TRIS Rating has assigned the rating of “A+” to the proposed issue of up to Bt4,000 million in senior debentures of Bangkok Dusit Medical Services PLC (BGH). At the same time, TRIS Rating has affirmed the company rating and the current ratings of BGH’s senior debentures at “A+”. The outlook remains “stable”. The proceeds from the new debentures will be used to repay debt. The ratings reflect BGH’s leading market position as the largest private hospital operator in Thailand, the enhanced capacity of its facilities, the large franchise network, its experienced management team and capable physicians, high quality services, and good equipment. These strengths are partially offset by the intense competition in the healthcare services industry from both local healthcare providers and from healthcare providers in other ASEAN countries, as well as BGH’s potential to make new debt-financed investments in the future. The “stable” outlook reflects the expectation that BGH will be able to maintain its leading position in both the 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.
BGH was established in 1969 to operate Bangkok Hospital, a private hospital. The company is the largest private hospital operator in Thailand with a strong network of hospital brands. BGH owns 29 hospitals, under five well-known and widely-accepted local hospital brands, plus one international hospital brand. Fifteen 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 are the Phyathai Hospital Group (PYT) and the Paolo Memorial Hospital Group (Paolo). BGH has a service capacity of 4,265 inpatient beds, including the newly opened 120-bed Bangkok Udon Hospital. BGH’s customer base covers the mid- to high-end segments in various locations. Twelve of BGH’s hospitals have achieved Joint Commission International (JCI) accreditation.
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. BGH’s 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 revenue from hospital operations grew at a compound annual growth rate (CAGR) of 14% during 2007-2011. For the first nine months of 2012, the company reported total revenues from hospital operations of Bt32,655 million, up by 27% from the same period last year. The rise was driven by growth in patient volume, patient acuity, more patient referrals, and the inclusion of revenues from PYT and Paolo. For the first nine months of 2012, the outpatient visits per day was 20,465 persons, or a rise of 5% year on year (y-o-y). Over the same time period, the average daily census (the average number of inpatients per day) rose by 9% y-o-y to 2,905 patients. Around 54%-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. Funds from operations (FFO) rose from Bt4,372 million in 2010 to Bt6,605 million in 2011 and to Bt6,036 million for the first nine months of 2012. The earnings before interest, tax, depreciation, and amortization (EBITDA) interest coverage ratio has increased, rising from 10 times in 2010 to 17 times for the first nine months of 2012. BGH’s total debt has risen during the last two years, jumping from Bt10,751 million at the end of 2010 to Bt19,834 million at the end of September 2012. The rise was mainly due to the inclusion of the debts of PYT and Paolo after BGH acquired these two hospital groups. Total debt also rose because BGH made more investments in new hospitals and affiliated companies. However, the debt to capitalization ratio dropped from 39.8% in 2010 to 34.9% at the end of September 2012 because the equity base grew. The operating margin has been relatively stable at 20%-22% during the last three years.
BGH plans to expand its hospital network in Chiang Mai, Rayong, and Khon Kaen provinces. Recently, Royal Bangkok Healthcare Co., Ltd. (RBH), the company’s wholly-owned subsidiary, purchased in 3,741,612 ordinary shares or 24.94% of the total issued shares of Krungdhon Hospital PLC (KDH). The share purchase cost of Bt205.8 million, was funded by internal cash flow. RBH will further make a tender offer to purchase all shares (or about 55% of total issued shares) of KDH during 11 February 2013 to 18 March 2013. The size of the transaction is approximately Bt454 million. These investments will 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 2013-2015. TRIS Rating expects BGH to manage its capital structure carefully in order to keep its financial profile strong.
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