Will new capacity in Bangkok disrupt incumbents' market share?

Premium hospitals have been gaining market shares among Thai patients (2ppts to the peak in Q320) despite the arrival of new competitors. While there has been discounting on some introductory packages by the premium hospitals, our proprietary analysis of 1.1m datapoints shows the overall list prices of drugs have remained robust. Along with the anticipated medical tourism recovery, we expect this to further boost the market shares of premium hospitals. We believe this potential is not fully priced in as consensus expects a slower recovery in earnings and lower EBITDA margin than we do. We upgrade Bumrungrad (BH) to Buy and maintain our Buy rating on BDMS.

Deep dive into analysis of Thai drug and medical procedure pricing data We create and analyse a dataset of: 1) over 1.1m drug price datapoints collected from February 2020 to April 2021; and 2) prices of 19,694 medical procedures in Bangkok's 160 hospitals, obtained in February 2021 from the Department of Internal Trade. The drug prices in Bangkok's top-three premium hospitals, namely BH, Bangkok Hospital HQ, and World Medical Centre, are on average 59% higher than Bangkok's other JCIaccredited hospitals and 104% higher than other ordinary hospitals. On average, medical procedures in premium hospitals are priced 65% higher than other JCIaccredited hospitals and 126% higher than other ordinary hospitals. Even though premium hospitals offer discounts, these discounts are still quite low (BH's discount rose from about 10% before COVID-19 to 16-17% over the past few quarters). On top of this, our time series show drugs' list prices have not changed much in the past 14 months.

Will medical tourists return?

Yes, we believe they will eventually return when borders reopen. However, visibility is low at present given most borders remain closed. The revenue contribution from foreign patients at IHH's Turkey operations was 19% of overall Q420 revenue after Turkey's travel restrictions eased in June 2020, slightly higher than the 18% in Q419. BH has treated about 500 foreign patients since the COVID-19 outbreak, and it still has 308 foreign patients on the waitlist. BH is more geared towards medical tourists than BDMS.

Pre-COVID-19, foreign patients revenue was 67% of BH's revenue in 2019.

Upgrade BH from Neutral to Buy; maintain Buy on BDMS We lift our price target to Bt150 for BH and to Bt25 for BDMS. We rate both companies as Buy as we believe they are well placed to benefit from the anticipated recovery of medical tourism and rising market share among locals. Both companies are trading at 16x 2023E normalised EBITDA, more than 2SD below historical averages, while our price targets imply 19x 2023E EBITDA for both companies. Our 2023E earnings for BH and BDMS are 13% higher than consensus, as we anticipate higher margins post-COVID-19.