BGH was established in 1969 to operate Bangkok Hospital, a private hospital. The company is the largest private hospital operator in Thailand, with a strong network of hospital brands. Currently, BGH operates 37 hospitals, under five well-known hospital brands, one international hospital brand, and other 3 local hospital brands. BGH’s five key hospital brands are Bangkok Hospital (18 hospitals), Samitivej Hospital (4), BNH Hospital (1), Phyathai Hospital (5), and Paolo Memorial Hospital (3). These five brands are well-known among Thais. Three international hospitals in Cambodia are run under the Royal International Hospital brand. Other three local brands are Sanamchan Hospital, Tepakorn Hospital, and Phuket International Hospital. BGH had a service capacity of 4,707 inpatient beds at the end of June 2014. Its customer base covers the mid- to high-end segments in various locations. Thirteen of BGH’s hospitals and one clinic have achieved Joint Commission International (JCI) accreditation.
BGH’s business profile is very strong, reflecting its leading market position as the largest private hospital operator in Thailand. BGH’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. BGH’s focus on tertiary care helps boost revenue and increase the utilization of its medical equipment and laboratories. The company has widened its customer base to reach more middle income patients by adding more secondary care hospitals. Economies of scale, through the pooling lab services and the centralized purchasing of medicines, medical supplies, and key medical equipment, is expected to yield benefits in the cost effectiveness.
BGH’s performance has remained solid, despite facing a domestic economic slowdown and political uncertainty last year. Revenue from hospital operations grew at a compound annual growth rate (CAGR) of 18% from 2008 through 2013. For the first six months of 2014, total revenues from hospital operations were Bt26,078 million, up by 11% from the same period last year. The rise was driven by increase in patient volume, a rise in patient severity and healthcare inflation, and the consolidation of new network hospitals. For the first six months of 2014, outpatient visits per day amounted to 22,795 persons, or a rise of 7% year-on-year (y-o-y). The average daily census (the average number of inpatients per day) rose by 12% y-o-y to 3,280 patients. About 55% of patient revenue came from inpatients; the remainder came from outpatients. Self-pay patients contributed about 66% of total revenue.
During 2015-2017, TRIS Rating’s base case expects BGH’s revenue to grow by an average of 10% per annum. The key growth drivers are the new hospitals added to BGH’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 20.4% in 2013, compared with about 22.3% during 2009-2012. Administrative expenses and expenses for doctors and clinical staffs were higher last year, as BGH prepared the healthcare resources needed for its new hospitals. However, the margin for the first six months of 2014 improved to 21.9%, as the company focused its efforts on controlling costs. During the next three years, TRIS Rating expects BGH’s operating margin to maintain at around 20%-22%.
BGH’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 Bt9,411 million in 2013, climbing from Bt8,819 million in 2012. During 2015-2017, TRIS Rating’s base case expects BGH to generate FFO in a range of Bt10,000-Bt13,000 million per annum. The FFO to total debt ratio is expected to be in the range of 35%-45% during 2015-2017.
BGH plans to expand its network to 50 hospitals within 2016. To pursue its growth strategy, BGH is building more seven new hospitals and acquired other hospitals to expand its patient base in several areas. The expansion pushed total debt outstanding to rise from Bt19,916 million at the end of 2012 to Bt23,421 million at the end of June 2014. However, with its large capital base and careful management of its capital structure, BGH kept the debt to capitalization ratio relatively stable. The ratio was about 35% during 2012 through the end of June 2014. During 2015-2017, TRIS Rating expects BGH to spend a total of capital expenditures of about Bt30,000 million. The capital BGH needs to fund its investments will be provided in part by its operating cash flow and the cash it receives from an issuance of Bt10,000 million in convertible debentures. Despite entering an investment cycle, BGH 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.
Bangkok Dusit Medical Services PLC (BGH)
Issuer Rating: AA-
Issue Ratings:
BGH153A: Bt2,500 million senior unsecured debenture due 2015 AA-
BGH166A: Bt1,000 million senior unsecured debenture due 2016 AA-
BGH233A: Bt4,000 million senior unsecured debenture due 2023 AA-
Rating Outlook: Stable