KGI Upgrades BCH’s TP to ฿22.50, Seeing 3Q Earnings the Strongest Quarter in 2019

KGI has upgraded BCH’s target price to ฿22.50/share, seeing 3Q earnings performance the strongest quarter in 2019.

KGI Securities has stated in the analysis on Bangkok Chain Hospital Public Company Limited (BCH) to maintain the outperform rating with a target price at ฿22.50/share (upside 43.3% from the closing price at ฿15.70/share on Sep. 12).

Based on BCH’s quarterly earnings performances, its 3Q performance is typically the strongest quarter of the year, mainly driven by i) rainy season in Thailand, ii) higher intensity cases from both Thai and non-Thai patients, iii) continued growth of WMC both YoY and QoQ and, iv) more revenue recognition from Social Security Office (SSO).

Moreover, KGI thinks that 3Q19 earnings would be much stronger QoQ as there are no negative factors during the quarter like in 2Q19 such as i) provision from social security segment and ii) employee benefits under new labor law.

KGI expects BCH’s 3Q19 earnings to show a new high of around Bt419mn (+17% YoY, +72% QoQ). Note that the company reported 1H19 earnings of Bt492mn (+5.9% YoY), accounting for 39% of our full-year forecast of Bt1.27bn.


Foresee strong 3Q19 earnings
Earlier, the Private Hospital Association of Thailand (PHAT) proposed that SSO raise medical fees 10-15% from the current rates following the last adjustment in July 2017. PHAT mentioned that the average payment for medical treatment from SSO (Bt2,850 per year) would be lower than National Health Security Office (NHSO) by 9.16% in 2020 if the rate was not adjusted.

Based on the medical fee increases (ranged from 2.7%-14.3% in three categories) in 2017, hospitals with social security patients increased revenues and profits by 1%-2% and 2%-4%, respectively. Also, the changes provided valuation upsides of 2%-5% during 2017-18.


Maintain earnings forecasts
KGI retains its full-year earnings projections for BCH with estimated net profits of Bt1.27bn (+16.8% YoY) and Bt1.40bn (+9.9% YoY) for FY19-20F, respectively. Further, we think expect its IVF services to launch in 4Q19, which we conservatively estimate would generate additional profit of Bt24mn, or 1.7% upside to our FY20F earnings forecast.


1) Government intervention
2) Renewed political instability in Thailand
3) Major terrorist attack.


Valuation & Action
Thus, KGI reiterates Outperform rating with a new mid-2020 target price of Bt22.50 (change in risk-free rate from 3.7% to 3.1%), from Bt22.00. BCH remains our top pick in the sector given its continued growth outlook over the next few years.