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COMPANY RESEARCH | Company Update OUTPERFORM September 24, 2015 Chularat Hospital (CHG TB) Share Price: Bt2.14 Target Price: Bt2.40 (+12%) Savvy doctor in high margin suburbs Revenue from social welfare has minimal risk, while revenue from cash patients has growth potential Expansion projects to boost earnings by 25% in 2015F, 22% in 2016F and 23% in 2017F OUTPERFORM with DCF-based TP of Bt2.4/sh, implying 32x FY16 and 26x FY17 P/E. The only hospital to focus on growing population in industrial estate areas Revenue grows towards cash patients, while margins set to expand CHG operates six hospitals and seven clinics with 376 available beds. All hospitals are located close to industrial estates. CHG is the first private hospital to join the Social Security (SS) program. Revenue from SS accounted for 38% of total revenue in 1H15, but payment risk is minimal as the SS Office pays a fixed amount plus a premium for more complex treatments. However, cash patients (avg Bt1,363/visit OPD, Bt17,754/visit IPD) yield a higher margin than SS patients (avg Bt993/visit). CHG is therefore focusing on cash patients by increasing single beds and improving service quality. We forecast cash patient revenue contribution will increase from 50% in 1H15 to 54% in 2017F, and net profit margin will improve from 18.0% in 2014 to 19.2% in 2017F. Highest earnings growth in the sector CHG plans to increase capacity at its three main hospitals, CHG 3, CHG 9 and CHG 11. Expansion of CHG 11 is scheduled for completion in 4Q15 and for CHG 3 and 9 in 1H16. This will increase OPD rooms by 45% to 138 rooms and IPD beds by 38% to 518 beds. As the utilization rate of CHG’s hospitals of 82% exceeds the normal utilization rate at 70%, we expect patient volume growth of 9% in 2015F, 13% in 2016F and 12% in 2017F. This will lead to 23% earnings CAGR in 2014-2017F, the highest in the healthcare sector. OUTPERFORM with Bt2.4 DCF-based TP We have an OUTPERFORM rating with a 2016F DCF-based TP of Bt2.4/sh, implying 32x P/E FY16, relatively in line with 31x P/E FY16 of regional peers. Its well-balanced source of revenue and strong earnings growth makes CHG more attractive than peers. CHG has financial rooms for new acquisitions due to its strong balance sheet with a low D/E ratio of only 0.2x, the lowest in the sector. Financial Summary (Btm) Year to Dec Sales (Btm) Growth (%) EBITDA (Btm) Growth (%) Recurring profit (Btm) Growth (%) FDEPS (Bt) Growth (%) PE (x) DPS (Bt) Yield (%) BVPS (Bt) P/BV (x) Krungsri Securities Research Team Naphat CHANTARASEREKUL 662 - 659 7000 ext 5000 [email protected] Teerapol UDOMVEJ Assistant analyst Key Data 12-mth High/Low (Bt) 2.32 / 1.64 Market capital (Btm/US$m) 23,540 / 658.90 3m avg Turnover (Btm/US$m) 80.16 / 2.24 Free Float (%) 32.34 Issue Shares (m shares) 11,000 Major shareholders: - BBL ASSET MANAGEMENT 21.57 - PLUSSIND KANNIKAR 18.13 - PANYAPHOL APIRUM 10.25 Share Price Performance YTD 1Mth 3Mth 12Mth Absolute (%) 18.9 18.9 18.2 19.6 Relative to index (%) 29.5 12.5 30.5 38.4 Krungsri Securities vs Market 2013 2014 2015F 2016F 2017F 2,221 19 611 15 414 24 0.04 (1) 56.8 0.03 1.3 0.24 8.9 2,672 20 716 17 481 16 0.04 16 49.0 0.03 1.4 0.25 8.4 3,223 21 871 22 601 25 0.05 25 39.2 0.03 1.3 0.28 7.8 3,903 21 1,062 22 732 22 0.07 22 32.1 0.03 1.6 0.31 6.8 4,695 20 1,282 21 903 23 0.08 23 26.1 0.04 1.9 0.36 5.9 Market Recommend Positive Neutral 5 6 Negative 0 Krungsri Consensus % +/- Target Price (Bt) 2.4 2.2 9.1 ’15 Net Profit 601 574 4.7 675 8.4 ’16 Net Profit 732 Source: Bloomberg, Krungsri Securities Disclaimer: This publication constitutes information disclosed to the public and believed to be reliable but its accuracy and completeness are not guaranteed. All opinions, suggestions, or projections are for informational purposes only and shall not be construed as an inducement for the sale or purchase of securities. Amendments to this publication may be made without prior notice. Investors are urged to exercise caution in making a decision to invest in any securities. 1 Company Update | CHG September 24, 2015 Impressive earnings growth We resume our coverage of CHG with an OUTPERFORM rating and a DCF-based TP of Bt2.4/sh. We like CHG because: 1) CHG has hospitals and clinics located close to a major industrial zone and Suvarnabhumi airport, which are areas of high population and steady expansion. 2) All of CHG's hospitals are located in highly populated areas where demand for healthcare is high. This is reflected by a high bed utilization rate of 82% in 2014, higher than BH (70%) and BDMS (67%). 3) CHG’s revenue is well balanced between general patients (50%) and social welfare patients (50%). 4) CHG has a competitive advantage to other hospitals in the same area thanks to its specialized medical services such as hand microsurgery center, newborn ICU center, stroke center, heart center, prostate cancer center and skin center. 5) CHG has a strong balance sheet with a D/E ratio of only 0.2x, which will enable it to make some M&As. 6) CHG will benefit from the upcoming AEC as CHG 3 and CHG 9 are located near Suvarnabhumi airport. In addition, a planned hospital, Chularat 304 International (CHG 304), and CHG Rong Kluea clinic are located near the Thai-Cambodia border. We expect CHG’s earnings to grow by 25% in 2015F, 22% in 2016F and 23% in 2017F. Our growth estimates are based on expected completion of expansion projects of CHG 3, CHG 9, and CHG 11 in 2015-2016. The utilization rate of the three hospitals is more than 80%, higher than the normal utilization rate of 70%. We therefore expect significant patient volume growth of 13% in 2016F and 12% in 2017F. Furthermore, CHG has had a proven track record of raising revenue per patient by a 9% CAGR over the past five years thanks to annual price adjustments and the addition of more specialized treatments, resulting in higher revenue intensity. We believe this momentum will continue in 2015-2017F. After the three main hospitals compete expansion, CHG’s EBITDA margin will widen slightly from 26.8% in 2014 to 27.3% in 2017F due to economies of scale in terms of sharing of doctors, medical equipment, medicine and IT software, which will lead to lower COGS and SG&A. CHG margins 40.0% 35.0% 30.0% 25.0% 35.7% 34.9% 34.3% 34.9% 35.1% 35.7% 36.3% 28.4% 27.5% 26.8% 27.0% 27.2% 27.3% 27.3% 18.0% 18.7% 18.0% 18.6% 18.8% 19.2% 19.9% 2012 2013 2014 2015F 2016F 2017F 2018F 30.6% 27.8% 23.6% 20.6% 20.0% 15.0% 10.0% 5.0% 12.1% 9.7% 0.0% 2010 2011 Gross Profit Margin EBITDA Margin Net Profit Margin Source: Company data, Krungsri Securities Krungsri Securities Research 2 Company Update | CHG September 24, 2015 Five expansion projects (four under construction) CHG owns and operates six hospitals and seven clinics with 93 diagnostic rooms (OPD rooms), and 414 registered IPD beds (376 available beds). The company has a 16% market share of private hospitals in terms of available beds in Samut Prakarn and Chachoengsao provinces. Five expansion projects will be long-term growth drivers. Three main hospitals will be expanded, CHG 3, CHG 9 and CHG 11. Expansion of CHG 11 is expected to be completed in 4Q15 and CHG 3 and CHG 9 in 1H16. This will increase OPD rooms from 95 to 138 (+45%) and IPD beds from 376 to 518 (+38%). CHG is currently renovating and expanding Cholvaej Hospital, which CHG acquired in 2014 for Bt57m. It is a small hospital with three OPD rooms and 11 IPD beds. The plan is to increase the number of OPD rooms to five (+67%) and IPD beds to 59 (+436%). Expansion is scheduled for completion in 2017. This acquisition was aimed at raising IPD capacity The last expansion project will be a new greenfield hospital, Chularat 304 International (CHG 304) located in Prachinburi province, near 304 industrial estate, Rojana Industrial Park, Kabinburi Industrial Zone and Sahapat Group Industrial Estate. The hospital will have 20 OPD rooms and 150 IPD beds, and is scheduled for completion in 2017. CHG did not disclose details of this project, and so we have not yet factored this into our model. All five projects a require capex of Bt1.7bn. We estimate CHG will generate EBITDA of Bt0.9-1.3bn pa in 2015-2017F, which will be sufficient for the investment. Completion of all projects will result in CHG’s OPD capacity increasing by 66% from 95 rooms to 158 and IPD capacity rising by 90% from 376 IBD beds to 716. We view this as a long-term growth driver. Branch Type Year Established OPD -Rooms Existing Expansion IPD - Available Beds Total Existing Expansion Investment (Bt m) Total Expansion period Chularat Hospital PLC - Area coverage : Theparak road, Bang Na road, Samut Prakarn Province CHG 1 Hospital 1986 5 5 19 CHG 2 Clinic 1990 3 3 0 CHG 3 Hospital 1991 28 40 134 CHG 4 Clinic 1993 3 3 0 0 CHG 5 Hospital 1994 5 5 26 26 12 19 0 55 189 300 2013-2015 Convenience Hospital Co.,Ltd. - Area coverage : Kingkaew road, Eastern Bangkok, Suvanabhum Airport CHG 7 Clinic 1993 1 1 0 0 CHG 8 Clinic 1993 2 2 0 0 CHG 9 Hospital 1993 25 39 100 14 39 139 350 2014-2015 48 134 300 2012-2014 200 2014-2017 2013-2017 Bang PakongVejchakijCo.,Ltd. - Area coverage : Bang Na road, Chachoengsao province CHG 11 Hospital 1994 16 CHG 12 Clinic 2012 2 Cholvaej Hospital 2014 3 CHG Rong Kluea Clinic 2015 0 17 2 33 86 2 0 5 11 0 0 0 48 59 0 Chularat Arkanay Co.,Ltd. - Area coverage : Prachinburi province Chularat304 Inter 2 18 20 0 150 150 575 Total 95 Source: Company data, Krungsri Securities estimates Clinic 63 158 376 340 716 1,725 Krungsri Securities Research 2014 3 Company Update | CHG September 24, 2015 CHG’s service area Source: Company data Expansion project of CHG 3 Expansion project of CHG 9 Source: Company data Source: Company data Expansion project of CHG 11 Expansion Cholvaej Hospital Source: Company data Source: Company data Krungsri Securities Research 4 Company Update | CHG September 24, 2015 Well-balanced revenue We like CHG’s business model as revenues are well balanced between Aclass patients and social welfare patients. A-class patients contribute 50% of total revenue in 1H15 and social welfare patients 50%. A-class patients consist of self-pay patients, corporate contract and insurance clients, persons covered under the Protection for Motor Vehicle Victims Act and Workers Compensation Fund. The majority of social welfare patient revenue is derived from persons with Social Security coverage and the remainder from patients under the National Health Security scheme. Revenue from social welfare is secure as the Social Security Office pays fixed payments to CHG based on the number of registered SS members. We see potential growth in revenue from A-class patients due to CHG’s expansion plans. We forecast A-class revenue contribution will reach 54% of total revenue in 2018F and 60% in 2022F. Source: Company data Health Care Service System in Thailand Revenue Breakdown 100% 1% 1% 1% 7% 8% 12% 13% 14% 42% 41% 38% 36% 34% 29% 28% 27% 28% 28% 90% 80% 42% 41% 44% 70% 60% 50% 40% 32% 33% 31% 24% 26% 24% 22% 23% 23% 23% 24% 2010 2011 2012 2013 2014 2015F 2016F 2017F SS NHS 30% 20% 10% 0% A-Class IPD A-Class OPD Source: Company data, Krungsri Securities Krungsri Securities Research Source: Company data 5 Company Update | CHG September 24, 2015 IPD: Utilization rate OPD: Utilization rate (Rooms) (%) (Beds) 200 90% 800 80% 750 78% 180 75% 73% 71% 69% 71% 61% 160 60% 136 140 64% 138 123 93 80 63 79 71 700 60% 650 50% 600 40% 120 100 70% 30% 97 84 20% 10% 0% 60 2010 2011 2012 2013 2014 OPD Room (LHS) 2015F 2016F 2017F 2018F Utilization rate (RHS) Source: Company data, Krungsri Securities 550 (%) 90% 85% 84% 82% 79% 72% 82% 85% 80% 76% 566 518 72% 500 75% 471 70% 450 400 350 80% 334 341 341 2010 2011 2012 363 376 2013 2014 390 65% 60% 300 IPD Beds (LHS) 2015F 2016F 2017F 2018F Utilization rate (RHS) Source: Company data Social Security program ensures payment CHG was the first private hospital to join the Social Security (SS) program in 1992, and thus it has strong knowledge in managing the program. This is evident from its ability to grow SS revenue by a 20% CAGR over the past five years. The growth was driven by a registered SS member growth CAGR of 7% and revenue per head growth CAGR of 13%. There were 347,642 SS members registered with CHG as of August this year, which accounted for 3% of total SS members in Thailand. We forecast registered SS members to grow by 7% pa in 2015-2018F. Note that CHG’s maximum capacity of SS is 440,000 members. CHG can request an increase in quota after its expansion is complete. In addition, the Social Security Office introduced a new system for SS in 2012, which can improve CHG’s margin. Under the new system, instead of paying only a fixed payment per registered member (Bt1,460/member/year and plus Bt40/member/year for HA Level II hospitals and Bt80/member/year for HA Level III hospitals), SSO pays a premium for more complex treatments, as follows: 1) Average Bt12,500/treatment for each high intensity case 2) Average Bt432/member/year for hospitals covering chronic disease treatments (e.g., diabetes, hypertension, stroke). Note that CHG received more than Bt500/member/year from this compensation. Therefore, SS revenue per head increased from Bt2,052 to Bt3,321 (13% CAGR) in 2010-2014. We conservatively forecast SS revenue per head to grow by 7% pa in 2015-2018F. Krungsri Securities Research 6 Company Update | CHG September 24, 2015 Revenue from Social Security System Social Security System (members) (Bt) 500,000 450,000 3,321 2,852 350,000 300,000 3,956 3,000 398,453 372,386 348,024 326,783 Revenue Structure = (1) + (2) + (3) 3,500 3,013 308,005 100,000 287,146 150,000 274,399 252,903 200,000 4,500 4,000 2,052 2,095 250,000 4,193 Fixed Payment Statistics Medical Services 2,000 Basic Payment (Fixed) All IPD 1,460 Bt / Head / yr 1,500 HA Level III: + 80 Bt / head / yr 2010 2011 2012 2013 2014 2015F 2016F 2017F 2018F OPD only 26 Chronic Diseases OPD AdjRW < 2 HA Level II: + 40 Bt / head / yr 500 - IPD AdjRW ≥ 2 1,000 50,000 Registered SSO member (LHS) Per Special 2,500 426,344 400,000 3,521 3,732 (10%) (90%) 12,500 Bt/RW (avg.) Average: Nationwide 15,000 Bt/RW (max.) 432 Bt / head / yr SSS Revenue per head (RHS) Source: Company data, Krungsri Securities Source: Company data, Krungsri Securities Focus on A-class patients to improve margins CHG’s strategy for the next three years is to increase A-class patients since these yield higher margins than SS patients. In the past five years, CHG’s A-class OPD patient volume increased by a 7% CAGR and IPD volume by 10% thanks to an increase in specialized medical services, e.g. beauty center and Chinese medicine. We forecast A-class OPD/IPD patients to grow at a CAGR of 11% in 2014-2017F. In terms of revenue per head, CHG has a proven track record, as shown by the fact that A-class OPD and IPD revenue per head increased by a 9% CAGR over the past five years due to annual price adjustments made possible by providing higher quality medical services. We assume A-class OPD revenue per head will continue to increase by a 9% CAGR and IPD revenue per head by a 10% CAGR in 2014-2017F. Consequently, the proportion between A-class revenue and SS revenue will change to 54%:46% in 2018 compared to 50%:50% in 1H15. A-class volume A-class average daily census (ADC) (patients) 2,500 (patients) 2,322 400 2,073 1,851 2,000 1,500 1,403 1,130 1,425 1,503 1,638 1,249 1,000 500 64 74 82 86 94 2010 2011 2012 2013 2014 103 116 130 146 0 350 400 300 350 250 300 200 250 150 200 100 150 50 0 Visits per day (OPD) (LHS) 2015F 2016F 2017F 2018F Admission per day (IPD) (RHS) Source: Company data, Krungsri Securities Krungsri Securities Research (beds) 415 450 373 286 241 247 2010 2011 276 307 333 100 50 0 2012 2013 2014 2015F 2016F 2017F Average Daily Census Source: Company data, Krungsri Securities 7 Company Update | CHG September 24, 2015 A-class revenue per head ROE (%) (as of 2014) (Bt) (Bt) 21,482 2,700 % 22,000 19,529 BCH 20,000 17,754 11.4 18,000 2,200 15,188 15,540 16,000 13,510 1,700 12,781 1,200 700 967 1,011 2010 2011 1,127 1,240 1,371 17.2 14,000 1,760 1,481 BDMS 1,614 12,000 CHG 17.7 10,000 8,000 BH 2012 2013 2014 2015F 2016F 2017F Revenue per visit (OPD) (LHS) Revenue per admission (IPD) (RHS) 30.1 3 8 13 18 Source: Company data, Krungsri Securities Source: Krungsri Securities Net profit margin (%) (as of 2014) EBITDA margin (%) (as of 2014) % 28 33 % BCH BDMS 9.8 BDMS BH CHG 9 11 13 15 17 27.7 10 19 Source: Krungsri Securities 25.9 BH 18.0 7 25.3 CHG 17.5 5 21.5 BCH 13.2 3 23 15 20 25 30 Source: Krungsri Securities Valuation We value CHG using the DCF method for 2016F with a 9.3% discount rate and 3% nominal terminal growth. We assume a risk-free rate of 4.0%, market risk premium of 6.0%, and beta of 0.89 to derive our discount rate, based on projected 1% debt and 99% equity weighting in 2016F. We assume a gross profit margin of 35% in 2015-2016F and 36% in 2017F. Our TP of Bt2.4/sh implies 32x P/E FY16, less than 31x P/E FY16 of its regional peers. CHG deserves to trade at a premium as it is in a growth stage with the possibility to increase the portion of A-class patients, which provide a higher yield than SS patients. BDMS: DCF valuation Discount rate Terminal growth NPV (Btm) Add: Terminal value (Btm) Add: Cash (Btm) Less: debt (Btm) Add: Investment (Btm) Less: Minorities (Btm) Residual ordinary equity (Btm) No. of shares (million) Residual ordinary equity /sh (Bt) 9.3% 3.0% 5,958 19,601 1,005 -9 0 4 26,551 11,000 2.4 Source: Krungsri Securities Krungsri Securities Research 8 Company Update | CHG September 24, 2015 Key Assumptions No of beds SS Volume growth SS revenue / patients growth OPD Volume growth OPD revenue / patient growth IPD Volume growth IPD revenue / patient growth Capex (Btm) GPM SG&A/Sale Source: Krungsri Securities FY14A 376 FY15F 390 FY16F 471 FY17F 518 FY18F 566 6% 10% 5% 11% 9% 14% 6% 6% 9% 8% 9% 10% 7% 6% 13% 9% 13% 10% 7% 6% 12% 9% 12% 10% 7% 6% 12% 9% 12% 10% 688 550 300 100 100 34% 13% 35% 13% 35% 13% 36% 13% 36% 13% Company Background CHG was founded in 1986 to operate a private hospital with registered capital of Bt1.10bn. CHG owns and operates six hospitals and seven clinics that cover Suvarnabhumi Airport (eastern Bangkok), along BangnaTrad Road extending to Chachoengsao province, along Highway 304 to Prachinburi province, and to downtown Chonburi province with a total of 414 registered beds. CHG has excellent medical units that have been certified by various institutions, such as the Hand Microsurgery Center, Newborn ICU Center, Stroke Center, Heart Center, and Cancer Center. CHG always focuses on quality treatment and specialist teams, which resulted in the hospital receiving international accreditation from JCI (for Chularat 3 Hospital), national accreditation from HA (for Chularat 3, Chularat 9, and Chularat 11). CHG shareholders CHG structure Source: Company data, SET Source: Company data Krungsri Securities Research 9 Company Update | CHG September 24, 2015 P/E Band P/BV Band (X) 55 (X) 11.0 +3 S.D. = PE 50.8x 50 10.0 +3 S.D. = 9.9x 45 +2 S.D. = PE 44.4x 9.0 +2 S.D. = 8.5x 40 +1 S.D. = PE 37.9x 8.0 L-T Average at 31.5x 5.0 -1 S.D. = PE 25.0x 25 L-T Average at 5.6x 6.0 30 -1 S.D. = 4.2x 4.0 -2 S.D. = PE 18.6x -2 S.D. = 2.7x 3.0 May-13 Jun-13 Jul-13 Aug-13 Sep-13 Oct-13 Nov-13 Dec-13 Jan-14 Feb-14 Mar-14 Apr-14 May-14 Jun-14 Jul-14 Aug-14 Sep-14 Oct-14 Nov-14 Dec-14 Jan-15 Feb-15 Mar-15 Apr-15 May-15 Jun-15 Jul-15 Aug-15 Sep-15 2.0 Source: Bloomberg, Krungsri Securities May-13 Jun-13 Jul-13 Aug-13 Sep-13 Oct-13 Nov-13 Dec-13 Jan-14 Feb-14 Mar-14 Apr-14 May-14 Jun-14 Jul-14 Aug-14 Sep-14 Oct-14 Nov-14 Dec-14 Jan-15 Feb-15 Mar-15 Apr-15 May-15 Jun-15 Jul-15 Aug-15 Sep-15 20 15 +1 S.D. = 7.0x 7.0 35 Source: Bloomberg, Krungsri Securities Peer table Name Market PE P/BV EV/EBITDA DivYld ROE Share Price Cap (x) (x) (x) (%) (%) Performance 15F 16F 15F 16F 15F 16F 15F 16F 1M 3M 6M YTD 651 39.2 32.1 7.8 6.8 21.8 17.7 1.3 20.6 22.6 10.9 17.6 12.6 18.9 BANGKOK DUSIT MED SERVICE 8,095 36.7 31.2 5.7 5.1 18.6 16.0 1.3 16.7 16.5 0.0 -1.0 -6.9 9.9 BUMRUNGRAD HOSPITAL PUB CO 4,371 44.1 37.8 12.2 10.4 25.0 22.1 1.2 30.1 29.7 -5.7 21.9 46.1 53.9 -13.3 CHULARAT HOSPITAL PCL BANGKOK CHAIN HOSPITAL PCL US$ 15F 472 34.9 29.5 3.7 3.4 16.2 14.3 1.7 11.0 12.2 0.7 -0.7 -16.0 RAMSAY HEALTH CARE LTD 8,591 26.3 23.0 6.2 5.5 12.1 11.0 2.0 23.7 24.0 -0.2 -4.0 -10.1 5.6 APOLLO HOSPITALS ENTERPRISE 2,895 46.3 36.5 5.5 4.9 23.1 19.0 0.5 12.2 14.9 5.2 7.4 0.9 21.3 KPJ HEALTHCARE BERHAD 1,007 29.6 27.2 3.1 2.9 15.2 13.5 1.7 10.9 11.1 0.0 4.5 13.8 RYMAN HEALTHCARE LTD 2,265 23.3 19.9 2.9 2.6 17.0 15.0 2.2 13.4 13.5 1.2 10.4 -9.9 -7.9 -15.4 RAFFLES MEDICAL GROUP LTD 1,878 36.6 32.1 4.5 4.1 26.6 22.7 1.2 12.9 13.6 6.4 3.1 20.8 19.5 11,047 50.7 41.7 0.8 0.7 23.7 20.5 0.5 4.6 5.5 -4.0 -7.3 -11.2 3.8 36.7 31.1 6.3 5.6 18.9 16.2 1.4 17.9 18.7 IHH HEALTHCARE BHD Average (Simple) Source: Company data, Bloomberg, Krungsri Securities Krungsri Securities Research 10 Company Update | CHG September 24, 2015 Quarterly P&L (Btm) Sales COGS (incl. dep’n) Gross profit SG&A Operating Profit Net other income/expense Net interest Pretax profit Income Tax Associates Minority interest Profit after tax (pre-ex) Extraordinaries, GW & FX Reported net profit 2Q14 644 -417 227 -90 137 11 -0 148 -30 0 0 118 1 118 1Q15 732 -478 254 -93 161 6 -0 167 -33 0 0 133 4 133 2Q15 825 -539 286 -97 189 10 0.0 199 -40 0 0 159 5 159 yoy 13% 13% 13% 5% 17% 76% NA 19% 19% NA NA 19% 25% 19% qoq 28% 29% 26% 8% 37% -7% NA 35% 33% NA NA 35% 400% 35% Shares out (end Q, m) Adjusted shares (m) 1,100 1,100 1,100 1,100 1,100 1,100 0% 0% 0% 0% Pre-ex EP S EPS 0.11 0.11 0.12 0.12 0.14 0.14 19% 19% 35% 35% Depreciation EBITDA 33 170 39 200 36 224 -8% 12% 8% 32% Krungsri Securities Research 11 Company Update | CHG September 24, 2015 INCOME STATEMENT (Btm) Turnover Cost of sales (COGS) Depreciation & amortization Gross profit S&A expense Operating profit Other operating income EBIT Interest expense Interest income Other income Goodwill amortization Pre-tax profit Income tax on company & subsidiaries Profit after tax Minority interests Share of associate net income Preferred dividends Recurring attributable net profit Extraordinary items Reported net profit 2013 2,221 (1,336) (111) 775 (287) 488 13 500 (2) 20 0 0 519 (105) 414 0 0 0 414 0 414 2014 2,672 (1,620) (136) 916 (359) 556 23 580 (1) 20 0 0 598 (118) 481 (0) 0 0 481 0 481 2015F 3,223 (1,953) (145) 1,124 (422) 702 23 726 (2) 27 0 0 751 (150) 601 0 0 0 601 0 601 2016F 3,903 (2,353) (178) 1,371 (511) 860 24 884 (1) 33 0 0 915 (183) 732 0 0 0 732 0 732 2017F 4,695 (2,826) (194) 1,675 (610) 1,065 24 1,089 (0) 40 0 0 1,128 (226) 903 0 0 0 903 0 903 Shares in issue (Y/E, m) Shares in issue (weighted avg. m) EPS (before extraordinary items, Bt) DPS (Bt) DPS/EPS (%) 11,000 11,000 0.04 0.03 72 11,000 11,000 0.04 0.03 69 11,000 11,000 0.05 0.03 50 11,000 11,000 0.07 0.03 50 11,000 11,000 0.08 0.04 50 CASH FLOW (Btm) Operating profit Other operating income EBIT Depreciation & amortisation EBITDA Notional cash taxes on ungeared operations Net change in working capital CAPEX Operating free cashflow (OpFCF) Net interest income adjusted for tax impact Net free cashflow (NetFCF) Non-operating income (net of tax) Equity income from associates Investments Net change in other assets/liabilities Other items Residual cashflow (RCF) 2013 488 13 500 111 611 (102) (839) (429) (759) 12 (747) 0 0 4 (4) (0) (748) 2014 556 23 580 136 716 (115) 490 (601) 490 5 495 0 0 0 (31) 0 463 2015F 702 23 726 145 871 (146) (70) (550) 104 21 126 0 0 0 383 0 509 2016F 860 24 884 178 1,062 (178) (88) (300) 495 27 522 0 0 0 0 0 522 2017F 1,065 24 1,089 194 1,282 (220) (102) (100) 860 34 894 0 0 0 0 0 894 Dividends Equity capital raised Other items Cashflow from financing (255) 1,353 0 1,098 (319) 0 4 (315) (374) (0) 0 (374) (300) (0) 0 (300) (366) (0) 0 (366) 350 141 491 0.0 148 491 639 0.1 135 639 774 0.1 222 774 996 0.1 528 996 1,524 0.1 262 88 398 (434) (835) 183 (34) 465 973 498 147 (12) 579 554 521 180 42 705 695 480 528 0 869 860 894 Net change in cash Net cash/(debt) at YS Ending net cash /(debt) Ending net cash /(debt) per share Increase/(decrease) in cash & equivalents (Increase)/decrease in debt NOPLAT (net op profit less adjusted tax) Normalised OpFCF (est maint CAPEX) FCFE (free cashflow to equity) Krungsri Securities Research 12 Company Update | CHG September 24, 2015 BALANCE SHEET (Btm) Cash & equivalents A/C receivable Inventory Others Total Current Assets Property and equipment Investments & associates Other assets Goodwill Total Assets 2013 496 152 75 1,045 1,767 1,082 0 146 0 2,994 2014 678 162 87 595 1,522 1,557 0 186 0 3,266 2015F 825 174 104 718 1,822 1,962 0 186 0 3,970 2016F 1,005 189 126 870 2,190 2,084 0 186 0 4,460 2017F 1,534 207 151 1,046 2,938 1,990 0 186 0 5,114 Short-term debt A/C payable Other current liabilities Total Current Liabilities Long-term debt Other liabilities Total Liabilities 1 269 71 341 4 11 356 32 328 74 434 7 20 461 44 395 89 529 7 403 939 2 476 108 586 7 403 997 2 572 130 704 7 403 1,114 Share capital Share premium Revaluation/Warrants/Treasury Translation adjustment Retained earnings Total ordinary equity Preferred equity Minorities Total Equity & Minorities 1,100 1,146 0 0 393 2,639 0 0 2,639 1,100 1,146 0 0 554 2,800 0 4 2,804 1,100 1,146 0 0 781 3,027 0 4 3,031 1,100 1,146 0 0 1,213 3,459 0 4 3,463 1,100 1,146 0 0 1,749 3,995 0 4 4,000 Accumulated depreciation BV per ordinary share (Y/E, Bt) Adjusted book value ps (Y/E, Bt) 834 0.24 0.24 930 0.25 0.25 1,076 0.28 0.28 1,254 0.31 0.31 1,448 0.36 0.36 RATIOS (%) Growth Turnover EBITDA EBIT Net profit EPS pre extraordinary items EPS (diluted) DPS 2013 2014 2015F 2016F 2017F 19.2 15.4 16.9 23.6 (1.1) (1.1) (77.5) 20.3 17.0 15.8 16.0 16.0 16.0 11.1 20.6 21.7 25.2 24.9 24.9 24.9 (9.0) 21.1 21.9 21.8 21.9 21.9 21.9 21.9 20.3 20.7 23.2 23.3 23.3 23.3 23.3 Accounting Ratios Cash profit margin Gross profit margin Operating profit margin Net profit margin Turnover/avg. total assets (x) ROA ROE S&A/turnover Effective tax rate 39.9 34.9 22.0 18.7 1.0 18.2 22.0 12.9 20.2 39.4 34.3 20.8 18.0 0.9 15.4 17.7 13.4 19.7 39.4 34.9 21.8 18.6 0.9 16.6 20.6 13.1 20.0 39.7 35.1 22.0 18.8 0.9 17.4 22.6 13.1 20.0 39.8 35.7 22.7 19.2 1.0 18.9 24.2 13.0 20.0 Operating Performance EBITDA margin EBIT margin NOPLAT margin (NOPLAT/Turnover) Asset turnover (Turnover/avg Op assets) ROCE (NOPLAT/avg Op assets) ROCE incl. capitalized goodwill 27.5 22.5 17.9 1.4 25.4 25.4 26.8 21.7 17.4 1.2 21.5 21.5 27.0 22.5 18.0 1.5 26.2 26.2 27.2 22.6 18.1 1.7 29.9 29.9 27.3 23.2 18.5 1.9 35.2 35.2 Krungsri Securities Research 13 Company Update | CHG EQUITY VALUATIONS (Bt) EPS FDEPS FDEPS growth (%) DPS BVPS Adjusted BVPS Free cashflow to equity (FCFE) per share Share price (Bt) – 2.14 PE (x) PE (fully diluted, x) PE/FDEPS growth (x) Yield (%) P/BV (x) P/ABV (x) P/FCFE (x) ENTERPRISE VALUATIONS (Btm) Ordinary shares (m) Share price (Bt) Ordinary equity MV MI & deferred taxes Equity MV (adjusted ord) Preferred equity Debt Enterprise Value Net noncore assets Core Enterprise Value (EV) Turnover EBITDA EBIT NOPLAT OpFCF OpFCF (normalized) Op (core) capital employed (CE) Avg. core capital employed Core EV Multiples EV/Turnover (x) EV/EBITDA (x) EV/EBIT (x) EV/NOPLAT (x) EV/OpFCF (x) EV/OpFCFnormalised (x) EV/capital employed (YE, x) EV/avg capital employed (x) RISK MEASURES Equity multiplier (avg. total assets/avg. equity) Net debt/equity & MI Interest cover (x) Interest cover (EBIT & int.incl/int. expense) NOPLAT/interest paid Debt service (OpFCF/net interest paid) Short-Term Ratios (x) Current assets/current liabilities Current assets less inventory/current liabilities A/C receivable, days turnover Inventory, days COGS A/C payable, days COGS Krungsri Securities Research September 24, 2015 2013 0.04 0.04 (1.09) 0.03 0.24 0.24 (0.08) 2014 0.04 0.04 15.98 0.03 0.25 0.25 0.05 2015F 0.05 0.05 24.95 0.03 0.28 0.28 0.05 2016F 0.07 0.07 21.95 0.03 0.31 0.31 0.04 2017F 0.08 0.08 23.28 0.04 0.36 0.36 0.08 56.8 56.8 (52.3) 1.3 8.9 8.9 (28.2) 49.0 49.0 3.1 1.4 8.4 8.4 47.3 39.2 39.2 1.6 1.3 7.8 7.8 45.2 32.1 32.1 1.5 1.6 6.8 6.8 49.0 26.1 26.1 1.1 1.9 5.9 5.9 26.3 2013 11,000 10 110,000 0 110,000 0 5 110,005 496 109,509 2014 11,000 18 198,000 4 198,004 0 39 198,043 678 197,365 2015F 11,000 2 19,800 4 19,804 0 51 19,855 825 19,030 2016F 11,000 2 19,800 4 19,804 0 9 19,813 1,005 18,808 2017F 11,000 2 19,800 4 19,804 0 9 19,813 1,534 18,280 2,221 611 500 398 (759) (434) 2,148 1,565 2,672 716 580 465 490 973 2,165 2,157 3,223 871 726 579 104 554 2,257 2,211 3,903 1,062 884 705 495 695 2,467 2,362 4,695 1,282 1,089 869 860 860 2,475 2,471 49.3 179.1 218.8 274.9 (144.2) (252.5) 51.0 70.0 73.9 275.8 340.5 424.8 403.0 202.8 91.1 91.5 5.9 21.8 26.2 32.9 182.5 34.3 8.4 8.6 4.8 17.7 21.3 26.7 38.0 27.0 7.6 8.0 3.9 14.3 16.8 21.0 21.2 21.2 7.4 7.4 2013 1.2 n/a 2014 1.2 n/a 2015F 1.2 n/a 2016F 1.3 n/a 2017F 1.3 n/a n/a 68.5 n/a n/a 38.5 n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a 5.2 5.0 24.9 20.5 73.5 3.5 3.3 22.1 19.5 73.9 3.4 3.2 19.7 19.5 73.9 3.7 3.5 17.7 19.5 73.9 4.2 4.0 16.1 19.5 73.9 14 Corporate Governance Report of Thai Listed Companies 2014 Thai Institute of Director (IOD) BAFS KBANK SAT BCP BTS CPN EGCO GRAMMY HANA INTUCH IRPC IVL KKP KTB MINT PSL PTT PTTEP PTTGC SAMART SAMTEL SC SCB SE-ED SIM SPALI TISCO TMB TOP To recognize well performers, the list of companies attaining "Good", "Very Good" and "Excellent" levels of recognition without regulatory notation (from January 1, 2013 to October 22, 2014) is publicized. AAV BBL CK ERW LANNA NINE PJW RS SSF TIP TSTH ACAP BECL CNT GBX LH NKI PM S&J SSI TIPCO TTA ADVANC BIGC CPF GC LHBANK NMG PPS SAMCO SSSC TK TTW ANAN BKI CSL GFPT LOXLEY NSI PR SCC STA TKT TVO AOT BLA DELTA GUNKUL LPN OCC PRANDA SINGER SVI TNITY UAC ASIMAR BMCL DRT HEMRAJ MACO OFM PS SIS TCAP TNL VGI ASK BROOK DTAC HMPRO MC PAP PT SITHAI TF TOG VNT ASP CENTEL DTC ICC MCOT PE QH SNC THAI TRC WACOAL BANPU CFRESH EASTW KCE NBC PG RATCH SNP THANI TRUE BAY CIMBT EE KSL NCH PHOL ROBINS SPI THCOM TSTE 2S AMATA BEC CGS DEMCO GLOW IRCP MAKRO MOONG PACE PTG SEAOIL SPC SYNEX TIC TRT UPOIC ZMICO AF AP BFIT CHOW DNA GOLD ITD MATCH MPG PATO QLT SFP SPCG SYNTEC TICON TRU UT AH APCO BH CI EA HOTPOT KBS MBK MTI PB QTC SIAM SPPT TASCO TIW TSC UV AHC APCS BJC CKP ESSO HTC KGI MBKET NC PDI RCL SIRI SST TBSP TKS TTCL UWC AIT AQUA BJCHI CM FE HTECH KKC MEGA NTV PICO SABINA SKR STANLY TEAM TLUXE TUF VIH AJ ARIP BOL CMR FORTH HYDRO KTC MFC NUSA PPM SALEE SMG STEC TFD TMI TVD WAVE AKP AS BTNC CSC FPI IFS L&E MFEC NWR PPP SCBLIF SMK STPI TFI TMT TWFP WHA AKR ASIA BWG CSP GENCO IHL LRH MJD NYT PREB SCCC SMPC SUC THANA TNDT UMI WIN AMANAH AYUD CCET CSS GL INET LST MODERN OGC PRG SCG SMT SWC THIP TPC UP WINNER AMARIN BEAUTY CGD DCC GLOBAL IRC MAJOR MONO OISHI PRIN SEAFCO SOLAR SYMC THREL TPCORP UPF YUASA Score Range 90-100 80-89 70-79 60-69 50-59 Below 50 Number of Logos No logo given Description Excellent Very Good Good Satisfactory Pass N/A Disclaimer The disclosure of the survey result of the Thai Institute of Directors Association (IOD) regarding corporate governance is made pursuant to the policy of the Office of the Securities and Exchange Commission. The survey of the IOD is based on the information of a company listed on the Stock Exchange of Thailand, and the Market of Alternative Investment disclosed to the public and able to be accessed by a general public investor. The result, therefore, is from the perspective of a third party. It is not an evaluation of operation and is not based on inside information. The survey result is as of the date appearing in the Corporate Governance Report of Thai Listed Companies. As a result, the survey result may be changed after that date. Krungsri Securities Public Company Limited does not confirm nor certify the accuracy of such survey result. Krungsri Securities Public Company Limited Headquarters 898 Ploenchit Tower, 3rd Floor, Ploenchit Road, Lumpini Pathumwan, Bangkok 10330 Tel: 0-2659-7000 Fax: 0-2658-5699 Internet Trading: 0-2659-7777 Branches Emporium 662 Emporium Tower, Fl. 10, Sukhumvit 24 Road Klongton, Klongtoey, Bangkok 10110 Tel: 0-2695-4500 Fax: 0-2695-4599 Nakhon Pathom 67/1 Ratchadamnoen Road, Tambol Phra Pathom Jaedee, Amphur Muang, Nakhon Pathom 73000 Tel: 0-3427-5500-7 Fax: 0-3421-8989 Central Bangna 589/151 Central City Tower 1 Office, Fl. 27 Bangna-Trad Road, Bangna, Bangkok 10260 Tel: 0-2763-2000 Fax: 0-2399-1448 Suphanburi 249/171-172 Moo 5 Tambol Ta Rahad, Amphur Muang, Suphanburi, 72000 Tel: 0-3550-1234 Fax: 0-3552-2449 Rama II 111/917-919 Rama II Road, Smaedum, Bangkhuntien, Bangkok 10150 Tel: 0-2895-9575 Fax: 0-2895-9557 Nakhon Ratchasima 168 Chomphon Road, Tambol Nai Muang, Amphur Muang Nakhon Ratchasima, Nakhon Ratchasima 30000 Tel: 0-4425-1211-4 Fax: 0-4425-1215 Vibhavadi-rangsit Bank of Ayudhya Public Company Limited 123 Suntowers (B) Building, Vibhavadirangsit Road, Jompol, Jatujak, Bangkok 10900 Tel: 0-2273-8388 Fax: 0-2273-8399 Khon Kaen 114 Sri Chan Road, Tambol Nai Muang, Amphur Muang, Khon Kaen 40000 Tel: 0-4322-6120 Fax: 0-4322-6180 Chonburi 64/17 Sukhumvit Road, Tambol Bang Plasoi, Amphur Muang, Chonburi 20000 Tel: 0-3879-0430 Fax: 0-3879-0425 Chiang Mai 70 Chang Phuak Road, Tambol Sri Phum Amphur Muang, Chiang Mai 50200 Tel: 0-5321-9234 Fax: 0-5321-9247 Hat Yai Branch 90-92-94 Nipat U Tit Nueng Road,Tambol Hat Yai, Amphur Hat Yai, Songkhla 90110 Tel: 0-7422-1229 Fax: 0-7422-1411 Chiang Rai 231-232 Thamalai Road, Tambol Wiang, Amphur Muang, Chiang Rai 57000 Tel: 0-5371-6489 Fax: 0-5371-6490 Phitsanulok 275/1 Phichaisongkram Road, Tambol Nai Muang, Amphur Muang, Phitsanulok 65000 Tel: 0-5530-3360 Fax: 0-5530-2580 Analyst Team Sector Coverage Naphat Chantaraserekul, Head of Research Kittisorn Pruitipat, CFA, FRM Central line: 662-659-7000 E-mail Energy, Petrochemical, Strategy ext. 5000 [email protected] Property, ICT ext. 5019 [email protected] Jesada Techahusdin, CFA Banking, Insurance, Consumer Finance ext. 5004 [email protected] Sunthorn Thongthip Food, Strategy ext. 5009 [email protected] Kaweewit Thawilwithayanon Renewable Energy, Contractor ext. 5010 [email protected] Worrapong Tuntiwutthipong Mid cap, Electronic, Media, Automotive, ext. 5016 [email protected] Commerce Teerapol Udomvej, Assistant Analyst Healthcare Songklod Wongchai Investment Strategy ext. 5003 [email protected] Artit Jansawang Small cap, MAI ext. 5005 [email protected] Apisak Limthumrongkul Technical ext. 5007 [email protected] Fax 662-658-5643 Definition of Ratings OUTPERFORM - Stocks with an expected capital gain above 10% in the next 12 months for small-caps, above 5% for big-caps NEUTRAL - Stocks with an expected capital gain between -10% and +10% in the next 12 months for small-caps, -5% to +5% for big-caps UNDERPERFORM - Stocks with an expected capital gain below 10% in the next 12 months for small-caps, below 5% for big-caps www.krungsrisecurities.com