Date: October 17, 2024
Broker: Maybank Securities (Thailand) PCL
Company Overview
Chularat Hospital (CHG) operates 10 hospitals and 5 clinics, primarily in the eastern region of Thailand. It is a key player in the healthcare sector, focusing on social security (SSO) and high-intensity medical care. The company benefits from its strategic positioning in areas with high demand for medical services and aims to cater to the mass market, especially Thailand’s aging population.
Expansion Plans and Growth Outlook
CHG is on a rapid expansion trajectory, aiming to increase its bed capacity by 61% between FY24 and FY28, primarily in existing high-demand areas. A significant portion of this expansion will happen in the later years, with 200 beds planned for a new greenfield hospital in Rayong, set to open in early FY27. This expansion is expected to allow faster breakeven periods and support long-term revenue growth.
Financial Performance and Earnings Forecast
CHG’s financial outlook is robust, with expected earnings growth of 12% CAGR for FY25-26. The growth is driven by increasing patient volumes, high-intensity treatments, and continued expansion in existing and new hospitals. Despite shortfalls in social security payments in FY24, earnings are anticipated to return to double digits due to improved economies of scale and higher treatment intensity. The company is expected to remain net cash through FY24-26.
Shifting Focus to High-Intensity Care
CHG is gradually enhancing its capability to treat complex diseases, including heart conditions, stroke, and cancer. The company has established centers of excellence across its network, which has contributed to a 5-6% CAGR in revenue per outpatient department (OPD) and inpatient department (IPD) visit from FY15 to FY23. This shift positions CHG to benefit from rising demand for specialized care, especially as the population ages.
Social Security Office (SSO) Performance
The company has been gaining market share in the SSO segment. As of 2Q24, CHG had 542,000 registered SSO members, marking a 2.3% increase from 2023. Although the company faced payment shortfalls from SSO adjustments, it expects future revenue stability, with SSO revenue projected to grow by 4-5% in FY25-26. Upside potential exists if the SSO budget increases.
Strong Cash Revenue Growth
CHG aims to boost profitability by increasing the proportion of revenue from cash patients. This segment grew to 65% of total revenue in 1H24 and is expected to reach 70% by FY26. The company plans to continue focusing on cash-based services, with recent and upcoming hospital expansions catering primarily to cash patients. This strategic move helps mitigate risks associated with regulatory changes in social security payments.
Mae Sot Hospital Update
The 59-bed Chularat Mae Sot Hospital, opened in June 2023, is projected to reach breakeven by late FY25. The hospital caters to cash patients, primarily targeting those from Myanmar and Chinese expatriates. Although the hospital reported losses in FY23 and is expected to incur higher losses in FY24 due to additional investments, its performance has been improving, with revenue growing significantly in 3Q24.
Expansion in Eastern Economic Corridor (EEC)
CHG has a substantial presence in the Eastern Economic Corridor (EEC), a region with growing foreign direct investment (FDI) and an influx of workers. With over 94% of its beds in Eastern Thailand, including 34% in the EEC, CHG is well-positioned to benefit from this economic boom. The region’s high population-to-bed ratio further supports the need for continued hospital expansion.
ESG Initiatives
CHG has implemented several environmental, social, and governance (ESG) initiatives, including campaigns to reduce plastic use, plant more trees, and promote sustainable practices within its hospitals. The company also complies with transparency requirements, making its pricing policies accessible to the public. Its corporate governance policies include strict guidelines to ensure ethical management and a commitment to fair patient treatment.
Valuation and Investment Recommendations
CHG is currently trading at a valuation of 26x FY25E P/E, which is 1.4 standard deviations below its pre-Covid-19 average. Maybank Securities has initiated a “BUY” recommendation with a target price of THB3.5, based on discounted cash flow (DCF) valuation. The firm’s forecast earnings growth of 12% CAGR for FY25-26 outperforms peers, driven by strong revenue from both cash patients and social security members, as well as strategic expansion plans.
