Chularat Hospital:4QFY17profit seen up y-y but down q-q

3QFY17profit up 5.1% y-y and 41.7% q-q

    CHG reported a healthy set of results for 3QFY17, aided by robust revenue growth andtight expense controls. For the quarter, revenue from hospital operations rose 7.5% y-yand 16.0% q-q to Bt1,032mn as (i) IPD revenue grew 15.6% y-y and 32.0% q-q toBt297mn, (ii) OPD revenue jumped 14.3% y-y and 22.3% q-q to Bt335mn, (iii) revenuefrom SC scheme ticked up 5.1% y-y and 2.0% q-q to Bt352mn, and (iv) revenue from UCscheme came in at Bt48mn, down 38.5% y-y but up 4.3% q-q. Cost of hospitaloperations inched up 8.7% y-y and 12.0% q-q to Bt699mn following an increasednumber of physicians and nurses in preparation for future capacity expansion and theaddition of 30new beds at CHG Chonlavej in the first phase of capacity expansion. GPMclocked in at 32.3% in this period, down from 33.2% in the same year-ago period but upfrom 29.9% in the previous quarter. SG&A expense to revenue ratio slipped to 12.5% in3QFY17from 12.7% and 13.9% in 3QFY16and 2QFY17respectively as SG&Aexpenses remained tightly controlled. In sum, CHG achieved 3QFY17profit of Bt168mn,up a hearty 5.1% y-y and 41.7% q-q.

    4QFY17profit seen up y-y but down q-q

    For 4QFY17, profit is likely to be lower than the level seen in 3QFY17as patient volumesnormally come down in 4Q after the high season in 3Q when patient traffic seasonallyrises amid the spread of seasonal epidemics during the rainy season. In a y-ycomparison, 4QFY17profit is however expected to higher than the level achieved in4QFY16because of a low base of comparison in 4QFY16and an increase in SCcapitation rates since Jul 1, 2017. For the whole of FY17, we estimate CHG will see itsprofit rise 3.4% y-y to Bt583mn on expectations that revenue from hospital operations willincrease 5.3% y-y to Bt3,829mn.

    FY18profit outlook cut to Bt622mn on higher-than-expected cost pressure

    We slightly cut our FY18profit outlook for CHG to Bt622mn from Bt639mn to reflect thehigher-than-expected cost pressure but the new profit target still implies a growth of 6.6%y-y. In our view, costs may come in higher than previously anticipated in FY18after CHGhas brought forward the opening date for CHG 304, which will be upgraded into a 100-bed hospital to early 2QFY18from late FY18. In terms of revenue, our initial forecastshows revenue from UC scheme will hold flat while revenues from A-class and SCpatients will continue to keep growing at a healthy pace. Recent capacity additions,which enable CHG to accommodate more OPD and IPD patients would be the keygrowth driver for revenue from A-class patients while the main contributors to growth forSC scheme would be the projected increase in the number of SC patients treated atCHG to 420k from an estimated 410k in FY17and the full-year benefit of the increase inSC capitation rates. Under the new forecast, we assume FY18revenue from hospitaloperations will rise 9.3% y-y to Bt4,186mn but GPM will drift slightly lower to 31.6% froman estimated 31.9% in FY17.

    FY18target price cut to Bt2.50/share but ‘ACCUMULATE’ rating unchanged

    Following the above profit cut, we slightly trim our FY18target price for CHG toBt2.50/share but our ‘ACCUMULATE’ rating remains intact as the new target still offerssome but little upside from current trading levels. The rating is premised on assumptionsthat CHG will see modest profit growth in FY18on the back of new capacity additionsand some of the above cost concerns appear to have already been discounted into theshare price.