We are optimistic about the 2025 payments for SC high-cost care, which should make 4Q24 the final quarter of concern regarding SC budget shortfalls. In 2025, we expect BCH to lead the sector with the strongest core earnings growth at 19%. After the recent 7% decline in share price over the past month vs the SET’s far lower drop of 2%, we see an attractive risk/reward opportunity. The share is currently trading at 22x 2025 PE, nearly -2SD of historical average, presenting a compelling entry point in view of a brighter outlook. We rate Outperform with a new end-2025 DCF TP of Bt21.5/share.
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High Conviction - BCH – Sky clearing, clouds lifting
Sky clearing, clouds lifting
We are optimistic about the 2025 payments for SC high-cost care, which should make 4Q24 the final quarter of concern regarding SC budget shortfalls. In 2025, we expect BCH to lead the sector with the strongest core earnings growth at 19%. After the recent 7% decline in share price over the past month vs the SET’s far lower drop of 2%, we see an attractive risk/reward opportunity. The share is currently trading at 22x 2025 PE, nearly -2SD of historical average, presenting a compelling entry point in view of a brighter outlook. We rate Outperform with a new end-2025 DCF TP of Bt21.5/share.
Catalyst #1: 4Q24 to be the final quarter of concern of SC budget shortfall. BCH says in 4Q24 it has decided to record social security (SC) revenue for high-cost care (RW>2) at a conservative rate of Bt7,200 baht/RW, below the predetermined rate of Bt12,000/RW. It is basing this on its view that the 2024 budget will again fall short and since it is an annual budget, details cannot be adjusted. However, for 2025, BCH reports that relevant bodies, including the Social Security Office, have reached a consensus to guarantee a rate of Bt12,000/RW consistently throughout the year, thereby reducing uncertainty on this matter. An official resolution is expected after a meeting on December 3, ahead of the deadline for private hospitals to sign contracts for 2025 SC services.
Our earnings projection has already factored in the conservative rate of Bt7,200 baht/RW in 4Q24, which will cut revenue and earnings both YoY and QoQ. On an annual basis, we currently assume a lower average payment for high-cost care at Bt10,800/RW from 2024 onward. A 2025 rate at Bt12,000/RW would give 5-6% upside to our 2025 projections; we will factor this in after official announcement.
Catalyst #2: Strong earnings growth in 2025. In 2025, we expect BCH to report the sector’s strongest core earnings growth at 19% backed by: 1) capacity expansion and renovations in 2024-25, 2) upgrade of a hospital in 1Q25, Karunvej Hospital Pathumthani to Kasemrad Hospital Pathumthani, 3) new services: Kasemrad Ari Radiation Oncology Center (3Q24, 51% held by BCH) and a mobile dental service (3Q24, 60% held by BCH), 4) growing operations at three new hospitals: Kasemrad International Hospital Aranyaprathet, Kasemrad Hospital Prachinburi and Kasemrad International Hospital Vientiane and 5) normalized base of revenue from Kuwaiti patients after the drop in 2024.
Action & recommendation. We see this price point as offering attractive risk/reward for accumulation. The market clearly has low expectations for BCH given the 7% drop in share price over the past month, underperforming the SET’s much lower fall of 2%, to trade at 22x 2025PE, nearly -2SD of historical average. This is against the backdrop of easing concerns over SC high-cost care payments and strong earnings growth expected in 2025. We rate Outperform with an end-2025 DCF TP of Bt21.5/share (rolling from end-2024 TP of Bt21/share), based on WACC at 7%, long-term 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): BCH has adopted a variety of quality assurance systems to provide continuous patient care.