First of all, I would like to express my most sincere gratitude to all my professors at CMMU, who guide me well on management and financial knowledge, which help me to open the big picture of business and understand deeply about financial management. both in business and capital market view. My next thanks go to Toyota Tsusho (Thailand) Co., Ltd, my former workplace and all the management in the automotive steel sector, who understand and support me for this further study. My colleagues here also support me in every matter until we all go till this day.
I would like to thank them all for their kindness during my studies for the many projects and exams in my master's degree. Finally, I would like to give all my success to my parents, especially my mother, who has been my spirit and provided moral support during my time here. This thematic article aims to value the share price of Chularat Hospital Public Company Limited (CHG) based on the discounted cash flow valuation model (FCFF), which represents the concept that the company's share price represents its fundamental value in terms of cash flow should reflect. growth and risk.
Considering Thailand's healthy trend and growing aging society, these factors increase the possibility of CHG growth both domestically and across ASEAN, especially for CLMV countries. Result at the end of 2016, the target price of CHG will be approximately equal to 2.74 baht per share while the current price is set at 2.82 baht per share.
LIST OF ABBREVIATIONS
VALUATION
- Highlights
- Fundamental and valuation are indicative of HOLD
- Growth stock with decisive earnings
- Strong network to support long term growth
- Social security program might incur slow profit
- Business Description
- Strategy
- Management and Corporate Governance
- The proportion of health expenditures is lower than other coun- tries
- Industry Analysis
- Local health care industry remains prosperous
- Direct competitors from domestic market
- Key drivers of CHG
- Competitive rivalry poses high impact on CHG
- Investment Summary
- Decisively high earnings growth
- Raising IPD and OPD beds will boost up revenue
- CHG has good corporate governance
- Economic slowdown can’t make a decline in the revenue
- Discounted Cash Flow Valuation
- Five-Years Projected Cash Flow Assumptions
- Strong and stable margin
- SG & A expenses Growth Steady
- High Growth Periods Assumptions
- Terminal Value Component Assumptions
- CAPEX
- Weighted Average Cost of Capital
- Financial Statement Analysis
- Strong and stable Profit Margin helps CHG to remain competitive CHG could maintain level of profit margin every years and its EPS remain
- Cost structure: Good management as key strength
- Profitability and Efficiency Ratio tends to improve
Furthermore, Chularat Hospital focuses on qualified medical services and expertise, leading to accreditation by Thai Hospital Accreditation – HA, and Chularat Hospital 3 under Chularat Group is accredited by JCI (Joint Commission International) – the highest US standard accreditation. Chularat Hospital aims to be the outstanding private hospital in the eastern region and adopts the concept of 'The Star of the East'. It aims to be the leader in tertiary care and to be recognized nationally and internationally with the aim of sustainable growth. Chularat Hospital sees many opportunities to grow its business in the target area.
In the near future, CHG aims to achieve economies of scale from its capabilities and drive margin to what they have planned at present. The company also ensures that it complies with the rules and regulations of the Securities and Exchange Commission and the Stock Exchange of Thailand. Meanwhile, life expectancy at birth has increased from 55.2 to 69.9 years for men and 61.8 years to 74.9 years for women.
BDMS owns most hospitals in the same tier as CHG, so we will pick up BDMS for comparison with CHG. However, CHG has organized a business expansion plan in the same way as BDMS; Patient focus, strong network and the best locations. Although BDMS has higher capital structure leverage, these two companies generate ROE in the sense that CHG can slightly outperform BDMS.
In the meantime, the company has also been building new medical facilities to support potential patient growth in the near future. The company focuses on fair treatment of shareholders, regardless of whether they are majority or minority on the list. The company is also aware of the importance of disclosing information, which is why the company has a policy of disclosing transparent, complete and reliable information to all shareholders.
In summary, the company follows the rules and regulations of the Securities and Exchange Commission and the Stock Exchange of Thailand. Five-year projected cash flows are based on an assumption of sales increase from capacity expansion of the company's plan. The hospital expects to penetrate more patient bases in the potential areas, the company has targeted both residential and industrial zones.
We believe that the efficiency of this control will continue to follow the same pattern for the foreseeable future. The CAPEX is provided by the securities analyst who works closely with the company's insiders.
Margin 2013 2014 2015 Gross margin 35.8% 35.3% 34.5%
- High Earnings Growth
- Well Balancing of Capital Structure
- Cash Flow: High efficiency of operation and future investment According to historical cash flow statement, CHG is able to generate more
- Trend Analysis
- Additional Downside Possibilities
- Industrial status and population in an area of service
- Investment Risks
- Macro-economic risks
- Operation risks
- Scenario Analysis
- Sensitivity Analysis
The result is mainly based on 3 levels of medical treatment – Primary, Secondary and Tertiary which helps the company to control its costs while SG&A has been maintained at 13% and tends to continue in this pattern. In addition, ROE improves due to higher capital structure leverage in the year 2015. Total Asset Turnover shows improvement from 2014 to 2015 due to the fact that the company keeps less cash on hand for future construction purposes and lower accrued income from SSO project. 3 hospitals in the company's own group are located in important industrial estates of Samut Prakan province and Chachoengsao province, and now the company has a plan to expand a service area to Chonburi province and Prachin Buri province.
If the patient base does not increase as expected, the company will need time to get payback and recover the investment. Currently, the number of staff is limited, and the expansion of the medical business required qualified staff with experience to enter the company. The process will take time to develop their knowledge and skills, which will result in the company may face the shortage of medical personnel in various fields in the future while the company has expanded its business.
However, the Company will offer appropriate compensation and benefits policies along with the atmosphere in the workplace to continue to retain people. In addition, the company also has training unit that provides training of nursing assistants under the operation of the Chularat Inter Health to meet the needs of the company in the meantime. In addition, the Company will face competition from other private hospitals located within a radius of approximately 10 kilometers from the Group.
The company finds a strategy to improve service quality through JCI and HA (Hospital Accreditation) accreditation to differentiate itself from other competitors. However, participation in the social security program poses a risk due to the higher actual costs of health care than the medical income from the social security program, in which it is determined by government policy and the number of people registered in the company, which can differ from the migration of people and industrial plants. The company is also expanding service clinics and affiliated hospitals to treat patients before severe symptoms develop.
As a result, the company can reduce the risk of serious symptoms that patients in the group will be exposed to, and which are directly related to the company's costs of medical services. The Company will from time to time inform the Patient Ownership of updated costs for medical services. The company also has a business unit to cover this specific area and try to find the solution with the patient if there is a default case.
DATA
- CHG Business Structure
- Five-force Analysis
- Income Statement
- Balance Sheet
- Statement of Cash Flow
- Appendix
- DCF Calculation
- Common Size (Balance Sheet: Asset)
- Common Size (Balance Sheet: Liability and Equity)
- Sensitivity Graph
Shortage of health professionals such as doctors, physicians and nurses is a major concern in business expansion. 2.Income from patients from the state scheme - SSO may not be able to cover the cost of medical services in some cases. In the near future, more people would move to these areas due to economic growth.
For example, pharmaceuticals are dispensed based on auction and direct purchase, as in an auction, the company will offer contract for purchase to the company that wins the auction with the best offer. Since we are in the center of ASEAN with geographical advantages, there are great possibilities that Thailand would be one of the destinations for healthy foreign people. Although the company focuses on home patients, the company has enhanced their special expertise with high-tech equipment.
Due to high medical operating costs, high medical salary expenses and shortage of doctors in the industry, these factors may slow the growth of CHG's business plan and operations. BDMS and its subsidiaries may have the power to attract CHG's medical personnel and exit the company. 2.SSO patients in some cases contain high costs for services, but the income to the hospital is determined by the Social Security Organization.
The hospital is in a social security campaign to tap into low- to middle-income people, including those who work in the industrial area. Competitive rivalry among existing competitors (High) - Least favorable for CHG As the company focuses on low to middle income patients, Chularat hospital now faces intense competition from other hospitals with close range of service prices such as Paolo, Thonburi, Kasemrad and Bangkok Chain Hospital. Today, the networked hospital can have bargaining power over customers and suppliers such as pharmaceuticals.
The company has to pay attractive packages to retain human resources and together they have to pay high cost if they want to attract more doctors from other countries. Since the company focuses on low- and middle-income patients, if the symptoms are not severe enough for patients to accept as IPD, they are likely to buy drugs from the pharmacist themselves. However, for workers and employees working for the company in the industrial estate area that the company has been focusing on, they can use the SSO scheme so that the Chularat hospital can still receive patients for both OPD and IPD.
The average cost of debt is 2.30 percent calculated from historical data 2.05%, and then we weight with new short-term loan debt with an interest rate of 3.85% maximum. The most important factors would be % of regular patients that CHG focuses most as the revenue driver and also the cost of services which the company can control with highest efficiency due to strong hospital network.
