CHG to Continue Its Momentum in 2021, Analyst Recomm. “BUY” with a TP of ฿3.4

It is expected that Chularat Hospital Public Company Limited (CHG) in 2021 will deliver impressive earnings due to an improving performance YoY despite Covid-19 pandemic.

 

KGI Securities highlightsed key catalysts for the year 2021 as follows:

 

1) Additional income from 2 new projects, hospital management fees from government hospitals in Pattaya and Koh Larn that have already generated a revenue since the beginning of 2021 and management income from the Sirindhorn Cardiac Center that will generate revenue of approx. 25 million baht per month for two years from 2Q21, while the latter will generate total revenue of 450 million baht for three years.

 

As the results, KGI estimated these projects will add revenue of 413 million to CGH in 2021.

 

2)  Positive development from new hospitals. CHG will continue to benefit from Chularat 304 and Ruampat Chachoengsao, which passed their breakeven points for EBITDA in 2H20. Based on KGI forecast, the analyst estimated these hospitals to be breakeven in 2021, from net loss of 70 million baht in 2020. 

 

KGI expected CHG’s sales to grow 13.8% YoY (6.1% from existing hospital business and 7.6% from the new projects) in 2021. 

 

Additionally, projecting that the new projects will enhance CHG’s profitability as the management income will have a higher gross margin than the company’s traditional business. The company will have no depreciation and less SG&A expense for this business platform. 

 

KGI also revised 2021 earnings projection up 12.3% to 1.02 billion baht (+16.5% YoY) to reflect a continued sales growth of 13.8% YoY, a gross margin recovering YoY to 33.0% (from 32.2% in 2020) and SG&A/Sales declining to 12.9% (from the previous estimate of 13.5%).

 

For the year ended December, 2020, CHG’s total revenue was 5,461.70 million baht, an increase from a revenue of 5,187.71 million in 2019, driving the net profit to stand at 876.62 million baht or an EPS at 0.080 baht per share.

 

In general, the increase in net profit was significantly driven by the return of both outpatients and inpatients and CHG has collaborated with government accredited hotels to provide a Covid-19 Alternative State Quarantine (ASQ).

 

Overall, KGI is still in favor of CHG due to 1) continued earnings growth at 16.5% CAGR during 2021-2022 and ii) high ROE at 20.9% in 2020, which is expected to rise to 22.1% and 23.1% in 2021-2022. Therefore KGI maintained a “BUY” recommendation on CHG, but raised a target price to 3.40 baht per share, from previously 3.05 baht per share.