Resilient in the face of economic fluctuations
The healthcare services industry has grown continuously over the past decade. Expenditures for healthcare services from the private sector and the public sector have increased every year. Healthcare spending in 2015 equaled Bt743,944 million, compared with Bt383,799 million in 2006. The proportion of total healthcare spending by the government in 2015 was 51%, slightly ahead of the private sector. The ongoing rise in healthcare spending is supported by several factors: government healthcare provided through the social security scheme, civil service scheme, and universal coverage (UC) insurance. The number of insured persons under the social security scheme has increased moderately, growing at average annual growth rate of 4.8% during 2007-2016. In 2016, there were about 14 million persons insured under the social security scheme, or around 20% of the Thai population. Moreover, healthcare expenditures are rising as the disposal income of the Thai population rises and because people are becoming more health-conscious.
Aging population raises demand for healthcare
Thailand became an aging society in 2005 when the proportion of the total population aged 60 years or over (elderly persons) reached 10%. The demographic transition in Thailand is happening rapidly. Projections show one-fifth of the Thai citizens will be elderly persons by 2021, as reported by the National Economic and Social Development Board (NESDB). Thailand will become a complete aged society within the next four years.
In addition, demand for healthcare service has been driven by a rise in medical tourism. The National Statistical Office (NSO) reported that in 2012 there were about three million international patients treated by private hospitals. TRIS Rating forecasts the number of international patients in 2016 will rise to approximately 3.5 million persons. The rise will be due to the affordability of medical services, the quality of services and facilities, and a well-established tourism industry in Thailand. As of January 2017, 55 private hospitals in Thailand achieved Joint Commission International (JCI) accreditation, a world-class standard for healthcare service providers.
Number of private hospitals nearly unchanged
In 2015, the total number of hospitals in Thailand was 1,375 units; the majority (75%) was public sector hospitals. There were 343 private hospitals in Thailand; 104 were located in Bangkok. The number of private hospitals has held steady. Over the past few years, a number of private hospitals has merged or acquired by several large groups of entrepreneurs.
Financial Highlights
The healthcare service providers rated by TRIS Rating comprise Bumrungrad Hospital PLC (BH), Bangkok Dusit Medical Services PLC (BDMS), and Bangkok Chain Hospital PLC (BCH). BH is one of a leading private healthcare provider in Thailand and the Asian region. BH operates a hospital in Bangkok under the name Bumrungrad International Hostpital. BH focuses mainly on tertiary care treatment and targets local and foreign patients in the premium segment.
BDMS is the largest private hospital operator in Thailand with 44 hospitals nationwide. The company's five key hospital brands are well-known in the Asia-Pacific region: Bangkok Hospital (20 hospitals), Samitivej Hospital (5), BNH Hospital (1), Phyathai Hospital (5), and Paolo Hospital (5). Two international hospitals in Cambodia are run under the Royal International Hospital brand. The remaining six hospitals carry local brand names. BDMS covers the delivery of comprehensive array of healthcare service spanning all levels and intensity of care. BDMS aims to be one of the key healthcare service providers in the Asia-Pacific region, aiming for 50 hospitals within the next few years.
BCH is one of the leading private hospitals with a strong position in the middle-income cash patient and social security patient segments. BCH owns and operates 11 hospitals and two polyclinics. The key hospital brands of BCH consist of Kasemrad Hospital (6), Karunvej Hospital (4), and World Medical Center (WMC). The Kasemrad brand focuses on both cash patients and social security patients, while the Karunvej brand focuses on social security patients only. The WMC brand aims to service high-income cash patients and international patients.
Operating margins remain healthy
The operating margins of all healthcare service providers rated by TRIS Rating remain healthy. The operating margin of BH, measured by operating income before depreciation and amortization as a percentage of revenue, increased from 29.4% in 2015 to 31.4% for the first nine months of 2016. The rise was driven by rises in the prices for services and an increase in revenue intensity. BDMS’s operating margin was 21.1% in 2015 and 20.8% for the first nine months of 2016. Despite the openings of several new hospitals, the operating margin stayed around 20%-22% during the past five years. BCH’s operating margin improved gradually from 24% in 2015 to 26.6% in the first nine months of 2016. The improvement was mainly driven by a recovery in the operating performance of WMC as well as a drop in losses from doubtful accounts receivable due from the Social Security Fund.
Sound capital structures despite expansion plans
Due to the different business strategies and customer bases, the leverage policies employed by the rated healthcare service providers are diverse. The leverage level of BH, shown by the total debt to capitalization ratio, is quite low as BH owns only a single asset. In the first nine months of 2016, BH’s debt to capitalization ratio was 27%. BH plans capital expenditures around Bt15,000 million during 2016-2019. The leverage level is forecast to remain below 30% as liquidity is strong and operations are solid.
BDMS has moderate level of financial risk, reflecting its sound operating performance, rising cash flow, satisfactory liquidity, and moderate use of debt. BDMS’s debt to capitalization ratio stayed below 40% during the last five years, thanks to its large capital base and strong cash flow. BDMS has continued to expand its hospital network and recently invested in “BDMS Wellness Clinic”. BDMS’s planned capital expenditures will be around Bt41,000 million in total during the next three years. Despite the large investments, the debt to capitalization ratio is expected to stay below 45% during the next three years.
BCH’s leverage level has risen in the past five years as it expanded. The debt to capitalization ratio increased from 24.1% in 2011 to 45.9% at the end of September 2016. The level of financial leverage of BCH is expected to gradually improve in the future due to a drop in capital expenditures and improved liquidity. BCH plans capital expenditures of Bt500-Bt900 million per annum during the next three years, less than the annual capital expenditures in 2012-2015, which ranged from Bt600-Bt2,000 million.