CHG - 3Q24: Beat estimates on high SC revenue

Net profit for 3Q67: 417 million THB, up 28% YoY and 117% QoQ. Excluding special items in 2Q67, normalized profit grew 78% QoQ.
Strong social security (SC) service revenue: Supported profit, which was 9% above market expectations.
4Q67 normalized profit forecast: Expected to decline YoY (due to high base from additional revenue from treating 26 chronic diseases in 4Q66) and QoQ (seasonal factors and no revenue from managing a hospital in Pattaya from November).
Recommendation: NEUTRAL, new year-end 2025 target price of 3.0 THB/share, based on DCF method.

CHG reported a 3Q24 net profit of Bt417mn, jumping 28% YoY and 117% QoQ. Excluding an extra item in 2Q24 shows core profit growth of 78% QoQ. Strong SC revenue led profit to beat market estimates by 9%. We expect a softening in 4Q24 core earnings YoY (off the high base of additional revenue from 26 chronic diseases in 4Q23) and QoQ (seasonality and no earnings contribution from hospital management in Pattaya since November). We maintain our Neutral on CHG with a new end-2025 DCF TP of Bt3.0/share.

3Q24: Beat estimates on strong SC revenue. CHG reported a 3Q24 net profit of Bt417mn, jumping 28% YoY and 117% QoQ. Excluding an extra item in 2Q24 of revenue write-off from lower actual payment for high-cost care (RW>2) under social security (SC), core profit shows growth of 78% QoQ. Earnings were 9% ahead of market estimate, backed by the high SC revenue.

Highlights:

Revenue was Bt2.3bn in 3Q24, up 10% YoY and 16% QoQ. By service, revenue from SC (34% of revenue) grew a strong 27% YoY and 32% QoQ due to more intensive care and additional revenue from 26 chronic diseases (Bt98mn) received in 3Q24, earlier than last year’s 4Q. IPD revenue (35%) grew 5% YoY and 14% QoQ. OPD revenue (28%) was lackluster, slipping 3% YoY but rising 2% QoQ.
EBITDA margin was 28.3% in 3Q24, up from 25.6% in 3Q23 and a weak 18.7% in 2Q24 due to the SC service revenue write-off.

Earnings revision. Expect 4Q24 to soften YoY and QoQ. We revised up our 2024F core earnings by 5% but leave 2025F unchanged. The positive in the 3Q24 beat is offset by the termination of a hospital management contract in Pattaya this month. The contract provided revenue from hospital management of ~Bt300mn/year with net profit of ~Bt30mn/year or 2-3% to CHG’s earnings. We expect to see a softening YoY in 4Q24 core earnings (off the high base of additional revenue from 26 chronic diseases in 4Q23) and QoQ (seasonality and no earnings contribution from hospital management since November). We maintain our Neutral rating with a new end-2025 DCF TP of Bt3.0/share (up from end-2024 TP of Bt2.9/share,) based on WACC at 6.8% and LT growth at 3%.

Risks: Change in SC reimbursement, slower patient traffic and cost burden at new facilities. We see ESG risk as patient safety (S): CHG has adopted a variety of quality assurance systems to provide continuous patient care.