Buoyed by private vaccination

Maintain POSITIVE and all TPs
We maintain our positive view and all TPs while downgrading BCH to SELL
(from HOLD) and CHG to HOLD given that these two social-security
outperformers have rallied 53.1% and 45.1% YTD respectively on the back
of Covid-related income in 1H21 and the upcoming private vaccination
which could take place in 3Q/4Q21. There is still much uncertainty around
private vaccination, especially with regards to when the vaccine will be
available. We think if it is delayed to 4Q21, the demand for vaccination
may be less than in 3Q21 as many patients will opt for public vaccination.
We now prefer the laggards BH and BDMS, as we believe they will be the
beneficiaries of the upcoming re-opening of borders, allowing
international patients to return. International patients contribute 67% of
BH’s normalized revenues and 30% of BDMS’s.

Private vaccination is one-time with small upside
While there is much uncertainty about private vaccination, it will likely be
a total of 5-10m doses with each dose priced at around THB1,500 and a
30% margin, according to the Private Hospital Association of Thailand. We
try to estimate the number of patients each hospital has and assume that
10% will opt for private vaccination (the same % of total population
receiving private vaccination i.e. 10m doses out of 100m total doses
vaccinated by the end of FY21). We believe this could lift BCH’s profit the
most by 13% in FY21, followed by BDMS 11%, CHG 6% and BH 5%.
Nevertheless, since the private vaccination is a one-time occurrence, this
will matter less to the DCF-based TPs, or less than 1% upside for all our
Thai healthcare universe. Due to the uncertainty, we have not factored in
the upside from private vaccination.

2Q21 outlook favours BCH and CHG but priced in
With the third wave of Covid in 2Q21 that is more intense than the second
wave in 1Q21, we believe Covid-related income could rise QoQ in 2Q21.
We also think the social-security operators, BCH and CHG, will see the
highest growth QoQ as members at risk can test for Covid for free with
their social-security provider and they get reimbursed by the government.
Nevertheless, we also note that the pandemic could affect patient traffic
(especially for mild illnesses) and possibly lead to a softer revenue trend
QoQ for all.

DCF-based. Vaccination rollout is key risk.
We use DCF. We now prefer the premium operators BH (WACC 6.31%,
growth 2%) and BDMS (WACC 6.28%, growth 3%), and believe that: 1) the
accelerating vaccination (albeit slow) in June 2021 as well as 2) the reopening
of Thailand, starting with Phuket in July 2021 will be positive
catalysts for them. The key risk is the slow vaccination in Thailand which
if delayed could lead to more severe Covid and affect overall patient