TRIS Rating has assigned the rating of “A” to the proposed issue of up to Bt1,000
million in senior debentures of Bangkok Dusit Medical Services PLC (BGH). At the same time,
TRIS Rating has affirmed the company rating of BGH and its current senior debentures ratings
at “A”. The outlook remains “positive”. The proceeds from the new debentures will be used
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.
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.
TRIS Rating said, BGH’s revenue from hospital operations grew at a compound annual growth rate (CAGR) of 11% during 2006-2010. The company reported total revenues from hospital operations of Bt23,513 million in 2010, up 9% from a year earlier. The growth came because the numbers of both local and foreign patients grew. Outpatient visits per day in 2010 also increased, rising to 10,317 persons or an increase of 3.7% from 2009. During 2010, the average daily census of inpatients climbed by 8% to 1,499 patients. The average length of stay, however, declined slightly, falling from 3 days in 2009 to 2.9 days in 2010. During the past five years, about 54%-56% of patient revenue came from inpatients; the remainder came from outpatients. International patients comprised 33%-36% of total patient revenue each year from 2006 through 2010.
BGH’s funds from operations (FFO) increased steadily from around Bt3,000 million in 2006 to more than Bt4,000 million in 2010. FFO for 2010 was about Bt4,400 million, a 9% increase from 2009, driven mainly by effective cost control efforts. BGH’s liquidity, in terms of the FFO to total debt ratio, improved from 32.63% in 2009 to 40.67% in 2010. In addition, higher earnings and lower interest expenses spurred the earnings before interest, tax, depreciation and amortization (EBITDA) interest coverage ratio to increase, rising from 8.2 times in 2009 to 10.1 times in 2010. The company’s capital structure has gradually improved during the past four years as cash flow from operations has strengthened steadily and capital expenditures declined continuously since 2006. The debt to capitalization ratio declined from 54.5% in 2006 to 45.4% in 2009 and to 39.8% in 2010. Most debts are denominated in Thai baht at 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 held at around 22% from 2006 through 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. Thus, the debt to capitalization is expected to be lower than 50%, said TRIS Rating. -- End
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