TRIS Rating has affirmed the 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 the medical tourist segment, and stable cash flow. However, these strengths are partially offset by competition in local and international healthcare markets, the risk from having single location, and the potential risks from BH’s future investments. The “stable” outlook is based on the expectation that BH will maintain its leading position in the private healthcare segment and continue delivering strong performance. Its business is stable, with moderate gearing. These factors provide financial flexibility while the company is investing and expanding. However, BH should keep its debt-to-capitalization ratio below 50% in order to maintain its credit quality.
BH operates a hospital in Bangkok under the name “Bumrungrad International Hospital”. The company is a leading private healthcare provider in Thailand and the Asian region, with service capacities of 5,500 outpatients per day and 538 registered inpatient beds. The company’s strong business profile reflects its solid brand equity and three decades of respectable medical records. BH targets mostly premium local and foreign patients and competes with differentiation on services and quality.
In 2012, BH’s sales were Bt12,856 million, with approximately 70% from self-pay patients. Foreign patients accounted for about 60% of total sales. The company’s competitive edge in the medical tourist segment reflects its strong overseas network. Patients from the Middle East region account for the largest portion of BH’s total foreign patients. Accepting many foreign patients gives BH diverse sources of revenue. As a result, BH can ease the competitive pressure it faces and reduce its reliance on domestic demand for healthcare services.
BH is currently expanding yet still focusing on the premium healthcare segment. The company acquired two land plots over the past two years. One is on Petchburi road and the other is on Sukhumvit Soi 1. On the Petchburi road site, BH will build a 200-bed hospital facility. The construction is expected to finish by 2017. The Sukhumvit Soi 1 plot will be used for capacity expansion of its near-by flagship facility. The total investment for these two projects is approximately Bt9,800 million, excluding land costs. Based on BH’s cash on hand and strong cash flow, TRIS Rating believes that these investments will not materially impact BH’s sound financial profile.
TRIS Rating expects BH to continue delivering solid operating performance. The revenue is forecasted to grow by at least 5%-8% per annum during the next three years. Operating margins before depreciation and amortization (operating margin) is expected to remain stable and average above 23%, over the next three years. With its strong operation, funds from operations (FFO) is expected to be Bt2.5-Bt3 billion per annum during the next three years. FFO, together with the Bt4.5 billion in cash BH received from selling shares of Bangkok Chain Hospital PLC (BCH), is considered sufficient to fund BH’s planned capital expenditures and dividend payment.
BH has a sound liquidity profile even though it is expanding. Total debt at the end of June 2013 comprised only long-term bonds, with the earliest maturity date in 2016. In addition, BH had approximately Bt3.3 billion in uncommitted and undrawn credit lines with financial institutions. This financial slack gives BH needed financial flexibility should the opportunity arise for an acquisition. BH has been looking for acquisition opportunities either for its second brand in the mid- to upper-income segment or an expansion abroad. However, TRIS Rating believes that it will take some time for BH to find and execute a deal.
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