BH – Phuket addition adds LT value but hurts ST

BH’s new facility in Phuket, to open in 2026, will add 39% to its bed capacity and expand its footprint from its sole facility in Bangkok. Competition will be a challenge as BDMS already has a strong presence in Phuket. However, we do not expect this to be intense due to a supportive industry backdrop with less concern on oversupply. While the new hospital in Phuket will add to long-term earnings, there will be short-term losses as it ramps up operations and we thus rate Neutral. Our end-2024 DCF TP rises to Bt300/share to reflect the new hospital in Phuket.

Greenfield hospital at Phuket to open in 2026. BH plans to open a greenfield hospital in Phuket, Bumrungrad International Hospital Phuket, in 1H26 based on an EIA approval in 2H24 and one year for construction. Of the planned 212 beds, the first phase will open with 150 beds, offering services such as wellness, cardiology orthopedic & spine surgery and maternity. The facility will act as a referral center for its facility in Bangkok for those needing more sophisticated medical treatment.

While we are positive toward expansion, competition will be a challenge. BH’s new facility in Phuket will add 39% to its bed capacity (now at 538 beds) and expand its presence from its sole facility in Bangkok. Phuket is an important province in Thailand in terms of economic activity, particularly tourism. According to Ministry of Public Health, Phuket has 1,374 hospital beds available, most in public hospitals at 66% of total beds, with 34% in private hospitals. Competition will be a change for BH as BDMS already has a strong presence in Phuket, operating three private hospitals, taking 30% of the market. However, we do not expect this to be intense due to a supportive industry backdrop on the supply side. Our study shows Phuket has 3.2 beds per 1,000 individuals registered in the province, but the ratio drops to 2.4 when factoring in all residents, which lines up with Thailand’s average but is below Bangkok’s 4.0, implying less concern about oversupply in Phuket.

TP up to Bt300/share. Short-term hiccup from initial loss. Rate Neutral. We have factored the new hospital in Phuket into our valuation and this increases our end-2024 DCF TP to Bt300/share (up 11% from Bt270/share), based on WACC at 7.1% and LT growth at 3%. We assign a Neutral rating as the new hospital will pressure earnings in the immediate term, before adding to long-term earnings. We estimate BH’s core earnings CAGR for 2024-26 at 2%, below sector average of 7% and BDMS’ (its direct peer) 8%, due to the initial losses at the new hospital that will drag core earnings down 1% in 2026 before turning around to 10% growth in 2027 and 8% growth in 2028 as operations ramp up. We assume the new hospital in Phuket will make a profit in 2028, its third year of operations. A price catalyst would be stronger operations at the new hospital than assumed. BH is trading at 28x 2024PE, relatively in-line with BDMS (29x).

Risks. Since international patient services contribute the majority of revenue, we are keeping an eye on the global economic slowdown and geopolitical risk that may cause clients to delay elective medical care and make it inconvenient for international patients to come to Thailand for treatment. We see ESG risk as patient safety (S): BH has adopted a variety of quality assurance systems to provide continuous patient care.