thai healthcare inits 290118 3564

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January 29, 2014

Tha

iland

SEC

TORRESEARCH

|

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

[email protected]

(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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-10

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30

40

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Feb-13

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Apr-13

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Nov-13

Dec-13

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

-20.0-10.0

0.0

10.0

20.0

30.0

40.0

50.0

Jan-13

Feb-13

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Jan-14

BH BGH BCH SET CHG

%


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January 29, 2014 2

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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January 29, 2014 3


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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January 29, 2014 4


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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January 29, 2014 5


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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January 29, 2014 6


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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January 29, 2014 7


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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January 29, 2014 8


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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January 29, 2014 9


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


Market Share 25% 15% 8% 9% 6% 2%



Market Share 23% 14% 10% 9% 5% 2%


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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January 29, 2014 10


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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January 29, 2014 11


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

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20,000

30,000

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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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January 29, 2014 12


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

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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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January 29, 2014 13


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

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0

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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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January 29, 2014 15


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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January 29, 2014 16


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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January 29, 2014 17


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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January 29, 2014 18


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


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


THBm


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January 29, 2014 20


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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January 29, 2014 21


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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January 29, 2014 22


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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January 29, 2014 23


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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January 29, 2014 24


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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January 29, 2014 25


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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January 29, 2014 26


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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January 29, 2014 27


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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January 29, 2014 28


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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January 29, 2014 29


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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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

[email protected]

Share Price: THB5.70 MCap (USD): 432M Thailand

Target Price: THB7.50(+32%) ADTV (USD): 0.5M Health Care (New)BUY

thai healthcare inits 290118 3564

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