TRIS Rating has affirmed the company and senior unsecured 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, its 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 premium healthcare segment and continue delivering strong performance. Its high cash balances and the stability of its cash flow will provide financial flexibility while the company is investing and expanding. Looking forward, following the company’s investment plan, BH is able to maintain its debt-to-capitalization ratio below 50% in the next few years.
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 580 registered inpatient beds. Foreign patients account for approximately 60% of the total revenue. About 70% of total revenue is from self-pay patients. In March 2014, BH set up Health Horizon Enterprise Pte. Ltd. (HHE), a subsidiary registered in Singapore, to acquire Bumrungrad Mongolia LLC (BML). BML held a 51% stake in Seoul Seniors Tower LLC (SST). SST owned and operated Ulaanbaatar Songdo Hospital (UBSD) in Mongolia. The acquisition cost Bt395 million. Thus, the acquisition has made a minimal contribution to BH’s revenues.
BH’s strong business profile reflects its solid brand equity and three decades of respectable medical records. BH mostly targets premium local and foreign patients and competes by differentiating its products based on service and quality. Patients from the Middle East 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.
In 2013, despite encountering a domestic economic downturn and political instability, BH’s operating performance remained strong. Total revenue grew to Bt14,346 million in 2013, up by 10.5% from Bt12,983 million in 2012. The rise was driven by service price raise and an increase in revenue intensity. The company’s gross margin jumped to 38.4% in 2013 from 36.5% in 2012. As a result, earnings before interest, tax, depreciation, and amortization (EBITDA) was strong at Bt4,122 million in 2013, up from Bt2,200-Bt3,500 million per year during 2008-2012. For the first six months of 2014, BH further faced ongoing political environment in Thailand, leading to decline in the number of foreign patients. However, the drop in foreign patients was offset by a significant rise in the revenue intensity of its foreign inpatients. As a result, the total revenues from foreign patients for the first seven months of 2014 continued rising to Bt4,420 million, up by 3.7% over the same period of 2013. Revenue from Thai patients, both inpatients and outpatients increased as well. During the first seven months of 2014, revenue from Thai patients grew by 10.2% over the same period of 2013. BH’s gross margin rose to 39.2% in 2014, from 37.9% in 2013.
TRIS Rating expects BH to continue delivering solid operating performance. Revenue is forecasted to grow by at least 6% per annum during the next three years. The operating margin before depreciation and amortization (operating margin) is expected to remain stable, averaging around 25% or higher, over the next three years.
BH is currently expanding yet still focusing on the premium healthcare segment. The company acquired two land plots during the past three years for future expansion. One plot 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 total investment for these two projects is approximately Bt9,800 million, excluding land costs. Currently, the Petchburi campus has been delayed to 2015 due to redesign and resubmission of Environmental Impact Assessment (EIA) approval. The construction is expected to start in June 2015 and finish by 2017. The Sukhumvit Soi 1 plot will be used for parking lot until it is needed. BH’s investment plans will be Bt600-Bt4,000 million per year during 2014-2017. BH typically keeps a cash balance of Bt3,000-Bt6,000 million per year. Funds from operations (FFO) are strong and expected to range from Bt3,300-Bt3,900 million per annum during the next three years. As a result, TRIS Rating believes that these investments will not materially impact BH’s sound financial profile. At the end of June 2014, BH’s total debt comprised only Bt5,000 million of long-term bonds. Its total debt to capitalization ratio stood at 33.22%.
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