TRIS Rating Co., Ltd. has affirmed the company and senior debenture ratings of Bangkok Dusit Medical Services PLC (BGH) at “A+” with “stable” outlook. The ratings reflect BGH’s leading market position as the largest private hospital operator in Thailand, the enhanced capacity of its facilities, the larger franchise network derived from the merger with the Phyathai Hospital Group (PYT) and the Paolo Memorial Hospital Group (Paolo), its experienced management team and capable physicians, high quality services, and good equipment. These strengths are partially offset by the intense competition from both local and international healthcare service providers and potential future debt-financed investments. The “stable” outlook reflects the expectation that BGH will be able to maintain its leading position in both domestic and regional private hospital markets. TRIS Rating expects BGH will continue to attract more patients and maintain its solid operating performance. Future investments or acquisitions, if any, should be prudently considered in order to keep its financial risk low.
TRIS Rating reported that BGH was established in 1969 to operate a private hospital, Bangkok Hospital. The company is the largest private hospital operator in Thailand with a strong network of hospital brands. Currently, BGH owns 28 hospitals, under five well-known and widely-accepted local hospital brands, plus one international hospital brand. Fourteen hospitals are operated under the Bangkok Hospital brand, three hospitals under the Samitivej Hospital brand, one hospital under the BNH Hospital brand, and two international hospitals under the Royal International Hospital brand. Two other hospital brands, Phyathai Hospital and Paolo Memorial Hospital, were added to BGH’s portfolio in April 2011. BGH has service capacities of 4,140 inpatient beds. In addition, the company has planned to open a 120-bed hospital in Udon Thani province by the end of 2012. This strong network has enlarged BGH’s customer base to cover the mid- to high-end segments in various locations. Nine hospitals under operation of BGH have achieved Joint Commission International (JCI) accreditation.
TRIS Rating said, BGH’s competitive edge is derived from its diversity in terms of services offered, its customer base, and the locations of its hospitals. The company has the largest pool of physicians, nurses, and clinical staff, as well as the strongest referral network in Thailand. The focus on tertiary care helps boost revenue and increase the utilization of medical equipment. Economies of scale, through the pooling lab services and the centralized purchasing of medicines, medical supplies, and key medical equipment, is expected to benefit the company in terms of cost effectiveness. In addition, the implementation of a cash pooling system efficiently reduced the short-term loan requirements for each hospital and lowered the financing cost across the group.
BGH’s revenues from hospital in 2011 soared by 50% year-on-year (y-o-y) to Bt35,224.5 million, and jumped by 34.9% y-o-y for the first six months of 2012. The rise was driven by growth in patient volume, patient acuity, more patient referrals, and the inclusion of revenues from PYT and Paolo. In 2011, the outpatient visits per day was 20,322 persons, jumped by 97% y-o-y, and the average daily census was 2,665 patients, up by 78% y-o-y. Around 53%-55% of patient revenue came from inpatients; the remainder came from outpatients. More than 70% of total revenue was from self-pay patients.
BGH’s financial strength is underpinned by its strong operating performance. Its cash flow is considered strong and has substantially increased during the past two years. Funds from operations (FFOs) rose from Bt4,372 million in 2010 to Bt6,605 million in 2011. For the first six months of 2012, the company generated FFOs of Bt4,096 million. The operating margin has been relatively stable at around 20%-22% during the last three years. Following a cost saving program, improvements in asset utilization, and a recent expansion in the non-hospital segment which offers higher return, BGH’s profitability is expected to improve in the medium term.
BGH’s total debt has risen in recent periods, jumping from Bt10,751 million at the end of 2010, to Bt16,792 million at the end of 2011, and to Bt20,968 million at the end of June 2012. The rise was mainly due to the inclusion of debts from PYT and Paolo after the acquisitions and the investments in new hospitals and affiliated companies. However, the company has increased its equity base proportionately, thus, its debt to capitalization ratio slightly dropped from 39.8% in 2010 to 37.5% at the end of June 2012. The company has very low exposure to interest rate risk and foreign exchange risk, since most debts are denominated in Thai baht, at fixed interest rates.
BGH’s current investments in new hospitals in Chiang Mai, Udon Thani, and Rayong provinces are expected to bring good growth prospects, enhance BGH’s hospital network across the country, and bring larger economies of scale. The company also plans to invest more in the non-hospital segment, e.g., lab services, producing and selling pharmaceuticals, and medical supplies. BGH plans to spend Bt6,200-Bt7,700 million per annum in capital expenditures during 2012-2015, said TRIS Rating. — End
Company Rating: Affirmed at A+ Issue Ratings: BGH133A: Bt2,000 million senior debentures due 2013 Affirmed at A+ BGH143A: Bt1,000 million senior debentures due 2014 Affirmed at A+ BGH146A: Bt1,970 million senior debentures due 2014 Affirmed at A+ BGH153A: Bt2,500 million senior debentures due 2015 Affirmed at A+ BGH166A: Bt1,000 million senior debentures due 2016 Affirmed at A+ Rating Outlook: Stable
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