We maintain our investment theme of BCH’s undemanding valuation as it is trading at 32x 2023PE, which is -2SD of its historical PE average. The discounted valuation will, in our view, cushion against price downside and we see this as an opportunity to accumulate as earnings improve. We estimate 2Q23 core profit at Bt277mn, down 76% YoY (off the high base from COVID-19 services) but improving 9% QoQ. We rate it Outperform with end-2023 DCF TP of Bt22/share.
Catalysts.
- A recent talk with BCH indicates improvement QoQ. BCH’s operations will plunge YoY off the high base from COVID-19 services but, importantly, will show improvement QoQ. It guides revenue has been better in April-May compared to 1Q23, undergirded by growing non-COVID-19 services including international patient services (~13% of 2022 revenue) especially from the Middle East at WMC, with an average price increase of ~5% since May plus a 10% increase in SC general capitation (from Bt1,640/person/year to Bt1,808) effective in May.
- Earnings bottomed in 1Q23, to step up from 2Q23. We estimate hospital revenue at Bt2.7bn in 2Q23, down 51% YoY but up 2% QoQ. Excluding COVID-19 services shows revenue up 12% YoY and 2% QoQ. We estimate EBITDA margin at 23.3% in 2Q23, slimmed from the high base of 32% in 2Q22 but improving from 22.5% in 1Q23. We estimate 2Q23 core profit of Bt277mn, down 76% YoY but up 9% QoQ. It will release results on Aug 15.
- Developments in 2H23. Our 2Q23 preview implies 1H23 will account for 39% of our full-year forecast and we maintain our projection of Bt1.4bn core earnings in 2023, suggesting better earnings in 2H23 underwritten by: 1) continuing benefit from price increases, 2) adding specialized centers and upgrading existing facilities and 3) improving international patient services: BCH has signed a contract with the embassies of Libya and Saudi Arabia to refer patients to its hospital and is collaborating with Chinese agencies and Lavida IVF Center to refer patients for anti-aging and IVF treatments.
Action & recommendation. BCH’s share price is up 1%, beating the SET’s drop of 2% and SETHELTH’s drop of 2% since we upgraded our call to Outperform (from Neutral) on May 23, 2023. We maintain our investment theme of BCH’s undemanding valuation as it is trading at 32x 2023PE, which is -2SD of its historical PE average (2015-19, before COVID-19 services). We believe the discounted valuation will cushion against price downside and see this as an opportunity to accumulate for a brighter earnings outlook. Our end-2023 DCF TP of Bt22/share (WACC at 6.2% and LT growth at 3%) implies 40x 2023PE, near its historical average.
Risks. Unpredictable events such as another pandemic that will interrupt patient traffic, intense competition, staff shortages and regulatory risk.
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