≥2 forms 20-25% of total SSO revenue in each hospital.
For 2024 operations, all hospitals have a signed contract with SSO with RW rate at THB12,000/adj. So far, BCH has received 2-3 months in 2024.
Keep an eye on Kuwait patients. BCH stated that it cannot provide specific timeline when Kuwait’s government to finalise the guarantee of payment (GOP) process but is confident that will be listed among healthcare provider lists due to its specialised medical services, such as diabetic foot wound treatments. In 1Q24, revenue from Kuwait patients dropped 49% y/y, accounting for 3.7% of total revenue in 1Q24. BCH viewed that other market still has a strong growth including the UAE, OMAN, Qatar, and CLMV and be able to partially offset the decline in revenue from Kuwaiti patients.
Expansion plan. BCH plans to open two new hospitals i) 268 beds in Kasemrad Hospital Suvarnabhumi with total investment of THB1.65bn in early 2027, and ii) 200-250 bed in Kasemrad Hospital Rayong with total investment of THB1.48bn in 2028. We believe that the opening of these two hospitals is not a concern in short term.
Outlook
Expect strong earnings growth in FY24F. We expect BCH’s earnings to grow 21% in FY24F, the highest in the healthcare sector, except for MASTER. FY24F growth would come from the i) turnaround of three new hospitals, ii) opening of new cancer centre, iii) higher SSO revenue from new SSO service including dental, cancer, sleep, and health check-up package for 35 years old member. We estimate that KH Aranyaprathet and KH Vientiane would turn around in FY24F at the bottom line, while KH Prachinburi would turn positive in FY25F from higher SSO members.
Fine tune FY24F/FY25F earnings. We revised down our FY24F/FY25F earnings forecast by 3-4% on lower FY24F/FY25F GPM of 30.9%/31.7% (previously 32.2%/32.9%) to reflect the absence of Kuwait patients but raise FY24F/FY25F revenue growth of 9%/10% (previously 7%/9%) on strong growth in Thai and SSO patients. All-in-all, our earnings forecast lower by 3-4% in FY24F/FY25F.
Maintain BUY with THB of THB24.00. We arrive at a TP of THB24.00 based on a DCF (WACC of 7.30%, terminal growth of 2.50%). BCH is trading at +0.5SD of its five-year historical average and offers a dividend yield of 1.6-1.8%. We like BCH for its strong earnings growth in FY24F/FY25F with turnaround earnings in three new hospitals, leading position in the SSO segment, lack of risk on its expansion plan, healthy balance sheet, and positive operating cash flow.
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