TRIS Rating Co., Ltd. has affirmed the company rating of Bangkok Dusit Medical Services PLC (BGH) and the ratings of BGH’s senior debentures at “A” with “stable” outlook. The ratings reflect BGH’s leading position as the largest private hospital operator in Thailand, strong patient volume growth, capable physicians and experienced management team, and high quality service. The ratings also take into consideration BGH’s strong franchise network under the brands “Bangkok Hospital”, “Samitivej Hospital”, and “BNH Hospital”. However, these strengths are partially offset by the relatively low return on permanent capital, high debt level due to rapid expansion, concerns over future leverage levels as the domestic and international expansions continue, and increasing competition in the healthcare industry due to the economic slowdown.
The “stable” rating outlook of BGH reflects the expectation that operating performance will be sustained at the current level. The outlook also assumes that the company will fund future investments largely through operating cash flow so that the total debt to capitalization ratio will remain at or below 50%. Any deviation from the planned levels of capital expenditures that pushes the debt level significantly higher will negatively impact the company’s rating or outlook.
TRIS Rating reported that BGH was established in 1969 with an initial registered capital of Bt10 million to engage in a private hospital named “Bangkok Hospital”. Currently, 19 hospitals, with a total of 2,959 registered beds, are under the umbrella of the BGH Group. Thirteen hospitals are operated under the “Bangkok Hospital” brand, three hospitals under the “Samitivej Hospital” brand, one hospital under the “BNH Hospital” brand, and two international hospitals under the “Royal International Hospital” brand. Almost all of BGH’s revenue comes from hospital operation. Around 56% of patient revenue during the past three years came from inpatients; the remainder came from outpatients. As of 2008, BGH achieved Joint Commission International (JCI) accreditation in seven hospitals: Bangkok Hospital, Bangkok Heart Hospital, Wattanosoth Hospital, Bangkok International Hospital, Samitivej Sukhumvit Hospital, Samitivej Srinakarin Hospital and Samititvej Sriracha Hospital.
BGH has grown dramatically since 2004 due to acquisitions. BGH purchased Samitivej PLC, BNH Medical Centre Co., Ltd., and several hospitals in the eastern, southern, and northeastern regions of Thailand, including Bangkok Pattaya Hospital Co., Ltd., Bangkok Rayong Hospital Co., Ltd., Bangkok Phuket Hospital Co., Ltd., Bangkok Hadyai Hospital Co., Ltd., and Bangkok Ratchasima Hospital Co., Ltd. Revenue from hospital operation had grown at a compound annual growth rate (CAGR) of 42% during 2004-2008. The CAGR of outpatient visits per day and admission rate per day were 31% and 29% during the same period, respectively. However, the CAGR of inpatient days was around 27%. The average length of stay declined from 3.21 days in 2004 to 3.02 days in 2008. The CAGR of revenue per outpatient visit and revenue per inpatient day during 2004-2008 were both around 10%-12%. The amount of revenue from foreign patients had steadily risen, from only 18% of total patient revenue in 2004 to 36% in 2008.
The acquisitions of several hospitals in the past few years pushed the debt to capitalization ratio from 40% in 2004 to 54.5% in 2006 before declined to 46% in 2008. Due to the increasing debt level, earnings before interest, tax, depreciation and amortization (EBITDA) interest coverage declined from 10.4 times in 2004 to 6.7 times in 2007 before improved to 8.07 times in 2008. The management team expects to maintain the debt to capitalization ratio at this level despite growth plans. Most debts are denominated in Thai baht with fixed interest rates. The company has no exposure to interest rate risk or foreign exchange risk. Owing to the economic slowdown, the company has delayed the investments in the 60-bed Neuro hospital and a hospital in Abu Dhabi. However, the company plans to spend around Bt2,600 million in 2009 (around 11% of total patient revenues) for maintenance of existing hospitals and investments in new hospitals in Hua Hin and Phnom Pehn.
TRIS Rating said, the profitability of BGH is comparable with its peers. Operating income as a percentage of sales dropped slightly from 22.46% in 2007 to 21.60% in 2008. The ability to raise prices will be constrained by the expected decline in patient volume due to the economic slowdown and the rising unemployment rate in Thailand. Therefore, the profitability of the company will depend on its ability to control cost and improve the utilization of shared assets and services within the group. The company’s relatively large asset size is not fully utilized, keeping the pretax return on permanent capital lower than peers. However, this ratio had improved from 11.13% in 2007 to 12.84% in 2008. -- End
Company Rating: Affirmed at A Issue Ratings: BGH113A: Bt3,000 million senior debentures due 2011 Affirmed at A BGH133A: Bt2,000 million senior debentures due 2013 Affirmed at A Rating Outlook: Stable
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