KGI Rates “Overweight” on Healthcare Sector with BDMS-BCH as Top Picks

KGI Securities (KGI) maintained Overweight rating on Thai healthcare sector with BDMS and BCH as the Top Picks for their potential earnings improvement in 2022 and solid business platforms.

KGI stated that the third wave of Covid-19 since April 2021 was unexpected and has been worse than the prior two rounds (late, March and late, December 2020) considering the number of infected (>2,000 per day). Nonetheless, this negative event would be positive for some hospitals as they are ready to gain positive momentum from potential increases in Covid-19 cases. 

Although KGI is optimistic about potential upside from imported vaccines with various brands in 4Q21 and 2022, KGI does not expect additional revenue from this to add significant revenue and profit for FY21F.  

Hospitals providing Covid-19 screening (or testing) and treatment will be prime beneficiaries, while the government hospitals would not be able to support the increasing number of patients this round. KGI likes Bangkok Chain Hospital Public Company Limited (BCH), Bangkok Dusit Medical Services Public Company Limited (BDMS), Chularat Hospital Public Company Limited (CHG) and Ekachai Medical Care Public Company Limited (EKH) for their revenue generated from this event. The third wave of Covid-19 in Thailand should help push healthcare companies’ 2Q21 earnings (with Covid-19 related business) with huge growth YoY (>20% growth). 

Although KGI is optimistic about potential upside from imported vaccines with various brands in 4Q21 and 2022, KGI does not expect additional revenue from this to add significant revenue and profit for FY21F. 

Based on the forecast on Moderna (Figure 7), KGI preliminarily estimated that potential benefit from alternative vaccines would be insignificant to the hospitals’ FY21F net profit at only 1.2-1.9% assuming a net margin of 20% with a price per dose of 1,900 baht. KGI thinks alternative vaccines would be used as a booster since the government has widely allocated  free vaccines (Sinovac and AstraZeneca) for Thai people. However, KGI thinks that the potential benefit from imported vaccines would be potential earnings upside for FY22F, due to more alternative choices for people to get vaccinated at their own expense. 

KGI still anticipates more positive signs of recovery in 2022, supported by the re-opening of Thailand and other countries. The key drivers for the return of international patients would be widespread vaccinations with vaccine passports for travelers. This would lead to reduced fears of Covid-19 and easing restrictions. Finally, KGI expects international patients to return to Thailand for medical treatment as KGI expects to see a stronger recovery in fly-in patients from 4Q21F. 

Looking at 2H21 and 2022, KGI thinks that smaller hospitals would show slower growth, due to i) revenue base from SSO’s medical treatment, ii) potential recovery in cash patient volume from economic recovery in 2H21, iii) margin enhancement from volume and intensity  and iv) effective cost and expense controls. Hence, CHG and Ladprao General Hospital  (LPH) would not gain positive momentum from the potential re-opening theme over the next few years given their current business platforms. 

All-in, KGI maintains the view that the continued recovery YoY and QoQ of healthcare companies would be led by I) strong revenue stream from Covid-19 related business, ii) a return of international patients to Thailand at a rapid pace by 4Q21 and iii) effective cost and expense control.