RJH – SC upside, neutral long term outlook

2Q26 recap. RJH reported 2Q26 net profit of Bt113mn, up 80% YoY and 25% QoQ, driven by strong social security (SC) service revenue of Bt440mn, up 50% YoY and 22% QoQ, as well as improving operations at the new Rajthanee Nong Khae Hospital, which helped offset weakness in self-pay services. Self-pay OPD revenue was Bt185mn, down 1% YoY and 1% QoQ, while IPD revenue declined to Bt145mn, down 21% YoY and 14% QoQ. RJH also recorded tax income of Bt5mn in 2Q26, following Bt13mn in 1Q26, due to tax benefits related to medical equipment donations.

Earnings upgrade. RJH guides continued revenue growth in 2H26, supported by the seasonal epidemic peak, improving operations at the new hospital and the full resumption of its heart center in 3Q26 following temporary renovations in 2Q26. We raise our core earnings forecasts by 4% for 2026 and 4% for 2027 to reflect the stronger-than-expected 2Q26 performance. Following the revision, we forecast core earnings to grow 41% YoY in 2026, reversing a 47% decline in 2025, supported by ramping up operations at the new hospital and ongoing tax benefits. Management indicated that Bt38mn of tax benefits remains available and is expected to be fully utilized within 2026. Earnings growth is expected to normalize in 2027 as tax benefits gradually fade.

SC reimbursement hike remains a key upside catalyst. An ad hoc subcommittee comprising representatives from the Private Hospital Association and other stakeholders has been established to review SC reimbursement rates, which have remained largely unchanged over the past 3-6 years despite rising medical inflation. The committee has already held two meetings, with the next scheduled for early October. Recommendations are expected to be finalized by October 24, 2026, before being submitted to the SSO Medical Committee for further consideration. We expect visibility on potential reimbursement adjustments to improve meaningfully in 4Q26. Among our coverage, RJH stands to benefit the most, with SC services accounting for 53% of 1H26 revenue. Based on our sensitivity analysis, a 5% increase in average SC reimbursement rates would lift our 2027 earnings forecast by 16% and increase our valuation by Bt2/share.

Long-term growth outlook remains less compelling than peers. While RJH offers a near-term catalyst from a potential SC reimbursement hike, we view its medium- to long-term growth profile as less attractive than that of its peers. Our key concern is the high concentration of revenue from SC services, which accounted for 50% of total revenue in 1H26. In our view, this exposes RJH to greater concentration risk and limits pricing power compared with peers that have higher exposure to self-pay Thai and international patients. As a result, we maintain our NEUTRAL recommendation. We raise our target price to Bt16 (from Bt14.4) to reflect our higher earnings forecasts and the rollover of our valuation base to mid-2027 from mid-2027, based on a WACC of 7.9% and a long-term growth rate of 1.5%.

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