BCH shares have dropped 6% over the past two days on expectation of weak 1Q24 earnings (+YoY, -QoQ) on lower IPD revenue from slow traffic from the Middle East. We see this as worth overlooking as we see the 2024 uptrend in earnings as intact, undergirded by more medical centers, completion of renovations and ramp up of new hospitals. BCH is trading at 28x 2024PE or below -1SD its historical average and is a top pick for the healthcare sector. Outperform with DCF TP of Bt25/share. Preview 1Q24F: Slow quarter. We estimate a core profit of Bt327mn, up 29% YoY but down 32% QoQ, with the YoY growth driven by stronger revenue and wider EBITDA margin. We now expect earnings to fall QoQ rather than our earlier expected flat growth on lower IPD revenue on fewer ME patients. 1Q24 revenue is estimated at Bt2.9bn, up 7% YoY but down 5% QoQ. By service, we expect strong OPD (+16% YoY, -3% QoQ) and social security service (SC, +10% YoY, -3% QoQ) revenue. However, we expect lower IPD revenue (-3% YoY, -17% QoQ) on fewer patients from the Middle East (9% of revenue) during Ramadan and particularly from Kuwaiti (4-5% of revenue), who primarily rely on government funding for their medical expenses including treatment abroad. BCH reveals demand from Kuwaiti patients is holding up as the Kuwaiti government is assessing and compiling a list of accredited hospitals overseas to ensure efficient management of the country’s health budget. This evaluation process is expected to be complete in 2Q24. We estimate EBITDA margin at 23.7% in 1Q24, up from 22.5% in 1Q23 but down from 27.1% in 4Q23. Expect better revenue and margin ahead. Our estimates for 1Q24 are equivalent to 18% of our full-year forecast and we our 2024F unchanged, expecting stronger earnings from better revenue and wider EBITDA margin. Backing this will be: 1) adding a cardiac center at Kasemrad Chachoengsao (Jan 2024), 2) completing renovations at Kasemrad Bangkae (Apr 2024), 3) opening Kasemrad Ari Radiation OncologyCenter (3Q24, 51% held by BCH) which will serve SC patients now referred to other hospitals and 4) adding a new mobile dental service (3Q24, 60% held by BCH) and 5) the ramp up of three new hospitals: Kasemrad International Hospital Aranyaprathet, Kasemrad Hospital Prachinburi and Kasemrad International Hospital Vientiane. In 2024, we expect BCH to deliver core earnings growth of 20% to Bt1.8bn, based on 9% revenue growth and 26.7% EBITDA margin (up from 24.9% in 2023). Our end-2024 DCF is Bt25/share, based on WACC at 7% 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): BCH has adopted a variety of quality assurance systems to provide continuous patient care. |