TRIS Rating has assigned the rating of “AA-” to the proposed issue of up to Bt2,000 million in senior unsecured debentures of Bangkok Dusit Medical Services PLC (BDMS). At the same time, TRIS Rating has affirmed the company and current senior unsecured debenture ratings of BDMS at “AA-”. The outlook remains “stable”. The proceeds from the new debentures will be used for general corporate purposes and debt repayment. The ratings reflect BDMS’s leading market position as the largest private hospital operator in Thailand, extensive referral network of hospitals, and its sound operating performance with strong cash flow generation. BDMS's ratings continue to reflect its experienced management team and capable physicians. These strengths are partially offset by the large capital expenditures BDMS will make in the medium term and competition in the local and international healthcare markets.
The “stable” outlook reflects the expectation that BDMS will maintain its leading position in both the domestic and regional private hospital markets and continue to deliver solid operating performance. BDMS is expected to expand its hospital network without a material deterioration in its financial profile. The credit ratings of BDMS could be under downward pressure if BDMS makes any aggressive debt-funded investment or BDMS's profitability deteriorated for a prolonged period of time. The ratings could be revised upward should its financial profile improves significantly from its current level so that its FFO to total debt ratio stays at around 60%-70% on a sustainable basis.
BDMS was established in 1969. BDMS was listed on the stock exchange of Thailand (SET) in 1991. The company is the largest private hospital operator in Thailand, with a strong network of hospital brands. Currently, BDMS operates 41 hospitals, under five well-known hospital brands, one international hospital brand, and other six local hospital brands. BDMS’s five key hospital brands are Bangkok Hospital (19 hospitals), Samitivej Hospital (5), BNH Hospital (1), Phyathai Hospital (5), and Paolo Memorial Hospital (3). These five brands are well-known among Thais. Two international hospitals in Cambodia are run under the Royal International Hospital brand. Other six local brands are Sanamchan Hospital, Tepakorn Hospital, Phuket International Hospital, Sri Rayong Hospital, Dibuk Hospital, and Muang Petch Hospital. BDMS had a service capacity of 5,507 inpatient beds at the end of March 2015. Its customer base covers the mid- to high-end segments in various locations.
BDMS’s business profile is very strong, reflecting its leading market position as the largest private hospital operator in Thailand. BDMS’s competitive edge is derived from the diverse range of services it offers, its broad customer base, and the locations of hospitals. The company has the largest pool of physicians, nurses, and clinical staff in Thailand, as well as the strongest referral network. BDMS’s focus on tertiary care helps boost revenue and increase the utilization of its medical equipment and laboratories. Economies of scale, through the pooling lab services and the centralized purchasing of medicines, medical supplies, and key medical equipments, is expected to yield benefits in the cost effectiveness.
BDMS’s performance has remained sound and solid. Revenue from hospital operations grew at a compound annual growth rate (CAGR) of 18% from 2009 through 2014. For the first three months of 2015, total revenues from hospital operations were Bt14,845 million, up by 10% year-on-year (y-o-y). The rise was driven by increase in patient volume, a rise in patient referral, and the consolidation of new network hospitals. For the first three months of 2015, outpatient visits per day amounted to 24,434 persons, or a rise of 7.1% y-o-y. The average daily census (the average number of inpatients per day) rose by 6.6% y-o-y to 3,618 patients. About 56% of patient revenue came from inpatients; the remainder came from outpatients. Self-pay patients contributed about 63% of total revenue.
During 2015-2017, TRIS Rating’s base case expects BDMS’s revenue to grow by an average of 10% per annum. The key growth drivers are the new hospitals added to BDMS’s network and growth in patient volume across its hospital network. The operating margin (operating income before depreciation and amortization as a percentage of sales) was 21.5% in 2014, and 23.6% for the first three months of 2015, compared with about 20.4% in 2013. The rise in operating margin was due to its strong growth in revenues and its efficient cost control. During 2015-2017, TRIS Rating expects BDMS’s operating margin to maintain at about 22%.
BDMS’s financial strength is underpinned by its sound operating performance, an improvement in its ability to generate cash flow and sufficient liquidity. Funds from operations (FFO) were Bt10,832 million in 2014, climbing from Bt9,411 million in 2013. During 2015-2017, TRIS Rating’s base case expects BDMS to generate FFO in a range of Bt11,000-Bt13,000 million per annum. The FFO to total debt ratio is expected to be in the range of 35%-45% during 2015-2017.
BDMS plans to expand its network to 50 hospitals within 2017. To pursue its growth strategy, BDMS continues to build new hospitals and acquired other hospitals to expand its patient base in several areas. The expansion pushed total debt outstanding to rise from Bt22,801 million at the end of 2013 to Bt28,991 million at the end of March 2015. However, with its large capital base and conservative financial policy, BDMS kept the debt to capitalization ratio below 40% during 2013 through March of 2015. During 2015-2017, TRIS Rating expects BDMS to spend a total of capital expenditures of about Bt30,000 million. The capital BDMS needs to fund its investments will be provided in part by its operating cash flow. BDMS is expected to manage its capital structure conservatively and maintain an adequate financial cushion. The company’s debt to capitalization ratio is expected to stay below 45% during the next three years.
Company Rating: AA- Issue Ratings: BDMS166A: Bt1,000 million senior unsecured debentures due 2016 AA- BDMS233A: Bt4,000 million senior unsecured debentures due 2023 AA- Up to Bt2,000 million senior unsecured debentures due within 2025 AA- Rating Outlook: Stable
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