Target price : Bt25.70
Recommendation : BUY
Closing Price (15 May 09) : Bt20.40
1Q09 net profit beats forecast
- BGH reported a net profit of Bt454.44m in 1Q09, up 69.85% YoY and 34.80% QoQ.
- We estimate BGH's 2009 net profit to be about Bt1,586.76m. The confluence of factors including low seasonality in the second quarter, domestic political uncertainty including the recent imposition of emergency rule and the spread of the new H1N1 flu virus would drive down foreign patient numbers.
- We reiterate a 'BUY' opinion on BGH with a price target of Bt25.70/share.
1Q09 net profit of Bt454.44m, up 69.85% YoY and 34.80% QoQ
BGH, Thailand's biggest privately held hospital operator, generated revenues of Bt5,312.32m in 1Q09, down 1.6% YoY and 0.19% QoQ. The top-line figure were in line with our forecast of Bt5,290.58m. In this quarter, the deteriorating economic conditions dragged down foreign patient numbers. Following the launch of the 'Thai Help Thai' promotional campaign, which offered discounts on room charges and drug fees, revenues saw virtually no growth. For the quarter, revenues from foreign patients dropped 7%, but revenues from local Thai patients rose 2%. Local Thai and foreign patients contributed 61% and 39% of revenues in this quarter against 59% and 41% respectively in the same quarter in 2008 as a result of rising revenues from local patients. Gross margin contracted to 32.05% in 1Q09 from 37.06% and 32.35% in 1Q08 and 4Q08 respectively as medical treatment costs edged up following an increase in employee cost of living allowances in May 2008 and a rise in drug prices. SG&A expenses were however effectively controlled, accounting for 20.63% of sales, below our forecast due to employment freeze and shared resources. Operating profit therefore jumped to Bt600.75m from Bt407.20m in the prior quarter. Profit contribution from Ramkhamhaeng Hospital Group (RAM) edged slightly down to Bt38.67m from Bt39.88m in 4Q08. In sum, BGH posted a net profit of Bt454.44m in 1Q09, beating our forecast of Bt357.35m.
2009 net profit to be 4.5% lower than a year earlier at Bt1,586.76m
Though the first-quarter profit came in better than expectations as foreign patients postponed their medical treatments during the weeklong airport closure in Dec 2008 to early 2009, we however believe revenues in the second quarter would be hard hit by weak seasonality and the linger impact of the recent imposition of emergency rule in mid-Apr. In the second half of the year, we expect revenues will pick up on the back of the government's economic stimulus measures. Falling revenues from foreign patients would likely drag margins down to 32.91%, including depreciation charges, from a year-ago level of 34.15%. On balance, we expect BGH's 2009 net profit to be 4.5% lower than a year earlier at Bt1,586.76m. Looking into 2010, we believe BGH would perform better following return of foreign patients after easing political tensions. Gross margin should improve to 33.35%. We also estimate that BGH's 2010 net profit will rise to Bt1,769.88m.
BUY recommendation with 2009 price target of Bt25.70/share
Our 2009 price target is unchanged at Bt25.70/share. We reiterate a 'BUY' opinion on BGH.
By Phillip Securities (Thailand) Plc. on May 18, 2009
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