TRIS Rating Co., Ltd. has assigned the rating of “A” to the proposed issue of up to Bt2,500 million in senior debentures of Bangkok Dusit Medical Services PLC (BGH). At the same time, TRIS Rating has also affirmed the company rating and the ratings of BGH’s current senior debentures at “A”. The outlook remains “positive”. The proceeds from the new debentures will be used for debt repayment and as working capital. The ratings reflect BGH’s leading position as the largest private hospital operator in Thailand, strong growth in patient volume, capable physicians and an experienced management team, and high quality service. The ratings also take into consideration BGH’s solid franchise network under the Bangkok Hospital, Samitivej Hospital, and BNH Hospital brands. These strengths are partially constrained by concerns over future leverage levels due to continuing domestic and international expansions, the relatively low returns on permanent capital, increasing competition in healthcare services from healthcare providers in other Asian countries and BGH’s ability to smoothly manage its newly acquired hospitals. In addition, the ratings have incorporated the investment in 46,116,400 ordinary shares or 6.32% of the total issued and paid-up capital of Bumrungrad Hospital PLC (BH) and 35,000,000 units of non-voting depository receipts (NVDR) or 4.79% of the total issued and paid-up capital of BH.
The “positive” outlook reflects the improving operating performance and financial profile of BGH. BGH’s ratings could be upgraded if the company can keep the operations of each hospital under control and successfully integrate the nearly-merged hospitals of the HNC Group. Alternatively, any deterioration in financial performance or a higher-than- expected rise in leverage would negatively impact its ratings or outlook.
TRIS Rating reported that BGH was established in 1969 to run a private hospital named Bangkok Hospital. BGH has grown dramatically through acquisitions since 2004. BGH purchased Samitivej PLC, BNH Medical Centre Co., Ltd., and several hospitals in major provinces of Thailand, including Bangkok Pattaya Hospital Co., Ltd., Bangkok Rayong Hospital Co., Ltd., Bangkok Phuket Hospital Co., Ltd., Bangkok Hadyai Hospital Co., Ltd., and Bangkok Ratchasima Hospital Co., Ltd. In addition, the company also invested in two hospitals in Cambodia. Currently, the BGH Group consists of 19 hospitals, with a total of 2,992 registered beds, across these hospital brands: Bangkok Hospital, Samitivej Hospital, BNH Hospital, and international hospitals under the Royal International Hospital brand. BGH announced on 14 December 2010 that it would merge with Health Network PLC (HNC), the major shareholder of the Phyathai Hospital Group and the Paolo Memorial Hospital Group. After merging with HNC, BGH’s competitive position will be enhanced as the company will operate 27 hospitals with 4,639 registered beds since hospitals under the Phyathai Hospital and Paolo Hospital brands will be added to BGH’s portfolio.
BGH’s revenue from hospital operations grew at a compound annual growth rate (CAGR) of 20% during 2005-2009. For the first nine months of 2010, the company reported total revenues from hospital operations of Bt17,529 million, up by 9.5% from the same period a year earlier. The growth came because of growth in patient volume both local and foreign patients volume and rises in inpatient and outpatient. For the first nine months of 2010, outpatient visits per day was 10,226 persons or a rise of 3% from the same period of the previous year. Over the same time period, the average daily census increased by 9% to 1,523 patients. The average length of stay, however, declined slightly from 2.95 days in 2009 to 2.9 days in the first nine months of 2010. During the past three years, 54%-56% of patient revenue came from inpatients; the remainder came from outpatients. In terms of contribution, the revenue contribution from international patients was maintained at 35%-36% of total patient revenue from 2007 through the first nine months of 2010.
TRIS Rating said, BGH’s capital structure has gradually improved during the past three years as cash flow from operations was stronger and capital expenditures fell during 2008-2009. The debt to capitalization ratio declined from 54.5% in 2006 to 45.4% in 2009 and to 43.4% at the end of September 2010. The earnings before interest, tax, depreciation and amortization (EBITDA) interest coverage ratio increased, rising from 7.06 times in 2006 to 8.19 times in 2009 and 9.93 times for the first nine months of 2010. Most debts are denominated in Thai baht with fixed interest rates. The company has very low exposure to interest rate risk or foreign exchange risk. The profitability of BGH is relatively stable and comparable with its peers. Operating income as a percentage of sales was sustained at 22%-23% from 2006 through the first nine months of 2010.
After merging with HNC, BGH’s business profile is expected to strengthen while the financial ratios for profitability will not change significantly. Operating income as a percentage of sales is expected to remain at the current level since the profit margin of the hospitals under the Phyathai Hospital and Paolo Hospital brands are comparable to the hospitals already owned by BGH. The company’s relatively large asset base will keep the pretax return on permanent capital lower than its peers. The debt to capitalization ratio will not significantly deteriorate from its current level since the merging with HNC will be completed through a share swap. In addition, the funding of investment in BH shares came mainly from its operating cash flow. Thus, the debt to capitalization is expected to be lower than 50%, said TRIS Rating. -- End
Company Rating: Affirmed at A Issue Ratings: BGH113A: Bt3,000 million senior debentures due 2011 Affirmed at A BGH133A: Bt2,000 million senior debentures due 2013 Affirmed at A BGH146A: Bt2,000 million senior debentures due 2014 Affirmed at A BGH166A: Bt1,000 million senior debentures due 2016 Affirmed at A Up to Bt2,500 million senior debentures due within 2015 A Rating Outlook: Positive
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