TRIS Rating Co., Ltd. has affirmed company and senior debenture ratings of Bumrungrad Hospital PLC (BH) at “A” with “stable” outlook. The ratings reflect BH’s leading position in Thailand’s private healthcare industry, strong market position in medical tourist segment, and cash flow stability. However, these strengths are partially offset by competition in local and international healthcare markets, single location risk, and potential risks from future investments. The “stable” outlook reflects the expectation that BH will maintain its leading position in Thailand’s private hospital market. BH’s ratings have incorporated potential acquisition deals in the medium term. TRIS Rating views that BH’s business stability and moderate gearing capital structure provide certain headroom for the company to pursue such growth strategy. However, BH’s ratings could be negatively impacted if the debt-to-capitalization ratio has exceeded 50% for an extended period.
TRIS Rating reported that BH operates a hospital in Bangkok under the name “Bumrungrad International Hospital”. The flagship hospital in Bangkok generates over 95% of the company’s total revenue. BH has service capacities of 4,500 outpatients per day and 538 registered inpatient beds. Foreign patients account for approximately 60% of the total revenue. About 70% of total revenue is from self-pay patients. BH’s revenue in 2011 stood at Bt11.1 billion, ranking the second largest healthcare providers in terms of revenue listed in the Stock Exchange of Thailand (SET).
TRIS Rating said, BH’s strong business profile reflects a solid brand franchise and three decades of respectable medical records. BH targets mostly premium local and foreign patients and competes with differentiation on services and quality. The company’s competitive edge in the medical tourist segment reflects strong networks overseas. Patients from the Middle East region account for the largest portion of BH’s total foreign patients. Accepting foreign patients gives BH a diverse source of revenue, reducing the reliance on and competitive pressure from domestic demand for healthcare services.
Over the next five years, BH plans to focus its business growth by expanding service capacity and entering new market segment. New facilities will continue to be located in the central Bangkok area. The company recently purchased two land plots located on Petchburi road and Sukhumvit Soi 1. The first land plot could be used to construct a 200-bed hospital facility. Meanwhile, the second land plot is suitable for future capacity expansion since it is located near the flagship facility. However, BH has yet to conclude the final investment plans for both land plots at the moment.
BH has been exploring an opportunity to grow in new segment, possibly by taking a majoring stake in a hospital operating in the upper mid-tier segment. Although the direction looks positive from a business diversification perspective, TRIS Rating believes that BH will be facing quite material execution risks. In TRIS Rating’s view, BH has not demonstrated success records in business consolidations and operating healthcare services in the upper mid-tier market.
TRIS Rating expects BH’s revenue to grow at least by 6%-8% per annum during the next three years. BH’s operating margins before depreciation and amortization (operating margin) have been strong and stable over the past few years, ranging between 23%-25%. In the medium term, TRIS Rating expects BH’s operating margins to remain quite stable, staying at least above 23% on average.
BH’s leverage has increased markedly since 2011 owing to the expansion of the main campus, as well as the debt-funded acquisition of Bangkok Chain Hospital PLC’s (BCH) shares. BH’s debt-to-capitalization ratio rose from 20.1% in 2010 to 42.4% in 2011 and stayed at 40.4% at the end of June 2012. In July 2012, BH sold all holding stake in BCH and expects to receive a net proceed of Bt4.5 billion. However, TRIS Rating views that BH’s leverage may not decline much from the current level since there will be a rise in investments for construction projects on the new land plots and potential acquisition deals in other hospitals.
TRIS Rating expects BH’s funds from operations (FFOs) in a range of Bt2.5-Bt3 billion per annum during 2012-2016. The expected FFOs, together with the Bt4.5 billion cash from BCH’s share sale, should be sufficient to finance most of the foreseeable capital expenditures and dividend payments. BH has a strong liquidity profile. BH’s total debt at the end of June 2012 comprised only long-term bonds with the earliest maturity in 2016. In addition, BH had approximately Bt3.3 billion in uncommitted and undrawn credit lines with financial institutions, said TRIS Rating. — End
Company Rating: Affirmed at A Issue Ratings: BH16DA: Bt1,500 million senior debentures due 2016 Affirmed at A BH18DA: Bt1,000 million senior debentures due 2018 Affirmed at A BH21DA: Bt2,500 million senior debentures due 2021 Affirmed at A Rating Outlook: Stable
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