TRIS Rating Co., Ltd. has assigned the rating of “A” to the proposed issue of up to Bt3,000 million in senior debentures of Bangkok Dusit Medical Services PLC (BGH). At the same time, TRIS Rating has affirmed the company and current senior debenture ratings of BGH “A” with “stable” outlook. The proceeds from the new debentures will be used for operating activities and as working capital. 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, concerns over future leverage levels as the domestic and international expansions continue, and the expected decline in foreign patient volume due to political unrest in Thailand and the global economic slowdown.
The “stable” outlook reflects the expectation that BGH’s operating performance will not significantly deteriorate from the current level though the political turmoil in mid-April might negatively impact its patient volume. The outlook also assumes that the company will fund future investments largely through operating cash flow and its total debt to capitalization ratio will be maintained at around 50%. The deviation from the planned capital expenditures that pushes the debt level significantly higher than projected will negatively impact the company’s rating or outlook.
TRIS Rating reported that BGH was established in 1969 to run a private hospital named Bangkok Hospital. Currently, the BGH Group consists of 19 hospitals, with a total of 2,959 registered beds. 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 operations. Around 56% of patient revenue during the past three years came from inpatients; the remainder came from outpatients. As of December 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 through acquisitions since 2004. BGH purchased Samitivej PLC, BNH Medical Centre Co., Ltd., and several hospitals in major provinces 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 operations has grown at a compound annual growth rate (CAGR) of 42% during 2004-2008. The CAGRs of outpatient visits per day and the 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 10%-12%. The amount of revenue from foreign patients has steadily risen, climbing from only 18% of total patient revenue in 2004 to 36% in 2008.
TRIS Rating said that 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 declining 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 improving 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 at 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 planned investments in a 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.
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, profitability 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 Up to Bt3,000 million senior debentures due within 2016 A Rating Outlook: Stable
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