BCH – Preview 3Q24: High season

BCH’s share price fell 4% yesterday, likely a reflection of market pessimism from expectations of lower IPD revenue in 3Q24 on fewer Kuwaiti patients. This is not new and we expect BCH to deliver a core profit of Bt474mn in 3Q24, up 4% YoY on growing revenue from OPD and SC services and up 41% QoQ on seasonality. We stay positive on BCH based on a better picture for SC high-cost care payment and strong earnings growth in 2025. BCH is trading at 28x 2024PE, below -1SD of historical average, offering attractive risk/reward.

3Q24 preview: Core profit to grow YoY and QoQ on high season. We expect BCH to deliver a core profit of Bt474mn in 3Q24, up 4% YoY on growing revenue and 41% QoQ on seasonality. Including extra items in 3Q23 (COVID-19 service revenue write-off) and in 2Q24 (SC service revenue write-off), 3Q24 net profit will grow 8% YoY and 72% QoQ.

Strong OPD and SC to offset weak IPD. We estimate revenue at Bt3.3bn, up 4% YoY and 16% QoQ. By service, we expect OPD revenue to grow strongly at 19% YoY and 20% QoQ, reflecting facility improvements and inclusion of additional services as well as seasonal illnesses. We expect social security scheme (SC) revenue to grow 6% YoY and 11% QoQ, lifted by additional revenue from 26 chronic diseases received in 3Q24, earlier than last year’s 4Q23. Together, these services are expected to offset the weak IPD service, with revenue expected to drop 14% YoY (but up 15% QoQ) mainly on a drop in patients from Kuwait since 1Q24. We expect EBITDA margin at 26.7% in 3Q24, narrowed from 27.4% in 3Q23 due to weaker international patient service but up from 21.9% in 2Q24.

May record SC high-cost care in 4Q24 at Bt12,000/RW as before vs. the previously announced conservative rate. In a meeting with several parties on October 29, 2024, regarding concerns over a budget shortfall that would curtail SC payments for high-cost care (RW > 2), the Social Security Office announced that it will pay a predetermined rate of Bt12,000/RW in 2025 and this rate will remain constant throughout the year. An official resolution is expected after a meeting on November 13 or December 3, ahead of the deadline for private hospitals to sign contracts for 2025 SC services. We view this as a better picture and believe this may lead BCH to record revenue from high-cost care service in 4Q24 at a rate of Bt12,000/RW as before, rather than the earlier announced conservative rate of Bt7,200/RW, giving a boost to revenue and earnings from 4Q24. Assuming this change, we see upside of 5-6% to our 2024-25 earnings projections. We expect to be provided more details at 3Q24 analyst meeting.

Strong earnings growth in 2025. We forecast an earnings uptrend in 2025 backed by: 1) normalizing operations of Kuwaiti patients, 2) capacity expansion and renovations in 2024-25, 3) upgrade of a hospital in 1Q25, Karunvej Hospital Pathumthani to Kasemrad Hospital Pathumthani, 4) new services: Kasemrad Ari Radiation Oncology Center (3Q24, 51% held by BCH) and a mobile dental service (3Q24, 60% held by BCH) and
5) growing operations at three new hospitals: Kasemrad International Hospital Aranyaprathet, Kasemrad Hospital Prachinburi and Kasemrad International Hospital Vientiane. End-2024 DCF is 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.