TRIS Rating Co., Ltd. has affirmed the company rating of TRIS Rating affirms the company rating of Bangkok Chain Hospital PLC (KH) at “A-” with “stable” outlook. The rating reflects KH’s leading position in mid- to lower-income patient segment, a diversified revenue base, experienced management, and operational efficiency. The rating is partially offset by intense competition in the healthcare industry, execution risks inherent in future expansions, and exposure to regulatory risks. The “stable” outlook reflects the expectation that KH will continue to maintain its market strength in the managed care sector and employ a cautious financial policy to balance the funding sources for the investment projects. The rating is very solid within the current category and should remain relatively strong despite the downside risks from the business expansion efforts.
TRIS Rating reported that KH owns and operates six general hospitals under the name “Kasemrad Hospital”, four of which are located in Greater Bangkok, while the other two are in Chiangrai and Saraburi provinces. KH’s revenues are from two patient groups: self-pay and social security coverage (SC). Revenue contributions from self-pay and SC were approximately 70% and 30%, respectively. KH pulled out from the universal coverage (UC) system in 2010. The impacts on KH’s credit profile have been limited given the low margin in the UC segment and a gradual pick up in revenue from self-pay patients.
KH has a solid market position as a leading private hospital participating in the managed care scheme. Its SC market share in Bangkok in terms of the number of registered persons has ranged from 9%-11% over the past five years. Sizable bases of registered SC persons give the company an economy of scale. Diverse revenue sources also help enhance operational stability. Participation in the public healthcare schemes helps absorb overhead expenses with recurring cash flows and sustained utilization levels for capital-intensive facilities. KH’s cost control has been highly effective, underscored by stable margins over the past five years.
TRIS Rating said, KH’s rating reflects execution risks for expansion plans in Chaengwattana and Pattaya. Both projects target higher-end segment, in which the company’s market strength is viewed as less valuable than the current business operation due to a limited track record and limited brand recognition. The company is highly exposed to regulatory risks with regard to the public healthcare schemes. The public healthcare system in Thailand is not fully mature and may undergo several reformations in the foreseeable future. Nonetheless, TRIS Rating believes that the management team is adept and can handle regulatory challenges so as to sustain competitiveness in the market.
The financial profile of KH is strong and better than industry peers. Revenue contracted by 10% in the first half of 2011 after exiting UC. Operating margins improved slightly due to greater self-pay contributions. The balance sheet remains healthy with debt to capitalization at 25.6%. The leverage ratio is expected to rise further from expansion projects in Chaengwattana, Pattaya, and Sukapiban 3. KH’s credit rating should not be impacted if the ratio is kept below 50%. KH’s ability to service its debt obligations is good and we do not envision any liquidity stress over the next 12-18 months.
The flood crisis hitting Bangkok and vicinity has directly impacted two of KH’s hospitals since late October 2011, while another two in Bangkok are located in high risk areas. TRIS Rating expects the flood impacts to lower KH’s earnings during the last two months of 2011. KH’s insurance policies cover property damages, but not business interruptions. TRIS Rating views healthcare demand to pick up relatively quickly once the situation resolves. Based on KH’s business strength, its credit profile should weather the current challenging environments. -- End
Company Rating: Affirmed at A- Rating Outlook: Stable
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