R e g i o n a l M o r n i n g N o t e s Monday, 14 January 2019

SECTOR UPDATE OVERWEIGHT

Healthcare – Thailand (Maintained)
Sector’s Valuation Remains Cheap vs Regional Peers; Maintain OVERWEIGHT
Due to hospitals’ different cost structures and various channels of charging TOP SECTOR PICKS
patients, we expect the government’s price control on private medical treatment to Company Rec Target Share
have minimum impact on hospitals’ earnings. The overreaction in share prices has Price Price
(Bt) (Bt)
resulted in the Thai hospital sector trading at a cheaper valuation than regional BCH BUY 21.50 16.30
peers. Maintain OVERWEIGHT with BCH as top pick, while BDMS and BH remain as Source: UOB Kay Hian
BUYs.
SENSITIVITY ANALYSIS ON IMPACT OF PRICE
WHAT’S NEW REDUCTION OF MEDICAL TREATMENT ON
HOSPITALS’ 2019 EARNINGS
• Plans to regulate prices of medical treatment. In addition to medicine prices which Decrease Decrease in earnings
have been under the state price control list, the authority plans to add medical supplies in Prices* BDMS BH BCH
and medical service charges to the state price control list. The plan has to be approved 1% 0.8% 0.8% 0.7%
2% 1.6% 1.5% 1.5%
by the Cabinet. Meanwhile, a sub-committee has been set up to work out appropriate 3% 2.4% 2.3% 2.2%
measures regarding domestic prices of medicine, medical supplies and medical service. 4% 3.2% 3.0% 3.0%
5% 4.0% 3.8% 3.7%
There is still no definite time frame as to when the plan will be approved by the Cabinet, 6% 4.8% 4.5% 4.5%
and the appropriate measures to regulate prices of medical treatment will be completed 7% 5.6% 5.3% 5.2%
by the sub-committee. 8% 6.4% 6.0% 6.0%
9% 7.2% 6.8% 6.7%
10% 8.0% 7.5% 7.4%
• Expect only minimum impact on hospitals’ earnings. We believe the plan to control
Note: Decrease in prices of medicine, medical supplies and medical
prices of medical treatment among private hospitals will face difficulty in implementation. service
This is because: a) every hospital has a different cost structure, b) there are many other Source: UOB Kay Hian
channels through which a hospital can charge customers, c) price control would be a
hindrance to the government’s policy to develop Thailand as the world’s medical hub,
and d) since 2015, the authority has made several unsuccessful attempts to control
prices of medical treatment. This is because all Thais are fully covered by the state
sponsored Universal Healthcare scheme. Treatment by private hospitals is considered
as an alternative. We therefore expect only soft measures to be launched by the
subcommittee to lessen the public outcry, similar as in the past. In addition, hospitals
that service government sponsored social security (SS) patients would not be affected
as SS patients are paid per head, and not per bill. Hence, we expect only minimum
impact on hospitals’ earnings.
• Sensitivity analysis: 1% price reduction will result in a 0.7-0.8% fall in earnings.
Although managements of hospitals under our coverage are confident that they can
circumvent the measures and still able to charge patients the same rate, we have
carried out a sensitivity analysis on the impact of price reduction in medical treatment on
a hospital’s 2019 earnings. We find that every 1% price reduction would lead to a 0.7-
0.8%. decline in a hospital’s earnings, which is our base case. Our best case is the
absence of price reduction, which would mean no impact on earnings. The worst case ANALYST(S)
would be harsh measures from the sub-committee, which may lead to a 10% reduction Kowit Pongwinyoo
in prices and result in a 7-8% decline in a hospital’s earnings. However, this is an +662 659 8304
unlikely scenario. For now, we maintain our 2019 earnings forecasts for hospitals, kowit.p@uobkayhian.co.th
pending more details from the sub-committee.

PEER COMPARISON
Price Target Upside/ Market ------ EPS ------ ------- PE ------- ------- P/B ------ ------ Yield ------ ------ ROE ------
Ticker Rec 11 Jan 19 Price Downside Cap 2018F 2019F 2018F 2019F 2018F 2019F 2018F 2019F 2018F 2019F
(Bt) (Bt) (%) (Btb) (Btm) (Btm) (x) (x) (x) (x) (%) (%) (%) (%)
BCH TB BUY 16.3 21.5 31.9 40.6 0.46 0.54 35.2 30.1 6.9 6.1 1.4 1.7 20.8 21.5
BDMS TB BUY 22.9 29.0 26.6 129.7 0.66 0.69 34.9 33.2 5.0 4.0 1.4 2.9 15.3 26.2
BH TB BUY 178.0 215.0 20.8 358.8 5.78 6.31 30.8 28.2 7.0 6.2 1.6 1.8 24.0 23.2
Sector 529.1 33.6 30.5 6.3 5.4 1.5 2.1 20.0 23.6
Source: UOB Kay Hian

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R e g i o n a l M o r n i n g N o t e s Monday, 14 January 2019

ACTION SECTOR’S QUARTERLY EARNINGS GROWTH

• Maintain OVERWEIGHT. As we expect the plan to put a cap on prices of medical (Btb)
30
(%)
40

treatment, if implemented, this would have only a minimum impact on hospitals’ 25

34
35

earnings. Hence, we maintain our OVERWEIGHT recommendation. Current share price 30

20
correction is excessive, trading at 31x 2019F PE which is cheaper than regional peers at 20
25

34x. Our top pick is BCH (BUY/Target: Bt21.50) due to increasing patient volume from 15
16 17 20

15
capacity expansion and turnaround of its premium hospital, the World Medical Hospital 10
13

10
(WMC) which has resulted in a 17% earnings growth. We maintain our BUY on BDMS 5
7
5 6
5
(BUY/Target: Bt29.00) as its planned divestment of associate would result in ample 0 0

cash for company to enhance the hospital’s future growth prospect. BH (BUY/Target: 1Q18

Sales
2Q18

Core profits
3Q18

Sales growth
4Q18F

Core profits growth

Bt215.00) remains a BUY due to its focus on intensity cases with state-of-art medical
technology. BH is still the cheapest hospital among local peers with 28x 2019F PE. Source: UOB Kay Hian

SECTOR CATALYSTS SECTOR’S EARNINGS GROWTH

• More M&A deals. (Btb) (%)

140 25

ASSUMPTION CHANGES 120 21

20

• None. 100 16
15
80

ESSENTIAL 60
7
10 11
10

• Expect sector earnings to continue growing. We expect sector 4Q18 earnings to 40 8

5
20
continue to grow by 17% yoy, led by BCH. We expect BCH’s 4Q18 earnings to grow by
- 0
21% yoy on continued recovery at WMC on increasing international patients and more 2016 2017 2018F 2019F 2020F

capacity from opening a new hospital. Tight cost control, focus on intensity via its 10 Sales Core profits Sales growth Core profits growth

Centres of Excellence, and increasing capacity are expected to enable BDMS to deliver
Source: UOB Kay Hian
a 19% yoy earnings growth in 4Q18. An expectation of return of international patients
and focus on the state-of-art medical treatment is expected to result in a 10% earnings
growth for BH in 4Q18. We therefore expect the sector core earnings in 2018 to grow by BDMS - PE MEAN AND SD
PE Forward
21% yoy. The tight cost control, capacity expansion and an expectation of minimum
53
impact from government’s price control would lead to an 8% yoy sector core profit growth +3S.D., 50.6x

in 2019. 48 +2S.D., 46.5x

+1S.D., 42.4x
RISKS 43

• Harsh measures from government, leading to a substantial decline of prices of medical 38

Mean, 38.3x

-1S.D., 34.2x
treatment. 33
-2S.D., 30.1x

HOSPITAL SECTOR 4Q18F PREVIEW 28

Jan-14 Jul-14 Feb-15 Aug-15 Mar-16 Sep-16 Apr-17 Nov-17 May-18 Dec-18 Jun-19
Consolidated BDMS yoy BH yoy BCH yoy Total yoy
Source: UOB Kay Hian
4Q18F Results (Btm) % chg (Btm) % chg (Btm) % chg (Btm) % chg
Sales 19,743 6.6 4,610 (0.2) 2,131 9.2 26,484 5.6
Gross Profit 6,502 7.4 2,059 6.9 740 10.6 9,301 7.5 BH - PE MEAN AND SD
EBITDA 3,937 8.8 1,515 8.0 614 10.2 6,066 8.7 PE Forward

Pre-tax Profit 2,664 18.0 1,233 11.1 458 9.0 4,355 15.0 59
+3S.D., 54.3x
Tax (528) 18.2 (214) 17.6 (81) (4.6) (823) 15.3 54

Net Profit 2,428 19.4 1,020 10.5 334 20.5 3,782 16.9 49
+2S.D., 48.7x

Net Profit (Ex EI) 2,428 19.4 1,020 9.8 334 20.5 3,782 16.7 44
+1S.D., 43.1x

EPS (Bt) 0.16 31.3 1.40 11.4 0.13 19.9 1.70 13.7 39 Mean, 37.4x
Gross Margin (%) 33 45 35 34
EBITDA Marg (%) 20 33 29
-1S.D., 31.8x

29
Net Margin (%) 12 22 16 -2S.D., 26.2x

24
Source: UOB Kay Hian Jan-14 Jul-14 Feb-15 Aug-15 Mar-16 Sep-16 Apr-17 Nov-17 May-18 Dec-18 Jun-19

Source: UOB Kay Hian

REGIONAL PEER COMPARISON
2019F
2019F 2019F 2019F 2019F 2019F Earnings BCH - PE MEAN AND SD
Company Ticker PE P/B EV/EBITDA Div yield ROE Growth PE Forward

(x) (x) (x) (%) (%) (%) 59 +3S.D., 56.6x

Bangkok Dusit BDMS TB 33.2 4.0 20.1 2.9 26.2 7.0 54 +2S.D., 51.3x
Bumrungrad BH TB 28.2 6.2 18.2 1.8 23.2 9.3
Bangkok Chain BCH TB 30.1 6.1 17.9 1.7 21.5 17.0
49 +1S.D., 46.0x

Raffles Medical RFMD SP 35.9 2.6 21.1 1.8 7.8 (15.8) 44

Mean, 40.7x
IHH Healthcare IHH MK 46.4 2.0 55.0 0.5 4.5 41.9 39

KPJ Healthcare KPJ MK 23.0 2.3 11.9 2.1 10.7 7.3 34

-1S.D., 35.4x

Ramsay RHC AU 20.5 4.6 10.2 2.5 22.9 1.8 -2S.D., 30.1x

Apollo APHS IN 41.4 5.0 20.7 0.5 8.7 48.3 29

-3S.D., 24.8x
Local average 30.5 5.4 18.7 2.1 23.6 8.4 24

Total average 33.8 3.9 27.9 1.5 13.6 23.7

Jan-14 Jul-14 Feb-15 Aug-15 Mar-16 Sep-16 Apr-17 Nov-17 May-18 Dec-18 Jun-19

Source: UOB Kay Hian

Source: Bloomberg, UOB Kay Hian

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R e g i o n a l M o r n i n g N o t e s Monday, 14 January 2019

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