TRIS Rating Assigns Company Rating of “KH” at “A-” with “Stable” Outlook

TRIS Rating Co., Ltd. has assigned the company rating of Bangkok Chain Hospital PLC (KH) at “A-” with “stable” outlook. The rating reflects the company’s leading position in the managed care segment, a diversified revenue base, experienced management, and operational efficiency. The rating is partially offset by intense competition in the healthcare industry, execution risks inherent in future expansions, and exposure to regulatory risks.

The “stable” outlook reflects the expectation that KH will continue to maintain its market strength in the managed care sector and employ a cautious financial policy, balancing funding sources for the investment projects. The rating is very strong within the current category and should hold out relatively well against any downside risk from the business expansions.

TRIS Rating reported that KH owns and operates six general hospitals, four of which are located in Greater Bangkok under the name “Kasemrad Hospital”, while the other two are in Chiangrai and Saraburi provinces. Revenues are derived from three patient groups: walk-in, social security coverage (SC) and universal coverage (UC). In 2008, revenue contributions from walk-in, SC, and UC were 51%, 21%, and 17%, respectively. The business profile of KH is underpinned by a solid market position as a leading private hospital participating in the managed care scheme. The SC market share of KH in Bangkok in terms of the number of registered persons is approximately 10% and UC share is 14%. Sizable bases of registered persons allow the company to achieve economies of scale. A robust business model in terms of revenue diversity helps enhance stability in operating performance. The public healthcare schemes also help absorb overhead expenses with recurring cash flows and sustain utilization levels for capital-intensive facilities. Effective cost control policies are evidenced by relatively stable margins over the past five years. KH’s SC utilization rates appear to move in a similar fashion as the industry average -- a good indicator that the company should not be under greater cost pressure than its peers. KH’s utilization rates for UC outpatient (OP) visits are still below the industry average, but show a rising trend. The pressure from the rising UC OP utilization rate has been partly compensated by an increase in UC OP capitation rates. The position of KH as the top referral hospital for heart surgeries is supported by established hospital and clinic networks.

TRIS Rating said, the credit rating of KH reflects the execution risks for the expansion plans in Chaengwattana area and Pattaya. TRIS Rating views the company’s market strength in higher-end segments to be more of a constraint than the current operating environment due to limitations in its track record and brand recognition. The company is highly exposed to regulatory risks with regard to the SC and UC schemes. Public healthcare schemes in Thailand have not reached the maturity stage and may undergo several reformations in the foreseeable future. We believe that the management team is adept and can handle the future regulatory challenges so as to sustain competitiveness in the marketplace.

The financial profile of KH is strong and better than industry peers. The revenue growth rates over the past five years were very solid, averaing higher than 10%. Operating margins are relatively stable, ranging from 26% to 30%. KH enjoys a healthy balance sheet with a low debt to capitalization ratio. TRIS Rating expects the leverage level for the next few years to increase moderately as a result of business expansions. Under such circumstances, the elevated gearing level will remain consistent with the current rating. Cash flow protection remains very strong due to healthy earnings and a low gearing ratio. KH’s ability to service debt obligations is good and TRIS Rating does not envision any liquidity stress over the next 12-18 months. -- End

Company Rating: A- Rating Outlook: Stable Copyright 2009, TRIS Rating Co., Ltd. All rights reserved. Any unauthorized use, disclosure, copying, republication, further transmission, dissemination, redistribution or storing for subsequent use for any purpose, in whole or in part, in any form or manner or by any means whatsoever, by any person, of the credit rating reports or information is prohibited. The credit rating is not a statement of fact or a recommendation to buy, sell or hold any debt instruments. It is an expression of opinion regarding credit risks for that instrument or particular company. The opinion expressed in the credit rating does not represent investment or other advice and should therefore not be construed as such. Any rating and information contained in any report written or published by TRIS Rating has been prepared without taking into account any recipient’s particular financial needs, circumstances, knowledge and objectives. Therefore, a recipient should assess the appropriateness of such information before making an investment decision based on this information. Information used for the rating has been obtained by TRIS Rating from the company and other sources believed to be reliable. Therefore, TRIS Rating does not guarantee the accuracy, adequacy, or completeness of any such information and will accept no liability for any loss or damage arising from any inaccuracy, inadequacy or incompleteness. Also, TRIS Rating is not responsible for any errors or omissions, the result obtained from, or any actions taken in reliance upon such information.

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