Summary · why it matters
Bualuang Securities assesses that hospital stocks have already passed their low point of the year in the second quarter and will recover in the third quarter, driven by seasonal factors and pent-up demand from the Middle East. Combined core profit of the four hospital stocks under coverage was 5.7 billion baht, down 4% year-on-year and 10% quarter-on-quarter, on combined revenue of 37 billion baht, up 1% year-on-year but down 3% quarter-on-quarter. The quarterly decline came from softer Thai patient volumes due to seasonality and economic conditions, while the fly-in business continued to grow. Average gross margin was 36.5%, down 110 basis points year-on-year and 90 basis points quarter-on-quarter, due to higher depreciation from capacity expansion. BH and PR9 still posted profit growth from fly-in demand, while BDMS was most affected by fewer Cambodian patients. BCH beat estimates as social security revenue helped offset weaker general patient volumes. For the third quarter, the picture improves as flights between the Middle East and Bangkok return to pre-conflict levels, combined with the high season for both Thai and fly-in patients. July data already show revenue increasing both year-on-year and month-on-month. On financial positions, BH stands out most, with second-quarter ROE rising to 27.6% from 21.9% in the first quarter and 25.9% in the second quarter last year, along with the highest net cash position in the group. BDMS is the only company with net debt, but its debt-to-equity ratio is only 0.1 times. Bualuang maintains an overweight stance on the hospital sector relative to the market, with BH as the top pick on the recovery of Middle Eastern patients and a strong financial position across the board. For BDMS, Bualuang keeps a buy rating with a target price of 23 baht for end-2027, viewing the second quarter as likely the low point. July revenue trends have started to return to year-on-year growth for both Thai and foreign customers, leading to expectations that third-quarter core profit will increase both year-on-year and quarter-on-quarter. Third-quarter support comes from the disease outbreak season, no high base from Cambodian customers as in the previous year, and Myanmar revenue still growing strongly at 42% year-on-year in the second quarter, continuing from 43% year-on-year in the fourth quarter last year and the first quarter this year. Third-quarter gross margin is expected to rise to 35-37% from a higher proportion of more complex cases. Net debt-to-equity is only 0.1 times, and second-quarter receivable turnover rose to 43 times, up 7% year-on-year. Inventory turnover was 16 times, above the group average of 12 times. The stock trades at a price-to-earnings ratio of about 18 times, below the long-term average by 1.5 standard deviations. First-half profit accounted for 45% of the full-year estimate, close to the normal proportion, so full-year profit is still seen as in line with estimates. For BH, Bualuang keeps a buy rating with a target price of 220 baht and still selects it as the standout hospital stock. The third quarter has two main supports at the same time: the recovery of Middle Eastern patients travelling for treatment and the high season for Thai patients. Higher treatment intensity per case supports both revenue and gross margin, even though foreign patient numbers have not fully recovered. Third-quarter core profit is expected to grow faster year-on-year than in the second quarter and to increase quarter-on-quarter on seasonality. Preliminary July data indicate that Thai patients have started to increase from rainy-season illnesses, while flight routes from the Middle East have returned to pre-conflict levels, although patient numbers still lag. The impact of Cambodian patients suspending services after the border incident on 24 July 2025 will not affect third-quarter figures. On financial position, second-quarter ROE was 27.6%, up from 21.9% in the first quarter and 25.9% in the second quarter last year, clearly higher than other stocks in the group. The company has a net cash position and receivable turnover rose to 84 times from 59 times in the second quarter last year. The stock trades at a 2027 price-to-earnings ratio of about 18 times, while the target price of 220 baht is based on a price-to-earnings ratio of 21 times, or one standard deviation below the 10-year average of 30 times. Dividends are an additional upside, with the first-half interim dividend of 4 baht per share higher than expected. If a special dividend is paid at the same proportion as in 2025, dividend yield would rise to 6.0%, compared with a base case of 2.6%. However, the main point of the investment idea still places more weight on a return to profit growth than on dividends as a supplement.
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