TRIS Rating has upgraded the company rating and the existing senior unsecured debenture rating of Bumrungrad Hospital PLC (BH) to “A+” from “A” with “stable” outlook. The upgrades reflect the significant improvement in BH’s profitability and cash flow, while its leverage is expected to remain low despite its investments in new facilities under the master plan. The ratings continue to reflect BH’s leading position in the private segment of the healthcare industry in Thailand and its strong market position in the medical tourism segment. However, these strengths are partially offset by BH’s single premise limitation and intense competition from local and international providers of healthcare services.
The “stable” outlook is based on the expectation that BH will maintain its leading position in the premium healthcare segment and continue delivering strong financial results. Its high cash balances and the stability of its cash flow will provide financial flexibility while the company is investing and expanding. Looking forward, despite the company’s investment plan, BH’s debt-to-capitalization ratio should not significantly increase from the current level.
BH’s credit ratings could be upgraded should the company successfully diversify its business portfolio while maintaining a strong financial profile. In contrast, the rating downside may occur if BH’s operating performance drops sharply from the current level, leading to noticeably weaker profitability and less liquidity for the extended periods.
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 6,220 outpatients per day and 676 registered inpatient beds (including Ulaanbaatar Songdo Hospital in Mongolia). The company focuses mainly on the tertiary care treatment. Foreign patients account for more than 50% of the total number of patient visits annually. About 70% of total revenue is from self-pay patients.
BH’s strong business profile reflects its solid brand equity with more than three decades of respectable clinical outcomes. BH mostly targets premium local and foreign patients and competes with differentiation on services and quality. The company has a very strong revenue generating capacity per patient, a key factor in attracting and retaining talented medical staff and specialists.
Patients from the Middle East account for the largest portion of BH’s total foreign patients. Revenue contribution from foreign patients comprised around 60%-65% of BH’s total revenues. The relatively high contribution of foreign patients helps enhance BH’s revenue base and profitability since foreign patients usually have longer length of stay and higher revenue intensity. In addition, the diverse nationalities of its patients help reduce its reliance on domestic demand for healthcare services.
BH’s financial profile has benefited from the strong growth in its revenues and profitability. Revenues have grown at a compound annual growth rate of 11% over the last five years. Revenues rose from Bt9,201 million in 2009 to Bt15,630 million in 2014. The rise was driven not only by increases in patient volume and price, but also higher revenue intensity. The company’s operating margin, as measured by operating income before depreciation and amortization as a percentage of revenue, has increased steadily over the last five years, from around 23.5% in 2010 to around 28% in 2014 and 31% in the first half of 2015. As a result, BH’s earnings before interest, tax, depreciation, and amortization (EBITDA) improved to Bt4,605 million in 2014, up from only Bt2,404 million in 2010.
For the first seven months of 2015, the number of Thai patients declined. Despite the decline, BH’s revenue continued growing, supported by rising numbers of international patients. Revenues from foreign patients for the first seven months of 2015 rose to Bt5,719 million, up by 27% from the same period last year. Revenues from Thai patients, both inpatients and outpatients, in the first seven months of 2015 stood at Bt3,028 million, up by only 1% year-on-year (y-o-y). Going forward, TRIS Rating expects BH to continue delivering solid operating performances. Revenue is expected to grow by around 10% per annum during the next three years. The operating margin is expected to remain healthy, averaging 28%-30% or higher annually over the next three years.
BH is currently expanding yet still focusing on the premium healthcare segment. The company has acquired two land plots nearby existing campus for its future expansion. One plot is on Petchaburi 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 the Petchburi road project is approximately Bt8,200 million (excluding the cost of land). The Petchburi road campus received the Environmental Impact Assessment (EIA) approval in January 2015. The construction is expected to start in the first quarter of 2016 and finish by the end of 2018. The Sukhumvit Soi 1 plot will comprise three buildings, one of which is primary for parking lot, with the investment cost over Bt2,200 million. Thus, BH’s total capital expenditures for 2015-2018 will be around Bt16,000 million (including maintenance capital expenditures of Bt1,000-Bt1,300 million per annum).
BH’s liquidity is relatively strong. At the end of June 2015, cash on hand and marketable securities stood at Bt7,236 million. Funds from operations (FFO) are strong and are expected to range from Bt4,000-Bt5,000 million per annum during the next three years. At the end of June 2015, BH’s total debt comprised only Bt5,000 million of long-term bonds. The total debt to capitalization ratio stood at 29.80%. BH’s significant amount of cash on hand and strong cash flow from operations should be sufficient to fund its capital expenditures during 2015-2018. Therefore, BH’s leverage should not significantly deteriorate from the current level.
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