TRIS Rating Affirms Company & Senior Unsecured Debt Ratings and Outlook of “BH” at “A+/Stable”

TRIS Rating has affirmed the company and senior unsecured debenture ratings of Bumrungrad Hospital PLC (BH) at “A+” with “stable” outlook. The ratings reflect BH’s leading position in Thailand’s private healthcare industry, its strong market position in the medical tourist segment, and stable cash flow. However, these strengths are partially offset by competition in local and international healthcare markets, the risk from having single location, and the current worldwide economic slowdown, which may reduce the number of foreign patients.

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 is not expected to increase significantly 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 significantly 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 6,260 outpatients per day and 637 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 through differentiation based on services offered and service 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.

In 2015, despite an economic slowdown, BH’s operating performance remained strong. Total revenue rose to Bt17,660 million in 2015, growing by 13% year-on-year (y-o-y). The rise was driven by service price raise and an increase in revenue intensity. The company’s operating margin, as measured by operating income before depreciation and amortization as a percentage of revenue, rose to 30.6% in 2015 from 28% in 2014. As a result, earnings before interest, tax, depreciation, and amortization (EBITDA) improved to Bt5,436 million in 2015, up from Bt4,605 million in 2014. Generally, Middle East patients contributed around 21%-24% of total revenue. For the first six months of 2016, falling oil prices and earlier start to Ramadan led to a decline in the number of patients from the Middle East countries traveling to Thailand. However, the drop in foreign patients was offset by a rise in the price of service for foreign inpatients. As a result, the total revenues from foreign patients for the first seven months of 2016 grew to Bt5,926 million, up by 3.6% over the same period of 2015. Revenue from the Thai patients, both inpatients and outpatients, increased as well. During the first seven months of 2016, revenue from the Thai patients grew by 4% over the same period of 2015. BH’s operating income before depreciation and amortization rose to 32.4% during the first half of 2016, from 30.9% over the same period of 2015.

Going forward, TRIS Rating expects BH to continue delivering solid operating performances. Revenue is expected to grow by around 8% per annum during the next three years. The operating margin is expected to remain healthy, averaging 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 Sukhumvit Soi 1 and the other is on Petchburi road. Plans for the Sukhumvit Soi 1 plot comprise three buildings, one of which is primary for a parking lot, the second is a training center, and the third is an outpatient clinic. The total investment cost will be Bt2,300 million. In addition, the company spent Bt1,200 million renovating the BI Tower, one of the building in its existing main campus. The maintenance capital expenditures will be set around Bt1,300-Bt1,800 million per annum. Due to slow growth in the number of patients coupled with additional capacities on its existing buildings, BH’s plan to build a 200-bed hospital on Petchburi road has been delayed until additional capacity is needed. As a result, BH’s total capital expenditures for 2016-2019 will be around Bt15,000 million

BH’s liquidity is relatively strong. At the end of June 2016, cash on hand and marketable securities stood at Bt7,701 million. Funds from operations (FFO) are expected to range from Bt5,000-Bt6,000 million per annum during the next three years. Dividend payments are expected to be Bt1,700-Bt2,000 million per annum. At the end of June 2016, BH’s total debt comprised Bt5,000 million of long-term bonds. The total debt to capitalization ratio stood at 28.36%. BH’s significant amount of cash on hand and strong cash flow from operations should be sufficient to fund its capital expenditures and dividend payments during 2016-2019. Therefore, BH’s leverage should not increase from the current level.

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