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January 29, 2014
Tha
iland
SEC
TORRESEARCH
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SEE PAGE 52FOR IMPORTANT DISCLOSURES AND ANALYST CERTIFICATIONS
Thai Healthcare Sector OVERWEIGHT (New)
Ready for growth
Initiate at OVERWEIGHT. Top pick Bumrungrad, BUY Bangkok
Chain Hospital and HOLD Bangkok Dusit Medical Services and
Chularat Hospital Group.
Strong growth potential for the privately-owned hospitals
amid changing attitude towards healthcare. We forecast
patient traffic to post 7.5% pa 5-year CAGR.
Sector EBITDA and net profit could post 12.8% and 15.2%
CAGR underpinned by rising patient traffic, cost efficiency,
margin expansion and growth from complimentary
businesses.
Whats NewThe current political turmoil will have a negative impact on the
hospital sector in 1H14, but the attractive long-term outlook is
intact. In 2014F, we forecast 15.2% sector earnings growth on the
back of 12.5% revenue growth. All four operators (capex
THB40.3bn) will continue with their aggressive expansion plans
over the next four years, and this will drive growth. Capacity will
be raised by 25.9% from current 8,543 beds equivalent.
Whats Our ViewPolitically-induced short negative sentiment could pose some
earnings difficulty for the Thai hospitals especially those that caterto medical tourists. We believe this is temporary. Our bullish
medium term view is underpinned on: i) rising ROE, ii) increasing
patient traffic, iii) reasonable valuations and iv) healthy balance
sheets. Potential benefits from the AEC could add fillip to growth.
The high multiple accorded to the Thai hospital stocks relative to
regional peers can be justified by their high ROE at 20% (Peers =
14%), visible earnings growth at 15% (Peers 13%), low average cost
of capital of 9% (Peers 11%) and strong future growth outlook via
expansion. On the domestic market, their high valuation relative
to the market can be justified by scarcity premium and promising
long growth.
Analyst
Sittichai Duangrattanachaya
(66) 2658 6300 ext 1393
Thai Healthcare Services Stocks Valuation Highlights
Stock Rating Mkt cap Price TP U/D Side PER PER P/B (x) ROE Div yield
(USDm) (local) (local) (%) CY14E CY15E CY14E CY14E CY14E
BCH BUY 432 5.70 7.50 31.6 21.3 17.8 3.36 16.3 2.8
BGH HOLD 5,462 121.00 140.00 15.7 25.0 21.2 4.14 16.8 1.5
BH BUY 1,832 82.75 105.00 26.9 22.2 18.3 5.60 27.1 2.2
CHG HOLD 334 10.20 11.50 12.7 23.9 21.1 4.27 21.6 1.5Source: Company data, MKE-ISR
Historical Chart: Healthcare Services
Stock performance
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Jan-14
SETHELTH SET
1-mth 3-mth 6-mth 1-yrs YTD
Absolute (%) -3.1 -10.1 -18.9 3.1 -0.2
Relative (%) 0.8 1.5 -5.7 14.6 0.4
-30.0
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0.0
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20.0
30.0
40.0
50.0
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Feb-13
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Jan-14
BH BGH BCH SET CHG
%
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Thailand Healthcare Sector
Investment Thesis
We are OVERWEIGHT in Thai healthcare sector. We expect the sector to
deliver slower mid-teens growth as it adjusts to a higher asset base
following expansion, acquisitions and negative impacts from the current
political situation which has the potential to drag the Thai economy if theinstability is prolonged. However, we like the robust growth profile driven
by an aging Thai population, rising middle-class income, lack of public
hospital facilities, higher insurance coverage and growth potential from
neighbouring countries such as Myanmar, Cambodia.
Aggressive expansion planWe expect almost all the four operators to continue with their aggressive
expansion plans in outpatient and inpatient capacity over the next five
years via campus expansions, greenfield/brownfield developments, and
M&A. Total investment could reach THB40.3bn, and this could support
higher demand growth. Capacity will be raised by 25.9% from the currentcapacity of 8,543 beds.
Impressive earnings growthThe sector EBITDA and net profit could post 12.6% and 16.3% CAGR
(2013F2016F), respectively, on the back of 12.5% revenue growth. Rising
patient traffic, cost efficiency, margin expansion, and growth from
complimentary businesses are underpinning earnings growth.
Reasonable valuationThe sector valuation is rich relative to the local market. There is a scarcity
premium built in these multiples. We do think the price multiples can hold
at high level due to sustained higher ROE and robust earnings growth.Currently, the sector is trading at 23.2x, in-line with the five years
average. The sector is relative cheap in terms of PER and EV/EBITDA,
which is discount to regional peers by 23% and 12% in 2014F, respectively.
Stock recommendationFor the above mentioned reasons, we are bullish on healthcare sector.
Hence, we initiate coverage on four stocks with an OVERWEIGHT rating.
We have BUYs on Bangkok Chain Hospital (target price: THB7.5) and
Bumrungrad Hospital (target price: THB105.0) and HOLDs on Bangkok Dusit
Medical Services (target price: THB140.0) and Chularat Hospital Group
(target price: THB11.5).
Downside riskBoth local domestic and international patient traffic are affected by the
current political turmoil and high household debt. Doctor and nurse
shortages, intensified competition and regulatory changes could affect the
sectors operation and business opportunities.
3 Numbers that Matter
Numbers of private hospital Total capacity in term of bed Healthcare expenditures to GDP
>327 hospitals
Private hospitals account 24% of total
hospitals in Thailand, and 24 largestprivate hospitals dominate the
market with a 75% combined market
share.
>30,880 beds
BGH has the largest market share in
terms of beds at 18%. BGHs marketshare by revenue was at 41%.
Thailand has 2.2 hospitals bed per
1,000 population
>4% of GDP
Total healthcare expenditure was
THB425bn in 2012, contributing toapproximately 4.1% of GDP. We
expect this ratio is on the rising
trend.
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Thailand Healthcare Sector
Industry Analysis
Moving to a better future
The economic outlook for most of the ASEAN region is positive with GDPgrowth rates ranging between 5%-6% over the next five years, based on
IMFs forecast. Thailand, with GDP growth expected at 3-4% in 2014, is anexception. The better economic outlook in Southeast Asia has led toincreased investment in the healthcare sector. Even in the global arenatotal healthcare expenditure per capita has been rising despite anemiceconomic growth. A countrys healthcare service is highly related to itslevel of economic and infrastructure development, wealth and income ofpeople, government support, and regulation. Healthcare expenditure isdriven by many factors including changing lifestyles, aging populations,and the outbreak of transferable diseases.
Chart 1: GDP per capita growth in the ASEAN 6 Chart 2: Healthcare service profile based on level of economy
Note: All GDP numbers are in constant price, All CAGRs pertain tothe period from 2006 to 2015
Source: International Monetary Funds, MKE-ISR
Source: Source: Ministry of Public Health and respective countriesgovernment departments
Chart 3: Healthcare expenditure per capita in the ASEAN 6 Chart 4: Healthcare expenditure in the developed economies
Source: World Bank, MKE-ISR Source: World Bank, MKE-ISR
0
10,000
20,000
30,000
40,000
50,000
60,000
Singapore Brunei Malaysia Thailand Indonesia Vietnam
2 00 0 2 00 6 2 01 2 2015F
CAGR 6.1%
CAGR 3.2%
CAGR 8.2%
CAGR 9.8%CAGR 11.8% CAGR 11.7%
USD
Economy Developing Newly Developed Advance
CountriesMalaysia, Indonesia, India, China,
Turkey, ThailandSingapore, Hong Kong, Korea US, UK, Australia, Germany, Japan
Infrastructure
-Increasing number of public
hospitals, mainly in central/urban
areas -Growing number
of private clinic and private hospitals
-High number of public and private
clinics -
Privatisation of public healthcare
-Rapid growth in
the number of private hospitals
-Continued capacity building in
public hospitals and raising
standard -
Consolidation of the private
healthcare sector
Workforce
-Physicians or surgeons mainly
locally trained -Growing
number of nurse and technicians
trained in public hospitals
-Higher number of local and foreign
trained doctors -Movement
of doctors from public to private
sector
-Low rate of talent replacement
-Higher number of
specialists
Funding
-General reliance on taxation -
Developing funding structure for
poor -Small
insured population
-High relaince ontaxation -
Higher number of insured
population -
Governments implement cost-
containment strategies
-Very high relaince on taxation -
Majority insured population
Technology-Basic medical, surgical and imaging
equipment
-Advanced equipment mainly in
private facilities -Higher
ICT integration
-Innovative equipment in both
public aqnd private facilities
Regulation-Evolving, regulating the private
sector -Increasing
standards compliance guildelines
-Maturing -
Higher governance on private sector-Matured
0
500
1,000
1,500
2,000
2,500
Singapore Brunei Malaysia Thailand Vietnam Indonesia
2 00 7 2 00 9 2 01 1
CAGR 12.4%
CAGR 6.9%
CAGR 8.8%CAGR 13.4%
CAGR 15.2% CAGR 15.3%
USD
2,000
3,000
4,000
5,000
6,000
7,000
8,000
9,000
US UK Germany Japan
2 00 7 2 00 9 2 01 1
CAGR 3.9%
CAGR 1.1%
CAGR 5.4%
CAGR 8.9%
USD
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Thailand Healthcare Sector
The healthcare system in Thailand is reasonably well developed, but theindustry is still behind the standard of most developed countries. Spendingalso lagged that of neighboring countries such as Singapore and Malaysia.This is mainly attributed to the low proportion of healthcare investment bythe Thai government. For example in 2012, the Thai government spentapproximately THB6,060 (US$202) per capita on healthcare, whereas in
Singapore and Malaysia healthcare spending per capita was approximatelyUS$2,286, US$346, and US$696, respectively. Healthcare financing inThailand has a brief history starting only in 2002 when the universalcoverage for healthcare was introduced.
Chart 5: Socioeconomic Indicators, (2006, 2009 and 2012)
Source: Ministry of Public Health, Ministry of Labour, World Bank, NESDB, MKE-ISR
The Universal Health Care Program
The Universal Coverage Policy was introduced in April 2002. Social healthprotection can be divided into three groups such as i) Civil ServantMedical Benefit Scheme(CSMBS), schemes for public employees, ii) SocialSecurity Scheme(SSS), schemes for private employees and iii) UniversalCoverage Scheme (UCS), scheme for the rest of Thai. At present, Publichealth protection schemes cover all Thai citizens, 7% of the population arecovered by the public employee benefit scheme, while the SSS covers 19%of the population and the rest (75%) are in the UCS.
Chart 6: Characteristic of three main social health protection schemes
Source: Ministry of Public Health, Ministry of Finance, SSO, Complied by MKE-ISR
Indicators 2006 2009 2012
GDP (US$ billion) 207 264 366
GDP per Capita (US$) (current price) 3,296 4,151 5,678
Population (million):
0-14 years (%) 21.8 19.9 18.5
15-64 years (%) 64.9 65.5 65.8
65 years and above (%) 13.3 14.6 15.7
Birth Rate (per 1,000 people) 12.3 11.3 10.6
Infant Mortality Rate (per 1,000 births) 14.4 12.7 11.4
Crude Death Rate (per 1,000 population) 7.0 7.3 7.5
Total Fertility Rate (per female) 1.5 1.5 1.4
Life Expectancy - Female (Years) 71.5 72.2 72.7
Life Expectancy - Male (Years) 67.3 68.0 68.7
Total Employed (million) 37.3 37.7 38.8
Household Income Distribution:
Top 40 percentile 37.4% 38.6% 40.1%
Bottom 20 percentile 5.2% 5.1% 4.8%
Urbanisation Rate (%) 32.5 33.4 34.5
Scheme Type Financing sources
Social Security Scheme (SSS) Social
insurance,compulsory
Private sector
employees,excluding
dependants
19% Payro ll tax
financed, tri-partite
contribution 1.5%
of salary, equally
by employee and
government
Civil Servant Medical Benefit
Scheme (CSMBS)
Fringe benefit Government
employees plus
dependants
(parents,
spouse and up
to two children
age less than
20 years
7% General tax , non-
contribution
scheme, mainly
from government
budget
Universal Coverage Scheme
(UCS)
State welfare The rest of
population notcovered by SSS
and CSMBS
75% General tax,
mainly fromgovernment
budget
Popolation coverage
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Thailand Healthcare Sector
The UCS differs from the other public health protection schemes in severalaspects:
i) cover clinical prevention and health promotion
ii) the provider contracts model uses capitation for outpatients andglobal budget plus Diagnosis Related Group (DRG) for inpatients,
iii)
clients must be registered with a contracted provider within thedistrict health system in order to access the services.
According to the Social Security Office (SSO), by 2013,87 private hospitals,154 public hospitals and 2,220 network hospitals provide services under theSSS scheme while only 63 private hospitals joined the UCS.
The total market share of privately owned healthcare operations in SSSwas 62%. (See Appendix I: Characteristics of three health protection andinsurance schemes)
Chart 7: Expenditure of Thailands public health protection schemes
Source: Ministry of Public Health, Ministry of Finance, SSO, Complied by MKE-ISR
After the UCS was launched, the general government expenditure onhealth increased from THB84.5bn (US$1.9bn) in 2001 to THB11.3bn(US$2.7bn) in 2002 and it surged to reach THB305.6bn (US$10.2bn) in 2012.This represents an 8% increase per year.
As the general government health expenditure was on the rise, spendingunder SSS remained flat. Total healthcare expenditure in Thailand wasTHB425bn, contributing to approximately 4.1% of GDP.
Our sensitivity analysis shows that for every 0.1% increase in healthcareexpenditure to GDP, total healthcare expenditure could increase by 2.4%.We see a potential growth for Thai healthcare services as healthcareexpenditure to GDP is on the rising trend.
Chart 8: Health expenditure as % of GDP (current year price)
Source: Ministry of Public Health, World Bank, Complied by MKE-ISR
8.4%8.7%
9.7%9.7%
10.4%
9.6%
11.7%
10.2%9.5%
9.5%
1.5% 1.5% 1.7%1.8% 1.9%
2.2% 2.0% 2.0% 2.0%1.8%
0%
2%
4%
6%
8%
10%
12%
14%
0
50,000
100,000
150,000
200,000
250,000
2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
UCS CSMBS SSS % of Fiscal budget % of GDP
THBm
3.5%3.6%
4.0%
4.2%
3.9%
4.1%
3.0%
3.5%
4.0%
4.5%
5.0%
5.5%
2006 2007 2008 2009 2010 2011
Thailand Singapore Malaysia Arab world Asia Pacific
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Thailand Healthcare Sector
Hospitals in Thailand
At the end of 1H13, there were 327 private hospitals and more than 1,050public hospitals in Thailand. In terms of positioning and target grouphospitals may be categorized into four segments:
i) premium market such as Bumrungrad, Samitivej, Bangkok
Hospital and BNH,
ii) upper-mid tier market such as Phyathai, Piyavej, Vejthani,Vibhavadi, Ramkamhaeng and Vichaiyut,
iii) mid-tier marketsuch as Paolo, Kasemrad, and Chularat
iv) not-for-profit hospitalssuch as Siriraj, Ramathibodi, and KingChulalongkorn Memorial.
The Bangkok Dusit Medical Services Hospital Group is the only privatehospital chain with a network of four hospital brands (Bangkok Hospital,Paolo, Phaya-Thai, Samitivej)and a nationwide footprint while the othersare all single entity hospitals with different locations. (See Appendix II:Positioning and competitive landscape of major private and publichospitals in Thailand)
Chart 9: Market share by segment Revenue based Chart 10: Positioning of major private hospital in Thailand
Source: Respective Companies, Analysis by MKE-ISR Source: Respective Company, Analysis by MKE-ISR
In terms of beds, BGHs market share was about 18% in 2012 (total beds30,880). The private hospital market size in Thailand was THB119.5bn(US$3.98bn) in 2012 and BGHs market share by revenue was at 40.9%.
High end operator, BH, with a single sight had a market share by revenueof 11.8% while the market share in terms of beds was at only 2%. BHfocuses on premium market, revenue intensity and handles high volume of
OPD.Chart 11: Market share by number of licensed beds Chart 12: Market size based on private hospital revenue
Source: Respective Companies, Complied by MKE-ISR Source: Ministry of Public Health, SET, Analysis by MKE-ISR
Bumrungrad, 31%
Samitivej, 18%
BGH, 47%
BNH, 4%
Phayathai, 33%
Piyavej, 4%
Vejthani, 6%Vibhavadi, 15%
Ramkamhaeng, 14%
CMR, 8%
Vichaiyut, 9%
Paolo, 15% Bangkok Chain, 23%
Chularat, 9%
Thonburi, 16%0
1
2
3
4
0% 10% 20% 30% 40% 50% 60%
MarketSegment
Market Share in term of revenue in each segment
Bumrungrad Hospital
Bagnkok Dusit MedicalServices
Samitivej Hospital
Phayathai HospitalVibhavadi Hospital
Ramkamhaeng Hospital
Chularat Hospital
Kasemrad Hospital
Paolo Memorial Hospital
BNH Hospital
1
2
3
4
2 3 4
TargetPatients/PurchasingPower
Medical Sophitication / Patient Traffic
Secondary care services Quatemary care servicesTeriary care services
SocialSecuritypatientsMiddleincomepatients
Internationa
lpatients
Hightraffic (Lowerrevenue per case) -------------> Low traffic (Higher revenue per case)
Lowpurchasingpower----------->Highpurchasing
power
Bumrungrad Intl'Hospital
2%
Bangkok ChianHospital
5%
Bangkok Dusit
Medical Servises
18%
Chiangmai MaiRam Hospital
1%
ChularatHospitalGroup
2%
RamkamhaengHospital
1%VibhavadiHospital
1%KrungdhonHospital
0%MahachaiHospital
2%
Aikchol
1%NonthavejHospital
1%
Sikarin1%
Srivichaivejvivat2%
Others63%
Chularat HospitalGroup, 1.6%
Aikchol, 1.1% Bangkok ChianHospital, 3.8%
Bangkok DusitMedical Servises,
40.9%
Bumrungrad Intl'Hospital, 11.8%
Chiangmai MaiRam Hospital,
KrungdhonHospital, 0.3%
MahachaiHospital, 1.4%
WattanaKarnpaet,
0.2%
NonthavejHospital, 1.5%
RamkamhaengHospital, 3.1%
Sikarin,1.3%
VibhavadiHospital, 3.4%
Srivichaivejvivat,0.9%
Others, 27.0%
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Thailand Healthcare Sector
Thailand Hospitals and the AEC
Healthcare services sector is one of the AECs four priority integrationsectors. There are two main aspects that we should watch in theintegration: increasing foreign ownership limit and mobility of medicalpersonnel.
The liberalization of the healthcare sector will affect private hospitals inall ASEAN countries as the foreign ownership restrictions will be eased toallow ownership of up to 70%. Currently, foreign ownership in privatehospitals in Thailand is about 15%.
Nonetheless, we expect that intra-ASEAN investors may not be interestedin becoming equity investors in Thai hospitals due to i) strict landownership laws, ii) strong competitive edge of the market leaders, iii)shortage of experienced doctors, and iv) lack of market knowledgeincluding language barrier.
Among the listed private hospitals, BGH has the most extensive holdings inother private hospitals such as RAM (38%), BH (24%), KDH (23%), BCH (2%),and three hospital groups such as Phayathai, BNH, Paolo and Samitivej.
Chart 13: BGH holding structure (10% of shares or greaterin other private hospitals)
Chart 14: Maximum foreign shareholding in healthcareservices in ASEAN countries
Source: Bangkok Dusit Medical Services Source: Respective countries, MKE-ISR
Sectoral Five Force Analysis: Private Hospitals
Chart 15: Summary of Thailands healthcare services five force model
Source: Analysis by MKE-ISR
100% 100% 100% 100%
80%
67%
50% 49%
40%
30%
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
Singapor
e
Vietnam
Cambodi
a
Lao
s
Myanma
r
Indonesi
a
Brune
i
Thailan
d
Philippine
s
Malaysi
a
The foreign ownership limit for
investors in healthcare services will
be 70% in 2016.
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Thailand Healthcare Sector
Low threat of new entrants
High capex is the first barrier to entry. For example, in Bangkok, a 200-bedhospital typically costs between THB6,000-8,000m; in rural areas it couldcost about THB700-1,000m. The biggest variable is land cost assumingavailability. Suitable land sites are scarce especially in high trafficprovinces of Bangkok, Chiang Mai and Hua Hin. The start-up operation costis about THB20m. The next obstacle is the availability of qualified andexperienced doctors.
Threat of substitute products or services: High
Patients can choose to seek treatment in public hospitals or quasi-publichospitals that can also provide a range of treatments. There is a growingtrend of opening after-hour clinics that share facilities and experienceddoctors with reputable quasi-public hospitals such as Siriraj, Ramathibodi,King Chulalongkorn Memorial hospitals.
With the UCS now covering 75% of the population patients can choose toseek treatment in public hospitals, which covers more than 95% of theinsured.
Bargaining power of buyers: Medium
In 2012, the growth in private hospitals is higher than public hospitals dueto more complex treatments being sought by patients and a growingpreference for better services. We expect this trend to continue over thenext five years as incomes rise and insurance coverage becomes moreprevalent. However, we observe that many organizations are starting tooffer a wide variety of health insurance packages and patients are focusingon hospital facilities and special clinics rather than the well-knowndoctors. For this reason, patients switch hospital choice at a low cost.
Bargaining power of suppliers: Low
Over the last decade, the pharmaceutical industry in Thailand has enjoyedgood growth due to the increase in demand. Overall, the competitionamongst local pharmaceutical manufacturers is becoming high involvingover 100 companies. Many private hospitals establish their own company topurchase drugs and source medical equipment. Imports of medicinal andpharmaceutical products have been posting a 15% p.a. CAGR during 2002-2012 reaching US$2,887m.
Chart 16: Import and Export of medicinal and pharmaceutical products trend
Source: Ministry of Commerce, MKE-ISR
0
500
1,000
1,500
2,000
2,500
3,000
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013(YTD)
Import (US$) Export (US$)
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Thailand Healthcare Sector
Intense sector competition
Competition in the Thai private hospital market appears to be gettingintense as the market is now shared by more than 300 private hospitals.However, the largest 24 private hospitals such as Bangkok Dusit MedicalServices, Bumrungrad Hospital, Vibhavadi Hospital, and Kasemrad Hospitaldominate the market with a 75% combined market share. Thus, though theHerfindahl-Hirschman index has declined from 70 to 64, the sector is notfragmented enough, in our view. However, the direction is towards highercompetition not less. We notice that public hospitals have also started toexpand medical services such as opening after-hours clinics. Increasinginvestment to improve efficiency of service gives a competitive edge butthis approach is costly. For example, many private hospitals have set upspecialized tertiary centers to provide full medical services and to launchnew services with attractive pricing and promotions in order to compete.
Chart 17: Thai private hospital market becoming more highly competitive
Source: MKE-ISR
Supply and Demand
Supply side - hospital beds: Thailand has a relatively low total hospitalbeds ratio: 2.2 beds per 1,000 populations (pax) in 2012. In comparisonwith the global average, the desired bed ratio for an economy likeThailands is estimated to be 2.9 beds per 1,000 pax. Based on the 4-yearexpansion plan by the public and private hospitals growth in beds wouldonly be 5.1%. There could be a shortfall in the supply of hospital beds.
However, private hospitals will contribute more to the growth in beds,averaging 9.4% while that of the public sector is at 3.4%. Thus despite theaggressive expansion plan, private hospitals can maintain high occupancyrates of 70% to 80%.
Chart 18: Hospital beds per 1,000 population ratio Chart 19: Hospital beds projection and shortfall analysis
Source: World Bank, Ministry of Public Health, MKE-ISR Note: Desired hospitals bed ratio is 2.9 bed per 1,000 population; theWorld average in 2012
Source: Ministry of Public Health, Analysis by MKE-ISR
2010 Company BGH BH PYT SVH BCH CHG
Market Share 24% 15% 8% 9% 7% 2%
Herfindahl-Hirschman Index
2011 Company BGH BH PYT SVH BCH CHG
Market Share 25% 15% 8% 9% 6% 2%
Herfindahl-Hirschman Index
2012 Company BGH BH PYT SVH BCH CHG
Market Share 23% 14% 10% 9% 5% 2%
Herfindahl-Hirschman Index
Private hospital market share analysis
64
69
70
0
2
4
6
8
10
12
14
Brune
i
Singapore
Tha
ilan
d
Ma
lays
ia
Vietnam
Indones
ia
Hong
Kong
China
India
Russ
ia
Ukra
ine
Roman
ia
Mace
don
ia
Tur
key
Sau
diAra
bia
UAE
Egyp
t
Japan
Korea
Germany
UK
US
Avg of Asia Pacific: 3.6 beds per 1,000 population
World Average: 2.9 beds per 1,000 population
0
20,000
40,000
60,000
80,000
100,000
120,000
140,000
160,000
180,000
200,000
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013F
2014F
2015F
2016F
Public Hospital Licensed Beds Private Hospital Licensed Beds
Desired Beds Total Beds
Shortfall of beds by 16,500 beds in 2016F
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Thailand Healthcare Sector
Table 1: There is spare capacity to accommodate surge in demand
Outpatient: Utilisation rate
2010 2011 2012 2013F 2014F 2015F 2016F
BGH 60% 64% 69% 72% 65% 70% 71%
BH 68% 71% 67% 55% 59% 65% 72%
BCH 74% 69% 71% 61% 61% 65% 67%
CHG 78% 75% 73% 71% 69% 69% 68%
Inpatient: Occupancy rate
2010 2011 2012 2013F 2014F 2015F 2016F
BGH 65% 66% 70% 70% 70% 71% 73%
BH 69% 72% 77% 73% 70% 72% 71%
BCH 78% 59% 61% 75% 78% 69% 69%
CHG 72% 72% 84% 77% 75% 73% 72%
Source: Company and MKE-ISR
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Thailand Healthcare Sector
Supply side healthcare professionals: According to a report by thePublic Health Ministry and World Health Statistics, Thailand has 23,382doctors working at public and private hospitals across the country. Thisimplies three doctors per 10,000 pax, lower than Singapore (19), Malaysia(12), Vietnam (12), and Philippines (11). Moreover, a survey conducted bythe Medical Council discovered that the 18 medical schools in Thailand
could produce only 2,500-2,700 doctors per year. It takes about 6-8 yearsfor new doctors to become a fully registered and another 3-7 years to trainas a specialist. The shortage of doctors is a major hurdle for Thailand.Based on developed markets ratio we estimate that more than 45,000doctors are needed to provide quality healthcare. The issue of doctorshortages may reduce slightly post the ASEAN Economic Community (AEC)in 2015/2016.
Chart 20: Doctors per 1,000 population ratio Chart 21: Doctors projection and shortfall analysis
Source: World Bank, Ministry of Public Health, MKE-ISR Note: Desired doctors ratio is 1.2 doctors per 1,000 population;Average of ASEAN region and key medical tourism countries such asIndia, Turkey.
Source: Ministry of Public Health, Analysis by MKE-ISR
Demand side trending up
Aging population: The Thai society is also ageing. In 2012, 7.8% of itspopulation was aged over 65 years, the 2ndhighest in South-East Asia. Theproportion of older people will increase to 8.5% in 2015 (5.9m) and 10% in2020 (7.1m), translating into an 8-year CAGR of 3.5% pa. Demand forhealthcare services is expected to increase not only in frequency but alsoin terms of duration of treatments and hospital stay.
Chart 22: Thai private hospital market becoming more highly competitive
Source: Ministry of Interior, National Statistical office, MKE-ISR
Medical Tourism: Singapore and Malaysia are destinations for medicaltourists from Asia while Thailand attracts patients from East Europe andthe Middle East. The patients financial capabilities, reputation of doctors
and connectivity to the country of treatment are key factors on thedecision of medical travelers seeking treatment overseas and this is gaugedby international accreditation.
0.0
0.5
1.0
1.5
2.0
2.5
3.0
3.5
4.0
4.5
Brunei
Singapore
Thailand
Malaysia
Vietnam
Indonesia
HongKong
China
India
Russia
Ukraine
Romania
Macedonia
Turkey
SaudiArabia
UAE
Egypt
Japan
Korea
Germany
UK
US
Avg of OECD: 2.9 doctors per 1,000 population
World Average: 1.4 doctors per 1,000 population
0
10,000
20,000
30,000
40,00050,000
60,000
70,000
80,000
90,000
2 00 4 2 00 5 2 00 6 2 00 7 2 00 8 2009 2010 2011 2012 2013F 2014F 2015F 2016F
Exisit ing Doctors New Doctors Desired Doctors Total Doctors
Shortfall of doctors by 47,200 doctors in 2016F
0%
2%
4%
6%
8%
10%
12%
0
10,000
20,000
30,000
40,000
50,000
60,000
70,000
80,000
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013F
2014F
2015F
2016F
2017F
2018F
2019F
2020F
0-24 years 25-39 years
40-64 years 65 years and above
% of 65 years and above to population (RHS)
>65 years 20 years CAGR of 3.2%
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Thailand is the key medical tourism destination market in Asia. Privatehospitals such as Bumrungrad Hospital, Bangkok Hospital, Vejthani Hospitaland Samitivej Hospital are the main beneficiaries of the increase ininternational patients. The country is generally cost competitive. Forexample, the average cost of treatment in Thailand is 19% lower than inSingapore. The cost is higher than Malaysia and India by 8% and 15%,
respectively. However, the target market for those countries is different.(See Appendix III: Medical tourism market positioning and targetingmarket)
Chart 23: Number of international tourists arrival Chart 24: Major medical procedures with average total cost
Source: Tourism Authority of Thailand, MKE-ISR Source: Deloitte, MKE-ISR
Growing middle-class: Thailand has a growing middle to high incomepopulation. Top 40 percentile of household income group has increasedfrom 31.1% in 2008 to 37.2% of the total population in 2012 while thebottom 40 percentile of income group has decreased from 44.9% in 2008 to32.4% in 2012. With growing affluence more customers switch to privatehospitals in seeing treatment.
Chart 25: % distribution of household income class
Source: National Statistical Office, MKE-ISR
Better affordability: Private health insurance in Thailand is the fastestgrowing source of healthcare funding. Numbers of health insurance policiesand direct premiums have recorded double digit growth during 2007-2012with a CAGR of 30.8% and 22.1%, respectively. Patients who have insurancecoverage are more likely to visit private hospitals rather than public
hospitals. As a result, the higher penetration rate and growth in healthinsurance coverage is expected to increase demand for services of privatehospitals.
-10%
-5%
0%
5%
10%
15%
20%
25%
0
5,000,000
10,000,000
15,000,000
20,000,000
25,000,000
30,000,000
35,000,000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013F
2014F
2015F
Number of tourist arrivals %Chg yoy
0
20,000
40,000
60,000
80,000
100,000
120,000
140,000
160,000
180,000
U.S. Korea India Thailand Singapore Malaysia
8.1
36.7
17.5
13.6
5.2
33.2
19.8
13.5
3.7
28.7
21.5
15.7
0
5
10
15
20
25
30
35
40
Bottom 20th percentile(600,000 Baht)
2008 2010 2012
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Thailand Healthcare Sector
Chart 26: Private vs. Public hospital admission Chart 27: Increased coverage of health insurance
Source: Ministry of Public Health, MKE-ISR Source: Office of Insurance Commission, MKE-ISR
Changing lifestyles and burden of diseases: Thailand has been in anepidemiologic transition in the past decade with a noticeable shift inburden of diseases from infectious diseases to non-communicable chronic
diseases such as cancer, heart disease, diabetes and stroke. These changeshave been linked to the changes in stress levels induced by the changes inthe environment and lifestyle from eating, to work, and to exercise.
According to the National Health Statistics Office the morbidity rate ofheart diseases, diabetes and hypertension has increased significantlyposting CAGR of 8.1%, 7.8% and 12.6%, respectively in the last four years.These are continuing trends and will drive demand for healthcare both interms traffic and complexity.
Chart 28: Morbidity rate of major causes Chart 29: Statistic of death by leading cause groups
Source: Ministry of Public Health, MKE-ISR Source: Ministry of Public Health, MKE-ISR
-15%
-10%
-5%
0%
5%
10%
15%
20%
25%
30%
0
5,000
10,000
15,000
20,000
25,000
30,000
35,000
40,000
2007 2008 2009 2010 2011
Public Hospital Admission Private Hospital Admission
Y-o-Y growth rate (Private) Y-o-Y growth rate (Public)
0
1,000
2,000
3,000
4,000
5,000
6,000
7,000
0
100,000
200,000
300,000
400,000
500,000
600,000
700,000
800,000
900,000
2007 2008 2009 2010 2011 2012
Number of health insurance policies (LHS) Direct premium from health insurance (m Baht)
Number of policies : 5-year CAGR of 30.8%Direct premium : 5-year CAGR of 22.1%
619 688 750 793 845124 131
134 133 143587 650
676 736 793223
242 245 265
303660778
861981
1,059188
205 217
227247
0
500
1,000
1,500
2,000
2,500
3,000
3,500
4,000
2006 2007 2008 2009 2010
Heart Diseases Cancer (Liver, Lung, Brest, Cervical)
Diabetes Mental amd behavioural disorders
Hypertention Cerebrovascular diseases
(per 100,000 population) Rate per 100,000 population 2006 2007 2008 2009 2010
Malignant neoplasm 83.1 84.9 87.6 88.3 91.2
Accident and poisonings 59.8 56.7 55.1 55.6 51.6
Disease of the heart 28.4 29.3 29.8 29.0 28.9
Hypertention and cerebrovascular disease 24.4 24.3 24.7 24.7 31.4
Pneumonia and other diseases of the lung 22.0 22.5 23.0 22.9 25.7
Nephritis, nephrotic syndrome and nephrosis 20.6 21.5 22.5 20.8 21.6
Disease of liver and panc rease 14.4 13.9 13.8 13.5 13.8
Tuberculosis 8.3 7.7 7.6 7.2 7.0
Diabetes mellitus 12.0 12.2 12.2 11.1 10.8
Human immunodeficieney virus (HIV) disease 10.5 8.8 7.4 6.4 5.7
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Risk Factors
Below are risk factors facing the sector:
Risk from economic volatility: Slowing Thai economy means lowerdisposable income and could affect demand. Political instability coulddiscourage international patients and so could affect the hospital operatorsthat have high revenue bias on medical tourists e.g. BH and BGH. Ouranalysis shows that it takes about three to six months after the ease ofpolitical tensions for BH and BGHs operations to normalize.
The charts below show that BH is more sensitive to political instability andthat is intuitive because BH has the highest degree of exposure to medicaltourism. For example, in after the Sep-2006 coup detat its revenue growthdecelerated to 11% and EBITDA growth was only 4%, and reported netprofit contracted by 7%YoY in 4Q06. However, that year its profitability wasalso affected by some base effect because in the 4Q05, BHs profitabilitywas boosted by the tax loss carry forward helping minimize tax burden.However, the intensity of the impact on profitability is not as large as
indicated. In the three episodes of political instability, the drop in BHsearnings was also exacerbated by other extraordinary items.
Chart 30: BH and BGH - Patient revenue and % Ch Chart 31: BH and BGH - Net profit and % Ch
Source: Company, MKE-ISR Source: Company, MKE-ISR
Table 2: BH and BGH sensitivity to political turmoil
BH Sensitive to Political Climate %Chg YoY
Sales EBITDA Net profit Recurring NP Remarks
Coup 4Q06 11% 4% -7% 11%Tax loss carry forward of THB30m, one timeprovision for China investment of THB20m
Yellow shirt rally 4Q08 3% 10% -60% 11%Exclude onetime non-operating items - loss onimpairment of asset of THB370m and share of
profit CDE THB829)
Red shirt rally 2Q10 0% -10% -42% -20%Higher SG&A on marketing expenses and higherexpenses on subsidiaries AGRShare of loss of THB60m in BIH, 63m in AGR, losson sales of AGR 9m, exchange loss 63m
BGH Sensitive to Political Climate %Chg YoY
Sales EBITDA Net profit Recurring NP Remarks
Coup 4Q0644% 43% 39%
39% Acquisition period
Yellow shirt rally 4Q08 6% -16% -39% -16% Impacts from acquisition
Red shirt rally 2Q10 3% 4% 8% 9%Repair and maintenance in preparation for JCI,FX loss
Source: Company data, MKET-ISR
-10%
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
0
2,000
4,000
6,000
8,000
10,000
12,000
14,000
1
Q06
2
Q06
3
Q06
4
Q06
1
Q07
2
Q07
3
Q07
4
Q07
1
Q08
2
Q08
3
Q08
4
Q08
1
Q09
2
Q09
3
Q09
4
Q09
1
Q10
2
Q10
3
Q10
4
Q10
1
Q11
2
Q11
3
Q11
4
Q11
1
Q12
2
Q12
3
Q12
4
Q12
1
Q13
2
Q13
3
Q13
BH - Pat ient revenue BGH - Pat ient revenue
BH - % Chg YoY Patient revenue BGH - % Chg YoY Patient revenue
THBm
Coup
Yellow shirt rallyRed shirt rally
-100%
-50%
0%
50%
100%
150%
200%
250%
300%
350%
400%
0
500
1,000
1,500
2,000
2,500
3,000
3,500
1Q06
2Q06
3Q06
4Q06
1Q07
2Q07
3Q07
4Q07
1Q08
2Q08
3Q08
4Q08
1Q09
2Q09
3Q09
4Q09
1Q10
2Q10
3Q10
4Q10
1Q11
2Q11
3Q11
4Q11
1Q12
2Q12
3Q12
4Q12
1Q13
2Q13
3Q13
BH - Net profit BGH - Net profit
BH - %Chg YoY Net profit BGH - %Chg YoY Net profit
Coup Yellow shirt rally
Redshirt rally
THBm
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Thailand Healthcare Sector
Intensified competition in private healthcare sector: Private hospitals inboth Thailand and the region continue to develop and expand theirservices; competition will intensify. Expanding hospital networks andimproving efficiency in operation to maintain a competitive advantage anddifferentiate services are costly but necessary strategies.
Regulatory changes on managed care programs: Both private and public
hospitals are under the supervision of the Ministry of Public Health andother related government agencies. Stricter regulation, especially relatingto SSS, NHSS, and CSMBS, could affect the healthcare sectors operationand business opportunities.
Shortage of professional staff and executive brain drain: Given theincreasing importance of an international client base, hospital operatorsalso require multi-lingual professionals. Severe competition and higherdemands from both private and public hospitals have resulted in a shortageof medical staff. Staffing cost is likely to rise.
Risk of lawsuit: The introduction of the Act on Court Proceedings forConsumer Cases B.E. 2551 (2008) enables consumers and patients to file
lawsuits against healthcare service providers. The hospital business issubject to litigation risk related to the provision of healthcare services byhospital staff and physicians. Most operators have insurance coverage butincreasing consumer awareness and frequency of lawsuits could meanrising premiums.
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Thailand Healthcare Sector
Strategy & Expansion PlansOver the past five years, the listed hospitals under our coverage haveinvested about THB39.4b to expand their OPD and IPD capacity via existingcampus expansions, Greenfield projects, and mergers& acquisitions. Thenumbers of beds have increased by 11.6% pa since 2007. Over the next fiveyears, we expect all operators to aggressively expand with totalinvestment potentially reaching THB40.3b. Capacity will rise by 25.9%during the period from the current capacity of 8,543 beds.
Bangkok Chain Hospital (BCH)The companys strategy is to strengthen its hospital network in the low tomid-market and one way is via capacity expansion. The key strategies forBCH are as follows:
i) pursue JCI accreditationii) increase portion of cash patientsiii) improve hospital and allied networks in low-mid marketiv) upgrade the two Navanakorn General Hospitals and rename
them to Karunvej Hospital to cater mainly to social security
patientsv) step up the marketing and promotional campaigns at the WorldMedical Center(WMC)
vi) introduce new medical services at Chiangmaivii) adding two new hospitals in Bangkok under the Kasemrad
brand one in Ramkamhaeng (224 beds) and another inRattanatibet (100 beds). Total investment of THB1,700m
viii) building one new hospital in Pattaya, Chonburi (240 beds)under the World Medical Center; total investment could beTHB1,200m
ix) expand capacity at the Chaengwattana (WMC) with THB300-400m investment.
The expansion plan at WMC and three Greenfield hospitals are awaitingenvironment impact assessment (EIA) approval. The total capacity willincrease by 24.3% from 2,315 beds in 2013 to 2,879 beds in 2017. In thenext five years, BCH will reposition its hospital by using Kasemrad toserve only cash patients and Karunvej to support social securitypatients; targeted for these are the Kasemrad Hospital located inSukhapibal 3, Bangkok and the Kasemrad in Ramkamhaeng.
Chart 32: World Medical Centre Chart 33: Navanakorn General Hospital (Ayutthaya)
Source: Bangkok Chain Hospital Source: Bangkok Chain Hospital
Bangkok Dusit Medical Services (BGH)
The main strategies for BGH arei) develop new products and technologiesii)
create clear market segmentation among its six hospital brandsiii) improve efficiency in personnel, alliance networks,
information technology and hospitality service standards
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Thailand Healthcare Sector
iv) strengthen its procurement, referral and supplier relationshipsin order to increase synergies and promote economies of scale
v) expand its capacity and network throughout Thailand,especially in Northern and North-eastern regions.
For its expansion plan, there are nine new hospitals in the pipeline,
three of which will be located in the Eastern region, two in Bangkokand one each in the South, North, Northeastern regions. Total capacitywill increase by 24.6% from 5,616 beds to 7,000 beds in 2015.
Chart 34: Bangkok Hospital Chiangmai project Chart 35: Soonthornphu Hospital (Rayong) project
Source: Bangkok Dusit Medical Services Source: Bangkok Dusit Medical Services
Bumrungrad Hospital (BH)The companys strategy is to continue building on clinical expertise,service capability, capacity expansion and offer superior quality withdifferentiated products. The major strategies for BH are focusing on:
i) campus expansion which will add 18 ICU beds and 58 ward beds
and also relocate back office to other rented office spaceii) expand into a new market segment (upper-mid tier) by usingsecond brand
iii) start building 220 bed hospital in Petchaburi project in 1H14(targeted completion in Dec-2016; total investment of THB6,000-8,000m
iv) acquire more sites for future expansionv) recruit more doctors in sub-specialties to support complex
treatmentsvi) develop Bumrungrad network in both Thailand and overseasvii) cost saving especially on the rental expense for staff housing as
well as offices by acquiring Boss Tower on Rama IV (for THB838m)We expect total capacity will be increase from 545 beds in 2013 to 783
beds in 2016.
Chart 36: Targeted land site at Sukhumvit Soi1, Bangkok Chart 37: Petchburi project, Petchaburi Road
Source: Bumrungrad Hospital Source: Bumrungrad Hospital
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Chularat Hospital Group (CHG)CHG will implement the following strategies in the next three years:
i) increase the portion of cash patients (Short-term 60%, longterm target at 70%)
ii)
introduce pooling procurement and sharing of facilities amonggroup to reduce costs
iii)
iii) pursue the HA (level III) at CH-9,11, and JCI standard, iv)expand specialties centers to capture high complex treatmentmarket
iv) develop new technology and productsv) increase the capacity via expansion of existing three hospitals
and upgrade one hospital in Chonburi (Eastern of Thailand).There are three main expansion projects at Chularat 3, 9 and11 with total investment of THB950m
vi) one Greenfield project in the Prachinburi province close toRojana industrial park, the Sahaphat industrial estate and 304industrial estate with investment of THB325m
We expect total capacity to increase from 365 beds to 626 beds over
the next four years. In addition, OPD capacity will double from 87rooms to 174-184 rooms after all projects are completed.
Chart 38: Chularat 3 expansion project Chart 39: Chularat 9 expansion project
Source: Chularat Hospital Group Source: Chularat Hospital Group
Here are a summary of strategies and expansion plans for hospitals underour coverage as follow:
Chart 40: Summary of strategy and expansion plan
Source: Respective companies, Analysis by MKE-ISR
BGH BH CHG BCH
Strategy *Strengthen its hospital network *C ampusexpansion and acquisition *Promote brand
positioning *Expansion in
complementary non-hospital investment
*Improve operation efficiency
*Development of hospital networks in
Thailand and international *Recuit
more doctors on subspecialties *Expand into
a new market segment *Campus
expansion and rearrange back office spaces
*Emhasis on cash patients
*Persuit the HA and JCI standard
*Opening speciality treatment center
*Increase operation effectivenss *Develop
new products
*Focusing on high income and international
patients *Pursuit JCI standard
*Increase portion of cash
patients *Improve hospital and allied network
*Develop advance technology
Expansion plan *New 8 greenfield hospitals and Upgrade 1hospital at Khon Kaen * Expansion of
exisitng hospital when UR above 75-80%
*Expand ancillary services
*Moved back office to leased office *New 1
greenfield hospital *Bought land
blank (soi1) for futher expansion plan
*Expand 3 existing hospitals (CH3,9,11) *New
1 greenfield hospital
*Upgrade 1 hospital at Chonburi
*Upgrade 2 hospital at Prathumthani and
Ayutthaya
*Increase utilisation rate and capacity at the
World Medical Centre *Three
greenfield hospitals at Pattaya, Bangkok (2)
Location *Bangkok (2) , Phuket, Rayong, Khon Kaen(Upgraded), Chiangmai, Chonburi (2), and
Cambodia (1)
*Bangkok on Petchaburi and Sukhumvit roads *Prachinburi (Greenfield), Samutorakarn (3),
Chonburi (Upgrade)
Prathumthani, Ayutthaya, Bangkok,
Chiangmai, Chonburi
Investment THB25,000m in 5 years (2011-2015) THB10,000 in 5 year (2013-17) THB1,292m THB3,400-4,000m in 5 years
New capacity * 1, 382 b ed s (1s t p ha se 474 b ed s) * 18 b ed s wil l b e a dd ed i n Mar14 * >200-250 beds at Petchburi campus
*OPD 87-97 rooms, OR 1 room
*IPD 261 beds
*250-300 beds
Commission period *3 hospitals in 1H14, 3 hospitals in 2H14 and 3hospitals in 2015
*New hospital in 2017 (start construction in
1H14)
*CH-11 in 2014, CH-3 in 2015, CH-9 in 2016
and Prachinburi in 2017
*2 upgraded hospitals in early-2014
*Karunvej at Rattatibeth in 4Q14 *KH at
Ramkamhaeng in 2H16 *WMC at
Pattaya in 1H18
Current Ex ansion
Current
Expansion
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Investing in allied hospital businesses can be viable future strategyThe revenue from allied hospital businesses of stocks under coverage hasbeen growing continuously from THB2.2b in 2009 to THB3.9b in 2012, aCAGR of 20% pa. The average gross profit and net profit margin was 27%and 20% respectively, better than the direct hospital services.
Thus we think that investing more into allied businesses such as centrallaboratories, IT services, medicine and pharmaceutical manufacturers anddistributors, imports/exports of medical equipment, and transport ofpatients can be a lucrative addition to the revenue and profits.
BGH, BH and CHG have already taken initiative in this aspect and weexpect them to grow going forward. BGH has a 100% holding in A.N.B.Laboratory which manufactures saline solutions and holds the highestmarket share. BH wholly owns Vitalife which is engaged in the wellness andanti-aging business. Thai Amdon is 100% owned by CHG. It is anexporter/importer of medical instruments. BCH is the only operator underour coverage that has no current plans to engage in allied businesses.
Chart 41: Non-hospital revenue trend Chart 42: Net profit of non-hospital business and GPM
Source: Respective companies, Complied by MKE-ISR Source: Respective companies, Complied by MKE-ISR
Chart 43: BGH: % of non hospitalbusiness to core revenue
Chart 44: BH: % of non hospitalbusiness to core revenue
Chart 45: CHG: % of non hospitalbusiness to core revenue
Source: Companies, MKE-ISR
0
1,000
2,000
3,000
4,000
2009 2010 2011 2012
Nat inoal Healthcare System Greenline Synergy
A.N.B labo rator ie s Bangkok P remier L if e Insurance B roker
B io Molecu lar Labo rato rie s Medi cpharma
Sodexo Bangkok Helicopter Service
Royal Bangkok Healthcare Vital ife Corporation
Asia Global Research Thai Amdon
32%31%
23%
27%
10%
15%
20%
25%
30%
35%
-300
-200
-100
0
100
200
300
400
500
2009 2010 2011 2012
Net profit (LHS) Gross Profit Margin (RHS)
2,120 2,373 2,894 3,661
9.7% 10.0%
8.2% 8.0%
0%
2%
4%
6%
8%
10%
12%
0
500
1,000
1,500
2,000
2,500
3,000
3,500
4,000
2009 2010 2011 2012
Sales from non hospital business Non hospital business (% of sales)
THBm
125 173 184 209
1.4%
1.8%1.7% 1.6%
0.0%
0.2%
0.4%
0.6%
0.8%
1.0%
1.2%
1.4%
1.6%
1.8%
2.0%
0
50
100
150
200
250
2009 2010 2011 2012
Sales from non hospital business Non hospital business (% of sales)
THBm
2 2 4 12
0.3%
0.2%
0.3%
0.6%
0.0%
0.1%
0.2%
0.3%
0.4%
0.5%
0.6%
0.7%
0
2
4
6
8
10
12
14
2009 2010 2011 2012
Sales from non hospital business Non hospital business (% of sales)
THBm
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Thailand Healthcare Sector
Financial Analysis
LeverageThai hospitals have low financial leverage and interest burden compared toprivate hospitals in many other countries. Net debt to EBITDA for Thailisted hospital stands at 1.3x (confined in BCH and BGH) vs. the 3.7xaverage of global private hospitals. In addition, net debt to equity for Thailisted hospital is 0.3x, compared with 3.0x for listed global hospitals.
BCH has the highest leverage within our healthcare service coverage buteven then its net debt/EBITDA is2.6x, lower than the average of globalpeers at 3.7x. Nonetheless its leverage relative to other local hospitalplayers could cap its ability to invest and compete.
The sound financial position of the operators will allow them to executethe significant capacity expansion in the pipeline. We are confident that itwill be able to repay its debt obligations and be ready for new investmentgiven its interest coverage of 10.9x.
Chart 46: Net debt to EBITDA Chart 47: Net debt to Equity
Source: Respective companies, Complied by MKE-ISR Source: Respective companies, Complied by MKE-ISR
Healthy revenue outlook
We expect stocks under coverage to report revenue growth of about 13%on a YoY basis in 2014F to THB79b. Within the healthcare sector, BH isexpected to report the highest revenue growth of 15%, thanks to trafficgrowth of 8% and price hikes (7%). CHG will show the lowest revenuegrowth of 9%YoY to THB2,389m because of slowest patient traffic growth.
Chart 48: IPD and OPD revenue and traffic growth Chart 49: Patient revenue trend
Source: MKE-ISR Source: MKE-ISR
-3.0
-2.0
-1.0
0.0
1.0
2.0
3.0
4.0
5.0
6.0
Fort
is(IN)
Ryman
(NZ)
T
ene
tHC(US)
HCA(US)
Me
diclin
ic(SJ)
G
erera
le(FP)
U
niversa
l(US)
BCH
Rhoen
(GR)
BGH
Ramsay
(AU)
IHH(MK)
Apo
llo
(IN)
Life
HC(SJ)
Phoen
ix(HK)
BH
CHG
Ra
ffles
(SP)
Average of global hospitals: 3.7x
Average of Thai hospitals: 1.3x
-1.0
0.0
1.0
2.0
3.0
4.0
Te
netHC(US)
Gererale(FP)
Un
iversal(US)
Me
diclinic(SJ)
BCH
R
amsay(AU)
Fortis(IN)
Rhoen(GR)
BGH
LifeHC(SJ)
Apollo(IN)
Ryman(NZ)
P
hoenix(HK)
IHH(MK)
BH
CHG
Raffles(SP)
Average of global hospitals: 3.0x
Average of Thai hospitals: 0.3x
33,877 37,438 42,466 48,040
55,714
29,959 32,707
36,91941,822
47,049
0
20,000
40,000
60,000
80,000
100,000
120,000
0%
2%
4%
6%
8%
10%
12%
2012 2013F 2014F 2015F 2016F
IPD revenue (RHS) OPD revenue (RHS)
IPD traffic growth (LHS) OPD traffic growth (LHS)
0%
5%
10%
15%
20%
25%
30%
35%
0
20,000
40,000
60,000
80,000
100,000
120,000
2008 2009 2010 2011 2012 2013F 2014F 2015F 2016F
BGH CHG BH BCH Patient revenue growth (%Chg YoY)
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Source: MKE-ISR
Medical tourism is also an increasingly important revenue driver for theThai listed hospitals. Thailands tourism campaign features healthcare asone of the marketing angles giving the listed hospitals promotional
subsidy. International medical tourists have a strong positive correlationto BHs and BGHs revenues. Thus, during a period when internationaltourism is disrupted, like we are experiencing in the current uncertainpolitical climate, the revenues of BH and BGH have downside potential.
Revenues of CHG and BCH have no correlation to international tourism.
Chart 51: Going in-line with international tourists arrival Chart 52: Revenue contribution by nationality
Source: MKE-ISR Source: Bumrungrad, Bangkok Dusit Medical Services, MKE-ISR
Charts50-51 above show that BH is more sensitive to political instabilityand that is intuitive because BH has the highest degree of exposure tomedical tourism. For example, in after the Sep-2006 coup detat its
revenue growth decelerated to 11% and EBITDA growth was only 4%, andreported net profit contracted by 7%YoY in 4Q06.
However, that year its profitability was also affected by some base effectbecause in the 4Q05, BHs profitability was boosted by the tax loss carryforward helping minimize tax burden. However, the intensity of theimpact on profitability is not as large as indicated. In the three episodes ofpolitical instability, the drop in BHs earnings was also exacerbated byother extraordinary items.
Table 3: BH sensitivity to adverse political developments
Source: Company data, MKET-ISR estimates
-5%
0%
5%
10%
15%
20%
25%
30%
35%
40%
2007 2008 2009 2010 2011 2012 9M13
%Chg YoY - International tourists arrival
%Chg YoY - BH International patients revenue
%Chg YoY - BGH International patients revenue
53% 54% 55% 54% 55% 57%
59% 61% 62% 61% 60% 61%
26%
33% 35% 36% 36% 36%
26% 28%32%
26% 26% 28%
0%
10%
20%
30%
40%
50%
60%
70%
2 00 5 2 00 6 2 00 7 2 00 8 2 00 9 2 01 0 2 01 1 2 01 2 1Q13 2Q13 3Q13 9M13
BH - % of International patients revenue
BGH - % of International patients revenue
BH Sensitivity to Political Climate Remarks
Sal es EBITDA Ne t prof it R ecurri ng NP
Coup 4Q06 11% 4% -7% 11% tax loss carry forward of THB30m (4Q05), one time provision for China investment of THB20m
Yellow shirt rally 4Q08 3% 10% -60% 11% one time non-operating items: asset impairment of THB370m
Red shirt rally 2Q10 0% -10% -42% -20% Higher SG&A on marketing expenses and expnses on subsidiary AGR
THB60m share in the loss of BIH, THB63m in AGR; loss on sale of AGR investments (THB9m) &
FX loss of THB63m
%Chg YoY
Chart 50: Patient revenue per bed
4.2 4.2 4.8 4.3 4.6 4.3 4.4
10.2 8.8 10.3 10.3 11.2 11.9 12.6
20.5 23.026.8 28.0 29.2
32.3 37.73.7 4.2
5.5 6.0
6.0 6.1
6.2
0
10
20
30
40
50
60
70
2010 2011 2012 2013F 2014F 2015F 2016F
BCH BGH BH CHG
THBm per Bed
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Our sensitivity analysis based on series shows that for every 1% change inforeign tourism, BHs earnings will change by 2.2% as more than 60% ofrevenue comes from foreign patients. In the case of BGH the change issmaller: for every 1ppts in foreign tourism, earnings will change by 0.8%.
Chart 53: Sensitivity analysis of earnings to international patients volume
Source: MKE-ISR
-10% -5% -1% Base case 3%
BGH -7% -3% -1% 0% 2%
BH -19% -11% -2% 0% 6%
BCH
CHG
Sensitivity o f earnings to changes in foreign patients
None - Foreign patients account less than 1% of its revenue
None - There is no exposure to foreign patients
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Earnings growth drivers
Traffic and price is the key earnings driver for the sector. Slowdown ininternational tourism has the tendency to drag revenues if it could not beoffset by higher local traffic. As mentioned earlier BH and BGH are themost susceptible.
Our sensitivity analysis shows that for every 1% change in patient trafficand price, the sectors earnings will change by 2.3% and 2.1% respectively.BGH is the most sensitive to price changes and revenue intensity while CHGis the least sensitive.
hart 54: Sensitivity analysis to changes in prices Chart 55: Sensitivity analysis of earnings to changes intraffics
ource: MKE-ISR Source: MKE-ISR
The flat operating profit margin outlook for 2014 is temporary, in our view,and the improvement going forward will be driven by cost control programsand improving cost efficiency in both COGS and SG&A. The aim is to bringback the SG&A to sales ratio to 18.5% from 19.1% currently.
Income from associates dealing with allied services should also help driveprofits. On an aggregated basis we estimate equity income to account for7% of the estimated sector earnings growth.
Chart 56: SG&A to core revenue (%) Chart 57: Source of earnings growth (THBm)
Source: Respective companies, MKE-ISR Source: MKE-ISR
Healthy Margin
We track the operating performance of healthcare services companies bylooking at their EBITDA margin. Average EBITDA margins for Thai privatehospitals over the past five years were higher than those of hospitals in theneighboring countries regardless of asset size.
The average EBITDA margin for Thai hospitals was 24.5% and this comparesfavorably with the peers average at 16.3%. We think the reasons are:
i)
lower cost of personnelii)
lower research and development expensesiii) different patients mix and business model among countriesiv) higher revenue from medicinev) government incentives that depended on government policy
-5% -1% Base case +1% +5%
-5% -18% -10% -8% -6% 2%
-1% -12% -4% -2% 0% 8%
Base Case -10% -2% 0% 2% 10%
+1% -8% 0% 2% 4% 12%
+5% -2% 6% 8% 10% 18%
Changes in Inpatient bill size
C
hangesin
Outpatientsbill
size
-5% -1% Base case +1% +5%
-5% -18% -12% -10% -8% -2%
-1% -10% -4% -2% 0% 6%
Base Case -8% -2% 0% 2% 8%
+1% -6% 0% 2% 4% 10%
+5% 2% 8% 10% 12% 18%
Changes i n Outpatients traffic
C
hangesin
Inpatientstraffic
19.5%19.2%
17.9%
19.4%
18.7% 18.8% 19.3% 19.2%19.1%
8%
10%
12%
14%
16%
18%
20%
22%
24%
2007 2008 2009 2010 2011 2012 2013F 2014F 2015F
BCH BGH BH CHG Total
9,917
11,018
1,185
158 9 24
8,500
9,000
9,500
10,000
10,500
11,000
11,500
Net profit2013F
Sales growth MarginExpansion
SG&Areduction
Income fromassociates
Net profit2014F
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BCH offers the highest EBITDA margin of 31% followed by CHG (28%), BH(27%). The lowest EBITDA is in BGH, 23%.
Chart 58: EBITDA margin comparison among peers Chart 59: EBITDA margin trends
Source: Respective companies, MKE-ISR Source: MKE-ISR
hart 60: EBITDA per hospital bed Chart 61: Net profit per hospital bed
ource: Respective companies, MKE-ISR Source: Respective companies, MKE-ISR
Our sensitivity analysis shows that for every 1ppt drop in gross margin,hospital sector earnings would drop by 6% in 2014F.
BCH and BGH are more sensitive to change in margin due to higheroperating and financial leverage than BH and CHG; recall that BH and CHGare in net cash positions. Both also have lower fixed costs.
Chart 62: Net profit sensitivity to changes in GPM and SG&A to sales
Source: MKE-ISR
Profitability
The healthcare service market in Thailand has displayed robust growth interms of both revenue and earnings since 2002. We project a slowdown ingrowth due to higher start-up costs and depreciation expenses. However,
as the aggressive capacity expansion is worked out by way of traffic andprice driven rise of asset turnover, earnings growth could accelerate. Thiswill not take long. Our 3-yr earnings CAGR is 15.2%.
BGH
BH
BCH
CHGVIBHA RAM
IHH (MK)
KPJ (MK)Raffles (SP)
Ramsay (AU)
Virtus (AU)Greencross (AU)
Apollo (IN)Fortis (IN)
Siloan (IJ)
Rhoen Klinikum (GR)
Gererale de Sante SA (FP)
Mediclinic (SJ)
Universal Health Servcies (US)
Tenet Healthcare (US)
Health ManagementAssociates (US)
0
1,000
2,000
3,000
4,000
5,000
6,000
7,000
8,000
9,000
10,000
5% 10% 15% 20% 25% 30%
Assets(US$)
EBITDA Margin (%)
Thai private hospital's EBITDA margin ishigher than other contries.
24.3% 24.3% 24.2% 24.6% 25.3% 25.4%
24.5% 24.9% 24.9%
10%
14%
18%
22%
26%
30%
34%
38%
2007 2008 2009 2010 2011 2012 2013F 2014F 2015F
BCH BGH BH CHG Total
1.3 1.4 1.7 1.2 1.4 1.4 1.5
2.4 2.2 2.5 2.4 2.6 2.8 2.9
5.0 5.76.7 7.7
8.1 9.1
10.60.8
1.0
1.6 1.6 1.7
1.7
1.8
0
2
4
6
8
10
12
14
16
18
2010 2011 2012 2 013F 2014F 2015F 2016F
BCH BGH BH CHG
THBm per Bed
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Chart 63: Operating profit and EBIT margin Chart 64: Net profit and Net profit margin
Source: MKE-ISR Source: MKE-ISR
Source: MKE-ISR
Dividend and yield: Low
The average payout ratio for the sector since 2005 is 45%. This does notbring in good yield about 2.1% on average. This is because the sector isstill on capacity expansion mode demanding high capex as well as R&Drelated costs. We expect that payout and yield could start rising post 2015.
Chart 66: Dividend policy and payout ratio Chart 67: Healthcare sector dividend yield compared with SET
Source: Respective companies, MKE-ISR Source: SET, MKE-ISR
2,487 2,831 2,738 3,390
5,9307,803 7,899
8,893 10,301
57 77 121 164
237
428 480 543
613
1,633 1,664 1,6801,828
2,126
2,547 3,142
3,470
4,187
793 1,023 1,142
1,147
1,125
1,352 984
1,151
1,322
12%
13%
14%
15%
16%
17%
18%
19%
20%
0
2,000
4,000
6,000
8,000
10,000
12,000
14,000
16,000
18,000
2007 2008 2009 2010 2011 2012 2013F 2014F 2015F
BGH CHG BH BCH EBIT margin (RHS)
1,244 1,662 1,725 2,295
3,907
6,142 6,482 7,177
8,462
49 67 111
119
171
335 405
461
521
1,946 1,160 1,1931,219
1,543
1,8092,447
2,711
3,290
474 605 674639
673
910583
668
797
6%
7%
8%
9%
10%
11%
12%
13%
14%
15%
0
2,000
4,000
6,000
8,000
10,000
12,000
14,000
2007 2008 2009 2010 2011 2012 2 013F 2014F 2015F
BGH CHG BH BCH Net profit margin (RHS)
Company Dividend policy
2010 2011 2012
Bangkok Chain Hospital Not less than 40% of the net profits each year 37% 33% 59%
Bangkok Dusit Medical Services Minimum 50% of company's net profit 49% 43% 37%
Bumrungrad Hospital
When the Company has net profit which can be contributed to
shareholders, the preferred shareholders will receive dividends before the
ordinary shareholders (with additonal conditions) 50% 52% 50%
Chularat Hospital GroupNot less than 50% of net profit based on the Companys consolidated
financial statement after the deduction of reserves n.a. n.a. 58%
Dividend payout ratio
0
1
2
3
4
5
6
7
Q1/2006
Q2/2006
Q3/2006
Q4/2006
Q1/2007
Q2/2007
Q3/2007
Q4/2007
Q1/2008
Q2/2008
Q3/2008
Q4/2008
Q1/2009
Q2/2009
Q3/2009
Q4/2009
Q1/2010
Q2/2010
Q3/2010
Q4/2010
Q1/2011
Q2/2011
Q3/2011
Q4/2011
Q1/2012
Q2/2012
Q3/2012
Q4/2012
Q1/2013
Q2/2013
Q3/2013
Q4/2013
Q1/2014
BGH BH BCH SETHELTH Index SET Index
Chart 65: Earnings outlook for hospital stocks under our coverage
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Valuation and Recommendation
We initiate coverage on Thailands healthcare services sector withOVERWEIGHT and Bumrungrad Hospital (BH) as our top pick. Bangkok ChainHospital (BCH) is also a BUY while Bangkok Dusit Medical Services (BGH)and Chularat Hospital Group (CHG) are HOLDs due to high valuationmultiples and flatter 2014 earnings growth outlook.
We value these companies based on discounted cash flow (DCF) to capturethe longer-term cashflow outlook following a high capex period. We arebullish on the sectors long-term growth outlook.
Chart 68: Fair value and stock recommendation summary
Source: MKE-ISR
The SETHELTH fell 26.6% from its peak in May due to the weak domesticeconomic data, weaker-than-expected earnings growth in 2H13, andpolitical rally in Bangkok that could hinder revenue growth derived frominternational patients. The sector is now trading at an average of 22.7xPER, 4.2x P/BV and 14.1x EV/EBITDA for 2014F. The sector PER and PBVratios are approaching the historical five-year average of 21x and 4x.
The sector valuation is rich relative to the local market. These multiplescan continue due to i) sustained high ROCE and ROE in the next five yearsat 20.1% (vs. markets 13.8%, regional peers 13.8%), ii) visible robustearnings growth at a 15.2% three-year CAGR (vs. markets 12.1%, regionalpeers 13.1%), iii) low average dividend payout ratio of 45% (vs. markets
55%, regional peers 51%), iv) low average cost of capital of 8.5% (vs.markets 11.2%, regional peers 10.4%), and v) potential M&A and marketconsolidation.
Chart 69: ROE and PBV comparison Chart 70: EV/EBITDA and PER chart
Source: MKE-ISR Source: SET, MKE-ISR
Rating Target % % ROE Valuation WACC Terminal
price Upside yield EPS (THB) BVPS (THB) (%) Method growth 2014F PE 2014F PB
BGH HOLD 140.0 19% 2% 4.7 29.3 17.0% DCF 10% 3% 29.7 4.8
BH BUY 105.0 27% 2% 3.5 14.5 26.2% DCF 8% 3% 29.7 7.3
BCH BUY 7.5 32% 3% 0.3 1.7 16.9% DCF 9% 3% 26.8 4.4
CHG HOLD 11.5 15% 2% 0.4 3.0 21.5% DCF 8% 3% 27.4 3.8
2014F Implied
BGH
BH
BCH
CHGAverage
IHH
Apollo
Raffles
RymanRamsay
Mediclinic
SET
0.0
1.0
2.0
3.0
4.0
5.0
6.0
7.0
0% 5% 10% 15% 20% 25% 30%
PBV(x)
ROE (%)
BGHBH
BCHCHG
Average
SET
IHH
Apollo
Raffles
RymanRamsay
Mediclinic
0
10
20
30
40
50
60
5 10 15 20 25
PER
(x)
EV/EBITDA (x)
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Chart 71: Forward PER Chart 72: PBV chart
Source: Bloomberg, MKE-ISR Source: Bloomberg, MKE-ISR
Regional comparison
Thai hospitals stocks are relatively cheap, in terms of PER, PBV, andEV/EBITDA, compared to the region. Thai hospitals are attractive for theirhigher profit growth, high ROE and better EBITDA margin. Long-termgrowth opportunities also appear to be stronger. Thus, Thai hospitalsshould trade at a premium to its regional peers.
The normalized net profit for Thai hospitals will reach 12.5% in 2014 andaccelerate to 17.5% in 2015. This compares favorably to the regional peersaverage 12.2%growth in 2014 and 13.7% in 2015.
The current political uncertainty in Thailand will have a negative impacton the number of international tourists and by extension internationalpatients. As mentioned above, BH and BGH the key companies in the
sector are vulnerable to the pullback. We believe this is temporary.Nonetheless it could cap share price performance and cause thesecompanies to lag behind regional peers in share price performance.
At this level, though, we think these stocks are attractive for long-terminvestors having multiples pulled back to the five-year average.
Chart 73: Peer comparison
Source: Bloomberg, MKE-ISR
2013F 2014F 2015F 2013F 2014F 2015F 2013F 2014F 2015F 2013F 2014F 2013F 2014F 2015F
Bangkok Chain Hospital 22.2 19.6 17.3 3.5 3.3 3.2 11.9 11.9 10.7 3.3 3.1 15.8 17.8 19.2
Bangkok Dusit Medical Services 29.1 25.8 21.3 4.5 4.1 3.7 19.3 17.1 14.6 1.5 1.7 16.4 17.0 18.8
Bumrungrad Hospital 26.6 23.3 20.7 6.8 5.9 5.3 16.0 14.0 12.3 2.0 2.2 27.2 27.6 27.9
Chularat Hospital Group 25.4 23.9 20.2 4.2 4.0 3.7 16.3 14.4 12.5 1.9 2.4 22.8 17.9 18.8Averag e Thai Hos pit al 25.8 23.2 19.9 4.7 4.3 4.0 15.9 14.4 12.5 2.2 2.4 20.6 20.1 21.2
Ramsay Health Care 33.0 27.9 24.3 6.1 5.6 5.0 16.2 14.1 12.6 1.5 1.9 18.7 20.4 21.2
Virtus Health 23.4 21.1 19.1 3.2 3.0 2.8 14.8 13.0 12.1 n.a. 2.9 21.3 14.6 15.1
Greencross 43.6 36.1 26.2 n.a. 2.6 2.5 23.9 8.2 5.0 1.2 1.4 10.9 8.7 9.6
Ryman Healthcare 36.4 30.8 26.8 5.6 4.7 4.2 26.8 24.6 22.5 1.2 1.5 17.1 16.0 16.1
Raffles Medical Group 25.1 23.4 20.5 3.9 3.5 3.1 18.3 16.6 14.5 1.5 1.6 17.1 15.8 16.6
Apollo Hospitals Enterprise 41.1 36.8 30.2 4.6 4.3 3.9 21.2 18.9 15.6 0.5 0.7 11.9 12.2 13.6
IHH Healthcare 48.1 37.5 30.5 1.7 1.6 1.6 23.2 19.4 17.0 0.1 0.2 3.5 4.5 5.3
KPJ Healthcare 31.6 25.8 23.6 3.1 2.9 2.7 18.1 15.0 13.1 1.6 1.9 10.0 10.6 11.3
Generale de Sante SA 21.9 22.6 23.0 2.0 2.1 2.2 6.9 6.9 6.9 6.9 6.9 9.2 9.2 9.5
Rhoen Klinikum AG 29.3 24.3 20.4 1.6 1.7 1.6 11.9 12.6 11.5 1.5 1.8 6.6 8.1 9.9
Universal Health Services 18.5 16.3 14.7 2.8 2.3 2.0 9.5 8.9 8.3 0.2 0.2 14.9 14.3 14.6
Tenet Healthcare 27.1 17.7 12.7 5.2 4.5 3.3 8.0 5.4 4.9 0.0 0.0 21.9 29.6 32.5
Mediclinic International 26.2 19.5 16.9 3.3 2.9 2.6 15.9 13.3 12.2 1.3 1.8 13.9 16.1 16.8
Averag e Glob al peers 31.2 26.1 22.2 3.6 3.2 2.9 16.5 13.6 12.0 1.5 1.8 13.6 13.9 14.8
Premium/(Discount) to global peers -17.2% -11.4% -10.6% 32.3% 33.7% 37.8% -3.8% 5.5% 4.4% 0.7 0.6 6.9 6.2 6.4Averag e Region al peers 35.3 29.9 25.1 4.0 3.5 3.2 20.3 16.2 14.0 1.1 1.5 13.8 12.8 13.6
Prem ium/(Disc ount) t o regional peers -26.8% -22.6% -21.0% 17.9% 21.6% 23.7% -21.8% -11.5% -10.7% 1.1 0.9 6.7 7.2 7.6
PER PBV EV/EBITDA Dividend yield ROE
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Appendix I: Characteristics of three health protection and insurance schemes
Source: Ministry of Public Health, Ministry of Finance, Social Security Office, MKE-ISR
Appendix III: Medical tourism market positioning and targeting market
Source: Mckinsey, Frost & Sullivan, MKE-ISR
Scheme Type Financing sources Benefits package Purchasing relation Access to service
Per capita
expenditure
2012
Social Security Scheme (SSS) Social
insurance,
compulsory
Private sector
employees,
excluding
dependants
19% Payroll tax
financed, tri-
partite
contribution 1.5%
of salary, equally
by employee and
government
Comprehensive:
outpatient, inpatient,
accident and
emergency, high-cost
care, with vary minimal
exclusion list; exclude
prevention and health
promotion
Contract model:
inclusive capitation
for outpatient and
inpatient services
Registered
public and
private
competing
contractors
2,562
Civil Servant Medical Benefit
Scheme (CSMBS)
Fringe benefit Government
employees plus
dependants
(parents,
spouse and up
to two children
age less than
20 years
7% General tax, non-
contribution
scheme, mainly
from government
budget
Comprehensive: slightly
higher than SSS and UCS
Reimbursement
model: fee from
service, direct
disbursement to
public providers for
outpateints;
conventional
diagnosis related
group (DRG) to
inpatients
Free choice of
public providers,
no registration
required
14,056
Universal Coverage Scheme
(UCS)
State welfare The rest of
population not
covered by SSS
and CSMBS
75% General tax, mainly
from government
budget
Comprehensive: similar
to SSS including
prevention and health
promotion for the whole
population
Contract model:
capitation for
outpatients and
global badget plus
DRG for inpatients
Registered
contractor
provider,
notably within
the district
2,217
Popolation coverage
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Appendix II: Positioning and competitive landscape of major private and public hospitals in Thailand
Source: MKE-ISR
Hospital Name Location ListedNo. of
hospitalJCI accrediation Specialist Areas No. of Specialists Target Customers
Key Value
PropositionTot al No. of beds Posi ti oning
Bumrungrad Intl' Hospital Central Yes 1 Yes
Spine surgery, Cardiology,
Cardiothoracic surgery,
Neurosurgery
1,064
Medical traveller,
Expatriates, High
income population
High-end medical
services catering to
affluent population
554 Premium
Bangkok Chian Hospital Central Yes 6 NoHeart surgery, Cath lab, Lasik,
Urology867
Low-medium
income
population, Social
welfare
Multi-specialties,
focusing on suburb1,693 Low to medium
Bangkok General Hospital Whole Yes 14 Yes
Cardiology, Oncology, Spine
surgery, Rehabilitation and
physiotheraphy
>1,000Medical traveller,
All income level
High-end healthcare
provider with a
nationwide referral
network
5,458 Medium to premium
Chiangmai Mai Ram Hospital North Yes 2 Yes Gastroenterology, Hepatology,Cardiology
171
Medium-high
income populationfrom the north
zone
Medium-high endmedical services
220 Medium
Chularat Hospital Group Central Yes 3 NoHand surgery, Neonatal nursing,
Cardiology, Orthopedic348
Corporate
customer, mainly
the industrial
workers
Multi-specialities
with a priovincial
referral network
544 Low to medium
Ramkamhaeng Hospital Central Yes 1 YesCardiology, Disc replacement,
Diabetic foot disease410
Corporate
customer, Medium
income
population,
Metropolitan
Medium-high end
medical services486 Medium
Vibhavadi Hospital Central Yes 3 Yes
Cadiology, Fertility services,
Plastic surgery, Obstetrics and
Gynaecology
280
Medical traveller,
medium income
population
Medium-high endmedical services
350 Medium
King Chulalongkorn Memorial Hospital Central No 1 No
Cardiology, Neurodegenerative
disorders, Gastroenterology,
Nephrology
541
Low income
population,
Patients with
complicated
disease
Non-profit hospital
with competitve
pricing and multi-
specialties
1,439 Low to medium
Ramathibodi Hospital Central No 1 NoOrthopedic, Cancer treatment,
Gastroenterology, Dermatology518
Low income
population,
Patients with
complicated
disease
Non-profit hospital
with competitve
pricing and multi-
specialties
1,378 Low to medium
Siriraj Hospital Central No 2 Yes
Cardiology, Orthopasdic, General
surgery, Rehabilitation and
physiotheraphy
851
Low income
population,
Patients with
complicated
disease
Non-profit hospital
with competitvepricing and multi-
specialties
2,265 Low to medium
Hospital Network
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8/11/2019 Thai Healthcare Inits 290118 3564
30/54
January 29, 2014
COMPANYRESEARCH
|Ini
tiation
SEE PAGE 52FOR IMPORTANT DISCLOSURES AND ANALYST CERTIFICATIONS
Bangkok Chain Hospital (BCH TB)
Earnings to take off Initiate at BUY and 12M TP of THB7.5, based on DCF with
9.5% WACC and 3% terminal growth. Our TP implies 2014F28.0x PER, 4.4x PBV, and 1.1x PEG.
Largest player in low to mid-range segment with eight
hospitals and one clinic under management. Main strategiesare capacity expansion and rebalancing marketing strategy.
Expect EBITDA to grow 17.7% annually in 2013-2016F and
net profit to surge by 21.2% p.a. over next three years
(sector averages 15.2% earnings growth p.a.). ROE will rise to18.0% in 2015F from 15.3% in 2013.
Whats NewBCH is rebalancing its strategy for its three hospital brands to have
clearer market segmentation. BCH plans to open three hospitals
during 2014-18F and this will increase the total capacity by 24.3%.
In addition, we expect better occupancy rate and outpatient
traffic at the newly-opened The World Medical Center(WMC)
resulting in lower net loss in 2014F. Thus, we expect strong
earnings growth in 2014F-2015F. Key risk is BCHs high leverage
(0.6x net D/E) in a rising interest-rate scenario: current coupon is
4%.
Whats Our ViewWe like BCHs multiple earnings growth drivers: increasing
inpatient and outpatient traffic, operational improvement at WMC,
and margin expansion. BCH has the highest number of growth
drivers in the Thai hospital space. Clearer market segmentation of
the three brands could help attract more patients. Patient traffic
is forecast to jump by 6.2% p.a., a faster pace than the 5.5%
growth in capacity. This will underpin growth and lead to ahigh
18.0% ROE accretion from 15.3% vs a cost of equity (CoE) of 12%.
Initiate coverage with BUY.
Key Data
Share Price Performance
Maybankvs Market
Sittichai Duangrattanachaya(662) 658 6300 ext 1393
Share Price: THB5.70 MCap (USD): 432M Thailand
Target Price: THB7.50(+32%) ADTV (USD): 0.5M Health Care (New)BUY