Thai healthcare initiation report

8/13/2019 Thai healthcare initiation report

http://slidepdf.com/reader/full/thai-healthcare-initiation-report 1/88



Nomura | Thailand healthcare January 9, 2013

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Contents

5 Thailand healthcare: A game of thrones

5 Positive on sector, Bangkok Dusit our preferred choice

5 5 key themes

6 Limited supply of qualified healthcare professional – a key growthconstraint

7 Valuations

7 Key risks

7 Key catalysts

8 Positive on sector, Bangkok Dusit our preferred

choice8 Valuations

10 Bangkok Dusit is our preferred pick

11 Five major themes

11 Continued growth in international patient revenues

13 Rise of the middle class to drive structurally stronger demand for

private healthcare 14 Sweet spot #1: Mid-market

15 Sweet spot #2: Upcountry

18 A tale of consolidation and segmentation

20 Role of the government

20 Public sector competition

20 Substitution effect

21 Public-private partnership

21 Anti-monopoly laws

22 Industry outlook: A case for private healthcare inThailand

22 Private healthcare demand is growing…




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24 …but supply is not

26 Limited supply of qualified healthcare professionals –a key growth constraint

27 Competitive landscape

27

Fragmented market

28 Geographical presence

30 Market positioning

30 Strategy – Outgrow, out-last, out-manoeuvre

33 Key earnings drivers

35 Key sector catalysts35 Stronger-than-expected foreign patient load

35 Greater operating leverage

35 More M&A action

35 Staffing constraints relieved

35 Stronger-than-expected economic growth

36 Key sector risks

36 Political instability/natural disasters

36 Inability to scale the value chain

36 Substitution from the public sector

36 Staff shortage and higher wage bill

36 Regulation

36 Slower income growth

37 Appendix: Public healthcare schemes

38 Civil Servant Medical Benefit Scheme

38 Social Security Scheme & Worker Compensation Scheme




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38 Universal Coverage Scheme

40 Appendix: A picture of the Thailand healthcaresituation

41 Appendix: Medical tourism in Thailand

42 Appendix: Healthcare acquisitions in Thailand

43 Appendix: Cross-holdings in the Thailand healthcareindustry

44 Game-changing events

45 Bangkok Dusit

69 Bumrungrad

86 Appendix A-1




5

Thailand healthcare: A game of thrones

Positive on sector, Bangkok Dusit our preferred choice

We initiate on Bangkok Dusit (BGH TB) with a Buy rating and target price of THB134.5.

We also initiate on Bumrungrad (BH TB) with a Neutral rating and target price of

THB80.5.

In this game of thrones, as multiple family-backed hospital operators manoeuvre tocontrol strategic leadership, we prefer Bangkok Dusit (Buy) over Bumrungrad (Neutral).

We believe BGH has successfully manoeuvred itself into a position of strategic control

via its shareholdings in major competing hospital groups and through its wide hub-and-

spoke hospital network. We also prefer BGH for its exposure to the domestic market,

particularly in the mid-market and upcountry segments, which offer a more stable growth

profile and offset the volatility of the medical tourist segment. With a PEG of 1.57x

relative to BH’s 2.0x, BGH is also the cheaper way to take a view on the Thailand

healthcare sector.

We expect BGH to continue delivering the growth story driven by: i) strong stable growth

of its mid-market and upcountry hospitals; ii) continued performance of it international

patient business against the backdrop of a stable political environment; with iii) capacity

growth through hospital expansions and acquisitions.

5 key themes

We identify 5 key themes that underpin our outlook for the sector.

• Continued growth in international patient revenues

• Rise of the middle class to drive structurally stronger demand for private healthcare

• Mid-market segment as the next growth segment

• Upcountry areas outside of Bangkok as the next frontier of growth

• Further consolidation and segmentation of market and continued M&A activities

International patient revenues to continue increasing and be a key earnings driver

Pricing still attractive relative to other medical tourist locationsWe believe that medical tourists will continue to patronise Thailand hospitals because

they remain affordable on a relative basis even as they get increasingly more expensive

on an absolute basis. We believe there is room to continue raising prices in line with

other markets such as Singapore without compromising on the relative affordability of

Thailand hospitals.

Ability to scale the value chain will allow more revenue per patient

Over the past 10 years, Thailand’s healthcare landscape has changed as the leading

hospitals have progressed to offer higher acuity treatments such as cancer and cardiac

related treatments. We expect this trend to persist and allow Thailand hospitals to

continue growing revenues by extracting more revenue per patient.

Surrounding source markets for medical tourists sizeable and continues to grow

Surrounding countries such as Bangladesh and the north ASEAN countries offer huge

prospects as source countries for medical tourists. Economic growth in these markets is

increasing demand for healthcare, which when coupled with an inadequate domestic

healthcare system, pushes people to seek treatment in medical destinations such as

Thailand. Together, their population size exceeds 300mn, larger than Indonesia, the 4th

most populous country in the world.

Expat population continues to grow

International patients also include the expat population in Thailand and the surrounding

countries. We don’t have hard data to quantify the growth rate, but continued foreign

direct investment into the market as expected by market observers should lead to a

growing expat population in the region.




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Potential to surprise on the upside, but a double-edged sword

Due to the volatility in international patient flow, there is potential for the numbers to

surprise on the upside and lead to outperformance in the results. Conversely, the same

case can be made on the downside.

Structurally stronger domestic demand as annual income crosses US$3,000

threshold

The Thailand private healthcare market is enjoying strong structural growth driven largely

by higher income levels inducing patients to seek higher quality care in private hospitals.

Although not a definitive measure, we believe that patients have a significantly higherpropensity to shift from public to private healthcare as they cross the US$3,000 annual

income threshold. We estimate that a significant proportion of the population will soon

cross this threshold and thus represent a sizeable market for private healthcare

providers.

Sweet spot #1: Mid-market

In the growing domestic healthcare market, we believe there are some segments which

provide more attractive growth potential than others. Branding-wise, we believe that the

mid-market segment offers more patient growth potential relative to the high end as

patients who shift from public to private healthcare will naturally transit into the mid-

market segment rather than leapfrog into the premium healthcare space. As the mid-

market segment primarily services the domestic market, we see it as less exposed to the

vagaries of medical tourist arrivals.Sweet spot #2: Upcountry

Geographically, we believe that areas outside of Bangkok (e.g. Central and East regions)

will see higher growth in domestic private healthcare demand due to higher economic

and population growth rates. This ties in with our Thailand strategist’s view that we will

see a higher rate of income growth and urbanisation outside of Bangkok (see pages 18-

19 in the report, Thailand Outlook 2013)

A tale of consolidation, segmentation and M&A

We expect the Thailand healthcare industry to be able to accommodate only 2-3 large

private players eventually, which is the experience in other markets such as Singapore

and Malaysia. As such, we expect the large hospital groups to gain market share at the

expense of smaller players who will either be bought out or be forced out of business.

We also see further segmentation of the market, in terms of pricing and branding, as

industry participants seek to secure positions of control. We believe the acquisition of

Health Network, a mid-market brand, by Bangkok Dusit, and Bangkok Chain’s opening of

World Medical Centre, a premium hospital that offers a less pricey proposition to the

incumbents, are proof of further market segmentation.

M&A has and will likely continue to be a driver of growth and share price. Admittedly,

there is a lack of large acquisitions which will move the needle. Nonetheless, there are

still a few with 2 or 3 campuses available.

Limited supply of qualified healthcare professional – a keygrowth constraint

The key growth constraint lies with the limited supply of qualified healthcare

professionals. Although the labour pool is expanding faster than population growth, it is

not growing fast enough to meet the increased healthcare demand as income levels rise.

We think it is close to impossible to expand the labour pool fast enough without

compromising the quality of these professionals.

Being able to attract, incentivise and retain these scarce resources will therefore be a

critical successful factor. Having the appropriate compensation structure will be crucial.

Correspondingly, the right siting and pricing of care is essential as the labour cost will

dictate the pricing level and, correspondingly, the market positioning and operational

model of the business.

http://go.nomuranow.com/research/globalresearchportal/getpub.aspx?pid=586486&appname=Email&cid=aWJMa2xvZXRoTzg90






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The financial implication, at the minimum, will be rising wages, which will be a drag on

earnings and margins. We believe this will primarily be offset through growing volumes,

operating leverage and higher prices driven by higher intensity of care. General price

increases will be limited, in our view, due to the presence of cheap, heavily subsidised

public healthcare. Tight cost control through economies of scale and higher productivity

through the use of technology and further systems integration will also help combat

against the cost pressure of rising wages.

ValuationsValuations for the Thailand healthcare stocks are at a slight premium to peers.

Nonetheless, we believe that this premium to peers is justified, given that the Thailand

healthcare sector has the highest growth profile in the ASEAN region on our estimate. As

such, we apply an EV/EBITDA multiple of 16.3x for Bangkok Dusit and 15.6x for

Bangkok Dusit, representing premiums of 10% and 5% to the peer average forward

EV/EBITDA, respectively. We attribute a higher premium to Bangkok Dusit due to its

position as the market leader and what we deem as a strategic leadership position.

Key risks

Key risks for the industry include slower income growth; failure to increase intensity of

care; political uncertainty/natural disasters; substitution from the public sector; staffshortage/higher wage bill; and government regulation.

Key catalysts

Key catalysts include stronger-than-expected economic growth; higher-than-expected

foreign patient load; greater operating leverage; relief of staffing constraint; and M&A

newsflow.




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Positive on sector, Bangkok Dusit ourpreferred choiceWe initiate on Bangkok Dusit with a Buy rating and TP of THB134.5. We also initiate on

Bumrungrad with a Neutral rating and TP of THB80.5.

We are positive on the Thailand private healthcare market. In the listed private

healthcare space, we prefer Bangkok Dusit (Buy) over Bumrungrad (Neutral) as we

believe the group has successfully manoeuvred itself into a position of strategic control

via its shareholdings in major competing hospital groups and through its wide hub-and-spoke hospital network. With a PEG of 1.57x relative to BH’s 2.0x, BGH is also the

cheaper way to take a view on the Thailand healthcare sector.

Bangkok Dusit currently trades at 28.6/24.1x FY12/13F P/E and 16.0/14.2x FY12/13F

EV/EBITDA. Bumrungrad similarly trades at 26.7x/23.5x FY12/13F P/E and 16.4/15.2x

FY12/13F EV/EBITDA. These valuations are at a slight premium above peers.

Fig. 1: Peer valuation comparison

Source: Bloomberg, Nomura research. Note: Pricing as of 7 January 2013, ROE for BH and BGH are adjusted for one-off exceptional items.

Valuations

We believe that the Thailand healthcare names should trade at a premium to peers as

the Thailand healthcare sector has the highest growth profile in the ASEAN region, on

our estimates. The Thailand healthcare sector is a structurally more attractive market,

than let’s say Singapore, because growth in the middle income population will likely drive

structurally higher demand for private healthcare. The market in Thailand is arguably

also less developed and more fragmented and thus provides more profit opportunities

from further segmentation and consolidation of the market. At the same time, it also has

a well established medical tourism market and as such, provides a proxy to one of the

key themes in the Asean healthcare space.

As such, we apply an EV/EBITDA multiple of 16.3x for Bangkok Dusit and 15.6x for

Bangkok Dusit, representing premiums of 10% and 5% to the peer average forward

EV/EBITDA, respectively. We attribute a higher premium to Bangkok Dusit due to its

position as the market leader and what we deem as a strategic leadership position.

We cross-check our valuations using various methodologies (DCF, EV/EBITDA) and in

general, found support for our target prices.

Rating Bloomberg Ticker

Mkt Cap

(US$ mn) Price

P/E (x)

2012E

P/E (x)

2013E

P/B (x)

2012E

P/B (x)

2013E

EV/EBITDA (x)

2012E

EV/EBITDA (x)

2013E

ROE (%)

2012E

Div yield (%)

2012E

Div yield (%)

2013E

3yr EPS

CAGR (fw)Singapore

Raffles Medical Group NEUTRAL RFMD SP Equity 1,239 2.8 27.2 23.6 3.9 3.4 19.6 16.4 15.4 1.4 1.4 14.7

MalaysiaIHH REDUCE IHH MK Equity 9,074 3.43 34.4 42.7 16.3 15.6 22.0 19.0 4.7 0.5 0.6 14.8KPJ Healthcare Not Rated KPJ MK Equity 1,210 5.7 24.4 21.4 3.5 3.3 14.3 12.6 15.1 2.1 2.1 4.1Thailand

Bangkok Chain Not Rated BCH TB Equity 590 9 20.1 19.3 4.7 4.3 12.4 11.3 25.1 2.8 2.4 16.7Bangkok Dusit BUY BGH TB EQUITY 5,785 114 28.6 24.1 4.8 4.3 16.0 14.2 17.9 1.9 1.7 25.0Bumrungrad Hospital NEUTRAL BH TB EQUITY 1,824 76.25 26.7 23.5 6.4 5.8 16.4 15.2 27.1 2.5 2.1 18.9Asia (simple avg) 26.9 25.8 6.6 6.1 16.8 14.8 17.5 1.9 1.7 15.7

Australia

Ramsay Health Ca re* NEUTRAL RHC AU EQUITY 5,890 27.76 19.0 16.5 3.6 3.3 10.3 9.2 18.4 2.5 2.9 14.2Primary Health Care* NEUTRAL PRY AU EQUITY 2,139 4.05 14.4 13.4 0.8 0.7 8.4 8.0 4.6 3.5 3.7 9.0

USA

HCA Holdings Not Rated HCA US EQUITY 14,147 31.94 9.1 9.0 n.a. -2.1 6.6 6.4 n.a 0.0 0.0 -8.2Universal Health Services Not Rated UHS US EQUITY 4,843 50 12.2 11.0 1.8 1.5 7.3 6.8 15.5 0.0 0.4 7.2

Community Health System Not Rated CYH US EQUITY 2,943 32.27 8.9 8.4 1.1 1.0 6.6 6.3 12.6 0.0 0.0 15.3

Lifepoint Hospital Not Rated LPNT US EQUITY 1,993 40.38 13.6 12.0 0.9 0.8 6.8 6.3 7.3 0.0 0.0 4.1

Tenet Healthcare Not Rated THC US EQUITY 3,632 34.11 18.2 11.7 2.7 2.2 7.1 6.2 15.5 0.0 0.0 N.M.Developed market (simple average) 13.6 11.7 1.8 1.1 7.6 7.0 12.3 0.8 1.0 6.9




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Fig. 2: Bangkok Dusit YTD price chart

Source: Bloomberg, Nomura research

Fig. 3: Bumrungrad YTD price chart


Fig. 4: Bangkok Dusit: valuation summary

Source: Nomura research

Fig. 5: Bumrungrad: valuation summary


Fig. 6: Bangkok Dusit: valuation comparison


Fig. 7: Bumrungrad: valuation comparison


Fig. 8: BGH’s forward P/E band (5-year)


Fig. 9: BGH’s forward EV/EBITDA band (5-year)


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Comments

Target Multiple (x) 16.3 FY13

Target Valuation (THB'mn) 198,411 FY13

Less Debt, Add Cash (13,061)

Add stake

in

Bumrungrad 15,332 24%

Add stake in RAM 7,243 38%

Target valuation (THB'mn) 207,924

# of shares ('000) 1,545,459

Target Price 134.50 134.5

Comments


Target EV (THB'mn) 59,334 FY13

Less Debt, Add Cash (674)Target valuation 58,660

# of shares ('000) 728,337


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Fig. 10: Bumrungrad’s forward P/E band (5-year)


Fig. 11: Bumrungrad’s forward EV/EBITDA band (5-year)


Bangkok Dusit is our preferred pick

On a relative basis, Bangkok Dusit is our preferred pick in the sector. We believe the

group has successfully manoeuvred itself into a position of strategic control via its

shareholdings in major competing hospital groups and has got it right with its hub-and-

spoke strategy, multiple brandings across the mid- and high-end segments and its widehospital network.

We expect the company to continue delivering the growth story, driven by: i) strong

stable growth of its mid-market and upcountry hospitals; ii) continued performance of it

international patient business against the backdrop of a stable political environment; with

iii) capacity growth through hospital expansions and acquisitions.

Its hub-and-spoke strategy is an optimal response to the labour constraint as it allows

the right siting of care, with feeder hospitals in non-Bangkok regions handling the less

acute cases, while referring higher acuity cases to be managed out of Bangkok. By

bringing the healthcare services to the customers, its hub-and-spoke strategy also allows

it to efficiently penetrate into the upcountry segment which we estimate has a higher

growth profile than Bangkok.

With multiple brands across various price points, Bangkok Dusit has a strong presence

in the traditional premium segment and a foot in the up-and-coming mid-market

segment. This will allow it to participate both in the mid-market segment where we see a

strong growth profile, while partaking in the still-lucrative premium market. Quite

importantly, the domestic mid-market segment is more stable than the premium market

which is subject to the volatility of international patient load.

In addition, its wide hospital network allows the group to enjoy cost efficiencies through

economies of scale. Bangkok Dusit is further leveraging on its scale benefits by further

integrating other parts of the healthcare value chain into the group, such as laboratory

services and medical supplies, amongst others. This will arguably give it stronger control

over costs and quality. We believe this will be an advantage in the mid-market segment,

which we see as the next battleground, where cost control and efficiency will be the

name of the game.

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Five major themesWe identify 5 key themes that underpin our outlook for the sector.

• Continued growth in international patient revenues

• Rise of the middle class to drive structurally stronger demand for private healthcare

• Mid-market segment as the next growth segment

• Upcountry areas outside of Bangkok as the next frontier of growth

• Further consolidation and segmentation of market, with M&A as a driver

Continued growth in international patient revenues

Pricing still attractive relative to other medical tourist locations, able to raise

prices in pace with other markets

We believe that medical tourists will continue to patronise Thailand hospitals because

they remain affordable on a relative basis even as they get increasingly more expensive

on an absolute basis. We believe there is room to continue raising prices in line with

other markets such as Singapore without compromising the relative affordability of

Thailand hospitals.

Thailand hospitals are priced at a 20-30% discount to Singapore hospitals across major

procedures, based on data from Patients Beyond Borders. A comparison ofrevenue/patient day with IHH’s Singapore hospitals demonstrates a similar price

differential.

Thailand hospitals are priced in line with Malaysia hospitals for major procedures, based

on the same data set from Patients Beyond Borders. A comparison of revenues/patient

day with IHH’s Malaysia hospital indicates a significantly higher premium for Thailand

hospitals but this might be due to hospital specific factors such as patient mix and

treatment mix.

Fig. 12: Major procedures: comparative costs (as of Aug 2011)

Source: Patient Beyond Borders

Fig. 13: Comparison across hospitals in the region

Thailand hospitals are at a significant discount to Singapore hospitals

Source: Company data, Nomura researchNote: 2010 is the best year for comparison across hospitals as BGH’s 2011 number is distorted by acquisitions of mid-market hospitals; BH is the best comparison with SG hospitals as it is a stand-alone hospital operating at the top end of thepremium market; Thailand revenues include share of doctor’s fee that accrues to the doctors, and as such Rev ppdnumbers are slightly inflated by 10-15% relative to other regional peers

Procedure US Cost Costa Rica India Malaysia Mexico Singapore

South

Korea Taiwan Thailand Turkey

Thai Premium/

(Discount) to SG

Thai Premium/

(Discount) to

Malaysia

Coronary artery bypass

graft - CABG$ 88,000 $ 31,500 $ 9,500 $ 20,800 $ 27,500 $ 32,000 $ 35,000 $ 21,000 $ 23,000 $ 20,500 -28% 11%

Valve replacement with

bypass$ 85,000 $ 29,000 $ 8,500 $ 18,500 $ 23,500 $ 29,500 $ 33,000 $ 18,000 $ 22,000 $ 20,000 -25% 19%

Hip replacement $ 33,000 $ 14,000 $ 8,000 $ 12,500 $ 12,500 $ 17,000 $ 15,500 $ 10,500 $ 13,000 $ 11,800 -24% 4%

Knee replacement $ 34,000 $ 9,500 $ 7,500 $ 12,500 $ 10,500 $ 16,500 $ 18,500 $ 12,000 $ 11,500 $ 12,000 -30% -8%

Spinal fusion $ 41,000 $ 17,000 $ 9,500 $ 17,900 $ 16,200 $ 20,500 $ 22,000 $ 18,000 $ 16,000 $ 16,500 -22% -11%

IVF cycle $ 15,000 $ 4,400 $ 3,300 $ 7,200 $ 4,600 $ 9,500 $ 7,500 $ 4,800 $ 6,500 $ 9,500 -32% -10%

Gastric bypass $ 25,000 $ 11,200 $ 6,800 $ 8,200 $ 10,800 $ 14,000 $ 12,500 $ 13,000 $ 12,000 $ 13,000 -14% 46%

Facelif t $ 14,500 $ 4,800 $ 3,500 $ 4,900 $ 5,400 $ 6,200 $ 5,900 $ 5,600 $ 4,700 $ 4,800 -24% -4%

Rhinoplasty $ 8 ,500 $ 3 ,400 $ 2 ,800 $ 3 ,600 $ 3 ,500 $ 4 ,800 $ 4 ,700 $ 3,500 $ 3 ,700 $ 3 ,300 -23% 3%

Rev ppd, S$ 2009 2010 2011

Parkway - SG 1,962 2,091 2,275

Parkway - M'sia 497 555 558

BGH - Thailand 1,009 997 806

BH - Thailand 1,663 1,738 1,776

Discount to SG

Parkway - M'sia -75% -73% -75%

BGH - Thailand -49% -52% -65%

BH - Thailand -15% -17% -22%

M'sia discount to.. 2009 2010 2011

BGH - Thailand -51% -44% -31%

BH - Thailand -70% -68% -69%




12

Ability to scale the value chain will allow more revenue per patient

Over the past 10 years, Thailand’s healthcare landscape has changed as the leading

hospitals have progressed to offer higher acuity treatments such as cancer and cardiac

related treatments. We expect this trend to persist and allow Thailand hospitals to

continue growing revenues by extracting more revenue per patient.

The scale in which Thailand hospitals are moving into higher acuity treatments cannot be

understated – the scale of their operations is multiple-folds that of Singapore. To put

things in perspective, Bumrungrad’s Heart Centre alone has more doctors than all IHH’s

Singapore hospitals combined (68 vs 51 cardiology specialists).Going forward, we expect to see the establishment of more Centres of Excellence in high

acuity treatments. For instance, Bangkok Dusit’s Wattanosoth Hospital recently opened

a Cancer Centre in May 2012, while a new Heart Centre was opened by Bangkok Heart

Hospital in the very same month. Anecdotally, we also hear of groups of specialists

coming out to open up stand-alone centres specialising in cancer and cardiac-related

treatments

Surrounding source markets for medical tourists sizeable and continues to grow


prospects as source countries for medical tourists. Economic growth in these markets is

increasing demand for healthcare, which when coupled with an inadequate domestic

healthcare system, pushes people to seek treatment in medical destinations such as

Thailand. Together, their population size exceeds 300mn, larger than Indonesia, the 4thmost populous country in the world.

The Middle East market will continue to be a key contributor as Middle Eastern travellers

continue to seek healthcare beyond their borders, funded by the public coffers and

income supported by high oil prices. We have not factored Indonesia as a key source

market for Thailand as we expect Indonesia to continue being the key source markets for

Malaysia and Singapore due to proximity and familiarity.

Fig. 14: Source countries

Source: CEIC, World Bank, UN,

*Growth rate based on 2010


International patients also include the expat population in Thailand and the surroundingcountries. We don’t have hard data to quantify the growth rate, but continued foreign

direct investment into the market as expected by market observers should lead to a

growing expat population in the region.

Potential to surprise on the upside, but a double-edged sword

Due to the volatility in international patient flow, there is potential for the numbers to


case can be made on the downside. BH, which derives more than 50% of its revenues

from international patients, is most leveraged to the flow of international patients.

Country Population GDP per capita 2011 grwth rate

Bangladesh* 150.5 735 6.66

Cambodia 14.3 900 6.93

Lao PDR 6.3 1320 8.04

Myanmar 48.3 380 N.A

Vietnam 87.8 1411 5.89

Total/Average 307.2 949 6.88

Indonesia 242.3 3495 6.46




13

Rise of the middle class to drive structurally stronger demandfor private healthcare

The Thailand private healthcare market is enjoying strong structural growth driven largely

by higher income levels inducing patients to seek higher quality care in private hospitals.

Although not a definitive measure, we believe that patients have a significantly higher

propensity to consume private healthcare as they cross the US$3,000 annual income

threshold. We estimate that a significant proportion of the population will soon cross this

threshold. Our economist estimates that 7mn people (~10% of the Thai population) will

enter the middle-class segment between 2009 and 2014, making ~40% of the Thaipopulation ‘middle class’. The recent increase in minimum wages – up an average 40%

to THB300 a day – will also help boost the growth of the rising middle class.

Fig. 15: Growth in middle-class population

Source: Nomura Global Economics

Fig. 16: Healthcare expenditure growth

Source: MoPH, Nomura research

Average annual income in Thailand

Source: CEIC, Nomura research

Public hospital capacity tight, spillover demand will benefit private operators

A casual observation of the data shows that the growth in public healthcare expenditure

accelerated as average income levels approaches US$3,000. As they cross the

US$3,000 level, we expect to see demand shift towards private healthcare as people are

now more willing to spend on higher quality care and due to the inability of public

hospitals to cope with the public patient load, given that utilisation levels are essentially

close to maximum operational capacity (82% as at 2009; National Statistical Office).

Data show that people prefer private over public as they become part of themiddle-income population

Data from the National Statistical Office (NSO) show that increasing affluence favours

the selection of the private healthcare provider when ill. We observe that a middle-class

patient is 4% more likely to consume private healthcare than its lower-income peers.

With the rise in income level and increase in minimum wage, we expect the middle-class

population to grow strongly. As such, this would be positive for private healthcare

consumption.

2009 Ranking Million peopleChange f rom2004 to2009

Change from2009 to 2014

No.1 China Urban 263.9 197.0

Rural na 108.8

No.2 Indonesia 48.8 99.3

No.3 Korea 3.1 2.0

No.4 Thailand 11.9 7.0

No.5 India Urban na 121.6

Rural na 82.1

No.6 Taiwan 0.2 0.4

No.7 Malaysia 6.6 5.7

No.8 Philippines 17.3 27.4

No.9 Hong Kong 0.0 0.3

No.10 Singapore 0.2 0.4

No.11 Vietnam na 26.5

As ia ex-Japan 380.0 678.5

Japan 0.0 -1.0

0

100

200

300

400

500

600

700

2001 2002 2003 2004 2005 2006 2007 2008

Overall Ex pe nd itu re P ri vat e Ex pe nd itu re P ub lic Expenditure

2,000

2,200

2,400

2,600

2,800

3,000

3,200

3,400

3,600

Dec‐06 Dec‐07 Dec‐08 Dec‐09 Dec‐10 Dec‐11

U S $

5‐yr CAGR:5.6%




14

Fig. 17: Healthcare facility selection when ill (as of 2009)

Source: National Statistical Office, Nomura research

Sweet spot #1: Mid-market

Strong revenue growth profile; higher domestic volume growth potential than

premium market

Within the growing domestic healthcare industry, we believe there are some segmentswhich provide more attractive growth potential than others. Positioning-wise, we believe

that the mid-market segment offers more patient growth potential over the long term as

patients who shift from public to private healthcare will naturally transit into the mid-

market segment rather than leapfrog into the premium healthcare space.

In Bangkok, we see the mid-market hospitals demonstrate a strong consistent revenue

growth profile, driven by higher patient loads. This contrasts with the higher-end

hospitals, which are seeing no to low growth in domestic patient loads. BGH, with its

mid-market brands – Paolo and Phyathai – is well exposed to this segment.

Less volatile relative to international patient load

As the mid-market segment primarily services the domestic market, we see it as less

exposed to the vagaries of medical tourist arrivals which saw volatility during the periods

of political turmoil and flooding. Foreign patient growth is subject to the economicconditions of source countries, expat population growth in Thailand, political conditions

and in more recent years, weather conditions. We have seen many years of no or

negative growth as a result of these factors.

Higher margins relative to premium hospitals

The mid-market offers higher margins than the premium hospitals. We believe this could

be due to higher operating leverage of these hospitals and a different remuneration

structure that allow operators to capture greater value per transaction.

Fig. 18: Comparison of margins across hospitals


Note: KH: Bangkok Chain, RAM: Ramkhamhaeng, HNW: Health Network, BH: Bumrungrad

15% 15% 19% 24%34%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Poorest Poor Middle Income Rich Richest

Private Public

Financials summary

(FY11, THB'mn) KH RAM HNW BH Dusit*FY11 Hopsital revenues 3,903 3,044 8,593 11,015 26,631FY11 EBITDA 1,335 1,119 2,207 2,819 6,327

EBITDA Margin 34.2% 42.8% 25.2% 25.6% 22.6%

* Dusit (excl. HNW)

Mid-market Premium




15

Sweet spot #2: Upcountry

Geographically, we believe that areas outside of Bangkok will see higher growth in

domestic private patient load than Bangkok due to higher economic and population

growth rates. This ties in with our Thailand strategist’s view that we will see a higher rate

of income growth and urbanisation outside of Bangkok (see pages 18-19 in the report,

Thailand Outlook 2013).

We expect upcountry growth to be more assured and stable than in Bangkok as the

growth upcountry will likely be driven more by domestic consumption and less by

medical tourism, which tends to be volatile. Our view is supported by data from BGH’s

upcountry hospitals which show that upcountry hospitals have outperformed Bangkok

hospitals in recent history.

Fig. 19: Top-performing upcountry hospitals vs Bangkok hospitals under the BGH group: % y-y revenue growth

Upcountry offers higher and more stable growth on average

Source: Company data, Nomura research

Local patient growth faster in upcountry regions

In coming to our conclusion, we break Thailand into 7 regions and rank each region by

looking at various metrics such as growth (population and GDP per growth), willingness

to pay for private healthcare (GDP per capita and population density) and ease of

coverage (number of provinces as a measure of geographical spread). With higher

population and economic growth, we see that the Central and Eastern regions offer

better growth prospects for local patient load than Bangkok. BGH, with 5 hospitals in the

Eastern region, is well exposed to this segment.

Upcountry growth to be higher than mid-market BKK

Due to differential in earning power, we expect the bulk of upcountry hospitals to operate

in the mid-market segment or at most, the lower end of the premium market. Due to

higher population and economic growth in upcountry markets, we expect upcountry

hospitals to generally show higher revenue growth than mid-market hospitals in BKK.

International patient growth key to patient load growth in BKK

We expect international patient growth to be the saving grace for patient load growth of

private operators in BKK, aside from growth in the mid-market segment. The historical

numbers paint a slow growth picture, with foreign patient load growing at a CAGR of only2.4% across 2005-11 for Bumrungrad. However, the more recent 2011 numbers show

an increase of 9% y-y. 9M12 numbers for Bumrungrad also paint a hopeful picture with

foreign patient load growth of 6%.

Upcountry Hospitals 2Q2011 3Q2011 4Q2011 1Q2012 2Q2012 3Q2012 Comments

Mid/High-mkt BKK Chantaburi (BCH) 25% 21% 20%

Mid/High-mkt BKK Hat Yai (BHH) 24% 21% 22% 25% 25% 20%

Mid-mkt Phyathai Sriracha (PYTS) 20% 24% 24%

Mid/High-mkt Samitivej Sriracha (SSH) 21% 20%

Mid/High-mkt BKK Trat (BTH) 16%

Total Upcountry Average 20% 21% 21% 23% 23% 21% Generally higher growth, stable

BKK Hospitals 2Q2011 3Q2011 4Q2011 1Q2012 2Q2012 3Q2012 Comments

Mid-mkt Paolo Chokchai 4 (Pchok) 14% 20% 26% 21% 20%

Mid-mkt Paolo Samutprakarn (Psamut) 11% 17% 18% 17%Mid-mkt Paolo Paholyothin (Pmed) 21% 18%

Average 21% 13% 20% 20% 20% 19% In line with high-end but more stable

High-end Samitivej Srinakarin (SNH) 17% 21% 21%

High-end BMC 21% 16% 12% 20% 20% 18%

High-end Samitivej Sukhumvit (SVH) 21% 12%

Average 21% 14% 12% 19% 21% 20% Volatile

Total BKK Average 21% 13% 16% 20% 20% 19% Lower than upcountry







16

Fig. 20: Growth prospects of the various regions

Source: CEIC, Nomura research (1 – the best; 7 – the worst)

Fig. 21: GDP per capita by province


Region

GDP per

capita GDP growth

Population

density

Population

growth Total

> Thailand

GDP

> 100k ppl

per sq km

Overall

Ranking

BKK & Vicinity 1 7 1 3 6 5 6 4

Eastern 2 2 5 1 8 4 5 2

Central 3 1 2 5 6 2 3 1

West 4 5 6 4 6 1 4 5

South 5 6 4 2 14 1 8 3

North 6 3 7 7 17 1 2 6North-east 7 4 3 6 19 0 0 7

# of provinces

0.00

50,000.00

100,000.00

150,000.00

200,000.00

250,000.00

300,000.00

350,000.00

400,000.00

1 9 9 5

1 9 9 6

1 9 9 7

1 9 9 8

1 9 9 9

2 0 0 0

2 0 0 1

2 0 0 2

2 0 0 3

2 0 0 4

2 0 0 5

2 0 0 6

2 0 0 7

2 0 0 8

2 0 0 9

2 0 1 0

Whole BKK & Vicinities Central Eastern Northern Southern Western




17

Fig. 22: Population density by province


Fig. 23: Population growth rate by province


0.00

20.00

40.00

60.00

80.00

100.00

120.00

140.00

160.00

180.00

200.00

1 9

7 6

1 9

7 7

1 9

7 8

1 9

7 9

1 9

8 0

1 9

8 1

1 9

8 2

1 9

8 3

1 9

8 4

1 9

8 5

1 9

8 6

1 9

8 7

1 9

8 8

1 9

8 9

1 9

9 0

1 9

9 1

1 9

9 2

1 9

9 3

1 9

9 4

1 9

9 5

1 9

9 6

1 9

9 7

1 9

9 8

1 9

9 9

2 0

0 0

2 0

0 1

2 0

0 2

2 0

0 3

2 0

0 4

2 0

0 5

2 0

0 6

2 0

0 7

2 0

0 8

2 0

0 9

2 0

1 0

2 0

1 1

Thailand Central Northern Southern Eastern Western Northeastern

-6.0%

-4.0%

-2.0%

0.0%

2.0%

4.0%

6.0%

1 9 7 6

1 9 7 7

1 9 7 8

1 9 7 9

1 9 8 0

1 9 8 1

1 9 8 2

1 9 8 3

1 9 8 4

1 9 8 5

1 9 8 6

1 9 8 7

1 9 8 8

1 9 8 9

1 9 9 0

1 9 9 1

1 9 9 2

1 9 9 3

1 9 9 4

1 9 9 5

1 9 9 6

1 9 9 7

1 9 9 8

1 9 9 9

2 0 0 0

2 0 0 1

2 0 0 2

2 0 0 3

2 0 0 4

2 0 0 5

2 0 0 6

2 0 0 7

2 0 0 8

2 0 0 9

2 0 1 0

2 0 1 1

BKK and Vicinity Central Northern Eastern Northeastern Western Southern




18

A tale of consolidation and segmentation

Not enough space for all; consolidation in the works

We expect the large hospital groups to gain market share at the expense of smaller

players who will either be bought out or be forced out of business. We will not discount

the possibility of smaller players banding up together or aligning themselves with one of

the larger player to increase their chance of survival. In the long run, we expect the

Thailand healthcare industry to be able to accommodate only 2-3 large private

healthcare groups eventually, which is the experience in other markets such as

Singapore and Malaysia.

Fig. 24: Current market share of private healthcare capacity


Further segmentation of market

We also see further segmentation of the market, in terms of pricing and branding, as

industry participants seek to create more room for themselves and secure positions of

control. We see the acquisition of Health Network, a mid-market brand, by Bangkok

Dusit, and Bangkok Chain’s opening of World Medical Centre, a premium hospital that

offers a less pricey proposition to the incumbents, as proof of further market

segmentation.

Potentially, we think that Bumrungrad might also move into the lower end of the premium

segment, with a positioning slightly above that of World Medical Centre. Bangkok Chain

has also expressed interest in creating a separate brand to cater solely to patients under

the Social Security Scheme.

Segmentation might also come from specialisation of services as hospitals seek to

distinguish themselves with Centre of Excellences specialising in certain areas such as

cancer. For instance, Bangkok Dusit has opened a cancer centre in its Wattanosoth

Hospital. We do not discount the possibility of stand-alone specialised centres (e.g.

cancer centre) popping up in the future.

M&A

M&A has and will likely continue to be a driver of growth and share price. Admittedly,

there is a lack of large acquisitions which will move the needle. Nonetheless, there arestill a few with 2 or 3 campuses available.

Bangkok Dusit

15%

Bumrungrad

2%

Bangkok Chain

5%

Others

78%




19

Fig. 25: Non-exhaustive list of M&A targets


NTV AHC M-CHAI SKR

Hospitals

Nonthavej Hospital - 208 beds,

Nonthaburi

Aikchol Hospital 1 - 262 beds,Chonburi

Aikchol Hospital 2 - 100 beds,

Chonburi

Mahachai Hospital 1 - 180 beds,Samut Sakorn

Mahachai Hospital 2 - 120 beds,Samut Sakorn

Mahachai Hospital 3 - 100 beds,

Samut SakornMaeklong Hopsital - 60 beds, Samut

SongkramPetcharat Hospital - 100 beds,

Phetchaburi

Sikarin Hospital - 216 beds, BKK

Rattarin Hospital - 100 beds,

Samut PrakarnTotal beds 208 362 560 316

Revenues (THB'mn) 1,460 1,093 1,487 373

Net profit (THB'mn) 163 102 106 30

ROA (%) 19.6 14.9 15.0 12.0

ROE (%) 16.0 12.3 17.3 11.4

Net profit margin (%) 11.1 9.3 7.1 8.1




20

Role of the governmentThe role of the government in healthcare provision is significant. We explore four key

areas – public sector competition, substitution effect, public-private partnerships and

M&A regulations.

Public sector competition

Interestingly, competition to private operators may come in the form of public hospitals

moving into the premium segment. We already saw Siriraj Piyamaharikarun Hospital(SiPH), a state hospital, open its doors in early 2012 to provide premium services. Other

state hospitals such as Chulalongkorn Hospital and Mahidol Hospital are also reportedly

catering to the premium segment.

We visited the premium wings of these state hospitals in 3Q12 and walked away with the

impression that they are not of sufficient threat. This is because supply is still tight and

even these public hospitals are not fully ramped up due to staff shortages – an irony

since these are university hospitals and should theoretically have better access to the

necessary manpower resources.

Substitution effect

Expansions of public healthcare schemes, in terms of more subsidies and more medicalcoverage, have led to greater healthcare coverage for the people. Arguably, affordable

public healthcare is a strong substitute for private healthcare.

Greater subsidies and further medical coverage may see patients shifting from private to

public hospitals. However, with public capacity stretched, we do not think that is likely.

Furthermore, the costs of maintaining these schemes are getting increasingly more

expensive. The healthcare budget has grown consistently across time and is making up

an ever-increasing proportion of the national budget. As such, significant expansion of

these schemes is unlikely, in our view.

Fig. 26: Growing health budget

Source: Bureau of the Budget, Nomura research

0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

6.0%

7.0%

8.0%

9.0%

10.0%

‐

20,000

40,000

60,000

80,000

100,000

120,000

140,000

160,000

180,000

200,000

2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

MoPH Budget (THB mn) MoPH Budget % of National Budget




21

Public-private partnership

To address the shortage of public capacity, greater private involvement in public

healthcare schemes has been actively sought. However, success has been mixed,

depending on the scheme. For instance, private hospitals are largely reluctant to join the

Universal Coverage Scheme due to problems of overcrowding and social problems,

according to industry observers. As Dr Rienthong Nanna, director of Mongkutwattana

Private Hospital, points out, joining the scheme greatly taxed the hospital’s resources

due to a massive increase in patient load and social problems such as abandonment of

patients by their families.

Margins from treatments were also reportedly low as Dr Rienthong highlights that the

hospital “only managed to survive” from providing its services. This is despite higher

capitation rates. In 2010, Kasemrad Hospital and its two network hospitals along with

Srivichai Hospital left the Universal Coverage Scheme, effectively reducing capacity of

medical treatments for 200,000 patients under the scheme. Currently, only 29 private

hospitals are participating in the universal healthcare scheme.

Fig. 27: Capitation rates for Universal Coverage Scheme

Source: NHSO, Nomura research

Anti-monopoly laws

We might potentially see greater regulation which may slow the rate of M&A.

According to a Bangkok Post article (Hospital merger raises eyebrow , 15 March 2012),

Santichai Santawanpas, deputy director-general of the Internal Trade Department, said

the private healthcare sector might need to be closely watched. He cited a public hearing

held at the end of Feb 2012 in which criteria on mergers and acquisitions were called for.While the Trade Competition Act has been in force since 1999, it merely requires that

businesses with a post-merger market share larger than 25% of the industry total or

sales in excess of THB1bn seek prior approval from a board established under the act.

During the 12 years since the Trade Competition Act's implementation, 77 cases

concerning market dominance have been submitted to the ministry. According to same

Bangkok Post article, no enterprise has yet been penalised under the act because of the

lengthy investigation process.

0

500

1,000

1,500

2,000

2,500

3,000

2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

B a h t p e r c a p i t a

Capitation rate




22

Industry outlook: A case for privatehealthcare in ThailandDemographic changes such as growing population and more importantly, an ageing

population, together with a sedentary lifestyle associated with urbanization, will likely

lead to greater incidence of disease and greater demand for healthcare. We also see an

increasing trend of acute diseases such as cardiovascular diseases which should drive

intensity of care up.

We believe private healthcare demand will be a key beneficiary as total healthcaredemand increases. Increasing income levels translate to an increased ability to pay for

private healthcare. More importantly, it has been shown that an increase in income leads

to greater propensity to consume private healthcare.

Even as healthcare demand increases, increase in healthcare capacity has been limited.

In particular, the increase in public healthcare capacity has been non-existent given

government budget limitations and the high investment cost to build new hospitals.

Public supply is tight with public capacity operating at high occupancy rates of >80%.

This provides an opportunity for private healthcare providers to capture market share

from their public counterparts and we have seen private capacity occupancy increase

across time.

Private healthcare demand is growing…

Population growth, urbanisation and increasing trend of acute diseases

Demand for healthcare will likely increase with population growth. In 2010, Thailand had

an urbanisation rate of 34% and a population of 69.12 million. Total population growth

rate has declined to 0.6% in 2010, from 1.19% in 2000. However, due to the effects of

rural-urban migration and higher standards of living, the urban population has grown at a

higher CAGR of 1.8% from 2001 to 2010. The National Economic and Social

Development Boad (NESDB) has since projected the urban population to account for

47.2% of the total population by 2027.

Urbanites are more likely to lead sedentary lifestyles and have a higher probability of

contracting chronic diseases. We have observed an increasing trend of acute diseases

such as cardiovascular diseases which should drive intensity of care up.

The private healthcare industry, which is mainly concentrated in urban areas, is poised to

benefit most from the effects of urbanisation as it will have access to a larger potential

consumer base.

Fig. 28: Population growth/urbanisation

Source: World Bank, Nomura research

1.72

1.96 1.94 1.891.82

1.72

1.931.82

1.731.67 1.62

0.0

0.5

1.0

1.5

2.0

2.5

0

10

20

30

40

50

60

70

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

% G r o w t h r a t e

P p o u

l a t i o n

( ' m n

)

Urban P op ul ati on Rur al p op ulati on T ot al Population Growth Rate Urban population growth rate




23

Fig. 29: Top killers in 2005

Source: Bureau of Policy and Strategy, MoPH, Nomura research

Ageing population

Demand for healthcare is directly linked to the trend of an ageing population as the older

population, defined as aged 65 and above, has higher levels of healthcare consumption.

Thailand has been experiencing an ageing population, which in turn provides a strong

and increasing demand for the domestic healthcare industry. In 2010, 8.9% of the

population was aged 65 years and above. This number is expected to jump to 17.6% by

2030.

Fig. 30: Ageing population

Source: UN, Nomura research

Rising income

Increasing income levels translate to an increased ability to pay for healthcare.

Thailand’s GDP per capita was THB81,304 in 2000 and has since doubled to

THB160,556 by 2010, representing a 7% CAGR over the same period. The increase in

income results in higher levels of disposable income, causing a change in spending

patterns such as a greater demand for healthcare.

Fig. 31: GDP per capita in Thailand

Source: World Bank, Nomura research

Diseases

Rank Type Number % of deaths Type Number % of deaths

1 Cerebrovascular disease 23,741 9.40% Cerebrovascular disease 21,546 11.30%

2 AIDS 19,953 7.90% Diabetes 15,254 8%

3 Ischemic heart disease 16,164 6.40% Ischemic heart disease 14,300 7.50%

4 Pulmonary disease 14,396 5.70% AIDS 10,868 5.70%

5 Cirrhosis 12,628 5% Chronic kidney failure 7,627 4%

Men Female

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

Aged 0‐14 Aged 15‐64 Aged 65 and Above

0

20,000

40,000

60,000

80,000

100,000

120,000

140,000

160,000

180,000

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

T H B

GDP per Capita (in THB)




24

Data from the National Statistical Office (NSO) has also shown that increasing affluence

favours the selection of the private healthcare provider when ill. We observe that a

middle-class patient is 4% more likely to consume private healthcare than its lower-

income peers. With the rise in income level and increase in minimum wage, we expect

the middle class population to grow strongly. As such, this will be positive for private

healthcare consumption.

Fig. 32: Healthcare facility selection when ill (as of 2009)

Source: National Statistical Office, Nomura research

Data from the NESDB and NSO ascertain that increasing income is associated with

higher private healthcare expenditure and that this spending favours the private

operators. Household and employer spending on healthcare rose from THB206,942mn

in 2001 to THB325,295mn in 2008, while the percentage of this spending on private

healthcare increased from 54% to 74% across the same period.

Fig. 33: Household and employer healthcare expenditure

Source: National Economic and Social Development Board, National Statistical Office, Nomura research

…but supply is not

Even as healthcare demand increases, the increase in healthcare capacity has been

limited. In particular, the increase in public healthcare capacity has been non-existent

given government budget limitations and the high investment cost to build new hospitals.

Public supply is tight, with public capacity operating at high occupancy rates of >80%.

This provides an opportunity for private healthcare providers to capture market share

from their public counterparts and we have seen private capacity occupancy increase

across time.

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%100%

Poorest Poor Middle Income Rich Richest

Private Public

0%

10%

20%

30%

40%

50%

60%

70%

80%

0

50000

100000

150000

200000

250000

300000

350000

2001 2002 2003 2004 2005 2006 2007 2008

Expenditure (in THB mn) Private providers Public providers




25

Fig. 34: Total supply growth

Supply growth almost flat

Source: Bangkok Dusit, Health Research Repositories, MoPH, Nomura research

Fig. 35: Total public supply growth

Supply growth almost flat

Source: Bangkok Dusit, Health Research Repositories, MoPH, Nomura research

Fig. 36: Public capacity tight

Utilisation >80%, capacity tight

Source: MopH, World Bank, Nomura research

Fig. 37: Private capacity benefitting

Utilisation increasing across time

Source: MoPH, World Bank, Nomura research

‐4%

‐3%

‐2%

‐1%

0%

1%

2%

3%

134,000136,000

138,000

140,000

142,000

144,000

146,000

148,000

150,000

152,000

154,000

2001 2002 2003 2004 2005 2006 2007 2008

% g

r o w t h r a t e

# o f t o t a l b e d s

Total # of beds Growth rate

‐3%

‐2%

‐1%

0%

1%

2%

3%

4%

5%

100,000

102,000

104,000

106,000

108,000

110,000

112,000

114,000

116,000

118,000

2 001 20 02 2 003 20 04 2 005 200 6 2 007 200 8 2 009

% g

r o w t h r a t e

# o f p u b l i c b e d s

Public Beds Public Growth (%)

78%

79%

80%

81%

82%

83%

84%

85%

86%

87%

88%

0

20,000

40,000

60,000

80,000

100,000

120,000

2003 2004 2005 2006 2007 2008

O

c c u p a n c y r a t e

#

o f p u

b l i c b e

d s

O cc up ie d Uno cc up ie d U ti li zati on

0%

10%

20%

30%

40%

50%

60%

70%

0

5,000

10,000

15,000

20,000

25,000

30,000

35,000

40,000

2003 2004 2005 2006 2007 2008

O

c c u p a n c y

r a t e

#

o f p r i v a t e b e d s

Occupied Unoccupied Utilization




26

Limited supply of qualified healthcareprofessionals – a key growth constraintThe key growth constraint, we believe, lies with the limited supply of qualified healthcare

professionals. According to data from the government, the nursing population grew at a

CAGR of 1% over 2002-09, while the doctor population grew at a CAGR of 4% over

2003-09. Although the labour pool is expanding faster than population growth, it is not

growing fast enough to meet the increased healthcare demand as income levels rise.

The doctors and nurses per 1,000 population ratios in Thailand remain among the lowestin the region. We think it is close to impossible to expand the labour pool fast enough

without compromising the quality of these professionals.

Being able to attract, incentivise and retain these scarce resources will therefore be a

critical successful factor, in our view. Having the appropriate compensation structure will

be crucial. Correspondingly, the right siting and pricing of care is essential as the labour

cost will dictate the pricing level and, correspondingly, the market positioning and

operational model of the business.

The financial implication, at the minimum, will be rising wages, which will be a drag on

earnings and margins. We believe this will primarily be offset through growing volumes,

operating leverage and higher prices driven by higher intensity of care. General price

increases will be limited, in our view, due to the presence of cheap, heavily subsidised

public healthcare. Tight cost control through economies of scale and higher productivitythrough the use of technology and further systems integration will also help combat

against the cost pressure of rising wages.

Fig. 38: # of doctors graduating

Source: Bureau of Policy and Planning, Medical Council (Thailand), Nomura research

Fig. 39: # of nurses graduating

Source: Nursing Council of Thailand, Nomura research

Fig. 40: Doctors and nurses per 1,000 population across the region

Source: WHO, Nomura research

1000

1100

1200

1300

1400

1500

1600

1700

2 00 0 2 00 1 2 00 2 2 00 3 2 004 2 00 5 2 00 6 2 00 7 2 00 8 2 00 9

Doctors Graduated

4000

4500

5000

5500

6000

6500

7000

20 01 2 00 2 2 00 3 2 00 4 20 05 2 00 6 2 007 2 00 8 20 09

Nurses Graduated

1.8

0.90.3 0.3

1.20.6

1.4

3.0

5.9

2.72.0

1.5

6.0

1.3 1.4

9.6

0

2

4

6

8

10

12

Singapore Malaysia Indonesia Thailand Philippines India China Australia

D oc tors per 1, 000 populati on N urs es per 1, 000 populat ion




27

Competitive landscapeThe Thailand private healthcare market is currently fragmented. Going forward, we

expect consolidation in the market. We also expect healthcare operators to expand out

of Bangkok into other regions, with Bangkok Dusit leading the charge with its hub-and-

spoke strategy. We also see further segmentation of the market, although Bangkok Dusit

currently occupies a number of segments with its portfolio of brands.

The top-three players are each employing different strategies to get ahead. Bangkok

Dusit is on an expansion spree, as it seeks to establish presence ahead of its

competitors. Bumrungrad’s response, interestingly, is to hunker down and fortify, while

Bangkok Chain appears to seek to out-manoeuvre through further segmentation of the

market and cost efficiencies.

Fragmented market

Thailand’s private healthcare is fragmented with the top-three players having only 22% of

the total market share by licensed beds. Bangkok Dusit is the clear market leader with

15% of all licensed beds in the marketplace. Bangkok Chain and Bumrungrad have 5%

and 2% of the market, respectively. We expect further consolidation of the market as

smaller players get acquired or go out of business.

Fig. 41: Asset overview of the three major hospital groups


Bangkok Dusit

Licensed

beds Bumrungrad

Licensed

beds Bangkok Chain

Licensed

beds

Bangkok Hospital 343 Bumrungrad Hospital 538 Kasemrad Bangkae 337

Bangkok Heart Hospital 97 Kasemrad Prachachuen 373

Wattanosoth Hospital 48 Kasemrad Sukhapibal 3 100

Bangkok Huahin 60 Kasemrad Rattanatibeth 400

Samitivej Sukhumvit 275 Kasemrad Saraburi 200

Samitivej Srinakarin 400 Kasemrad Sriburin 120

Samitivej Sriracha 150

BNH Hospital 144

Bangkok Pattaya 400

Bangkok Rayong 220

Bangkok Chantaburi 170

Bangkok Trat 114

Bangkok Samui 50

Bangkok Phuket 317

Bangkok Hat Yai 165

Bangkok Ratchasima 300

Bangkok Pakchong 30

Bangkok Prapradaeng 60

Phyathai 1 350

Phyathai 2 260

Phyathai 3 230

Phyathai Sriracha 257

Paolo Paholyothin 237Paolo Samutprakan 200Paolo Chokchai 4 120

Paolo Nwamin 140

Domestic 5,137

Royal Angkor International 21

Royal Rattanak International 30

International 51

Total 5,188 Total 538 Total 1,530




28

Geographical presence

42% of all private capacity is located in Bangkok and another 30% is located in the

Central region. We have mapped out the geographical presence of the three major

hospital groups and observe the similar clustering within the Bangkok and Central

regions. Bangkok Dusit is the main exception, with 12 operating hospitals outside the

Bangkok and Central regions.

Fig. 42: Major players’ geographical presence across Thailand


Note: BGH: Bangkok Dusit, KH: Bangkok Chain, SR: Kasemrad Sriburi Medical Co, SA: Kasemrad Saraburi Wetchakit, RA: Kasemrad Rattanatibeh General Hospital, BH:Bangkok Hospital, PM: Paolo Memorial, SA: Samithvej, PH: Pyathai, BNH: BNH Hospital

1x KH - SR

2x BGH - BH

1x BGH - BH

1x BGH - BH

1x BGH - BH

1x KH - SA

1x KH - RA

1x BGH - BH

1x BGH - BH

1x BGH - BH

1x BGH – PH1x BGH – BH1x BGH - SA

1x BGH – PM1x BGH - BH

1x BGH - BH




29

Fig. 43: Major geographical presence in Bangkok


Note: BGH: Bangkok Dusit, KH: Bangkok Chain, BH: Bumrungrad, BK: Kasemrad Bangkae Hospital, P: Kasemrad Prachachuen Hospital, S: Kasemrad Sukhapibal 3 BH:Bangkok Hospital, PM: Paolo Memorial, SA: Samithvej, PH: Pyathai, BNH: BNH Hospital

Fig. 44: Regional breakdown of private hospitals in Thailand

Source: NHSO, Nomura research

Private Hospitals 1‐10 Beds 11‐30 Beds 31‐50 Beds 51‐100 Beds 01‐200 Beds >200 Beds Total %

Bangkok 2 12 15 20 26 21 96 30%

Central 10 11 12 41 22 7 103 32%

Northeast 5 1 14 16 4 1 41 13%

North 4 6 7 22 8 2 49 15%

South 5 5 9 5 9 0 33 10%

Total 26 35 57 104 69 31 322 100%

Private Beds 1‐10 Beds 11‐30 Beds 31‐50 Beds 51‐100 Beds 01‐200 Beds >200 Beds Total %

Bangkok 15 306 643 1,759 4,158 7,052 13,933 42%

Central 97 298 539 3,575 3,623 1,895 10,027 30%

Northeast 67 30 660 1,390 560 214 2,921 9%

North 40 170 337 1,800 1,104 620 4,071 12%

South 45 136 413 415 1,444 0 2,453 7%

Total 264 940 2,592 8,939 10,889 9,781 33,405 100%




30

Market positioning

Bangkok Dusit currently has presence across various market segments. Its core brands

– Bangkok Hospital, Samitivej and BNH – ply to the high end and international patients

seeking high acuity tertiary/super tertiary care. Both its Phyathai and Paolo brands cater

to the mid-market segment, with Phyathai doing more high acuity cases than Paolo.

Separately, Bumrungrad occupies the high-end, high acuity market, while Bangkok

Chain occupies the mid-market tertiary space.

We expect the space to be segmented further. For instance, Bangkok Chain’s WorldMedical Centre seeks to occupy a gap in the market with its tertiary offering at a slightly

less pricey price point to cater to above-average income patients. Bangkok Chain may

also look to move downwards to establish a hospital catering solely to social security

patients.

Fig. 45: Market positioning

Source: Bangkok Dusit, Nomura research

Strategy – Outgrow, out-last, out-manoeuvre

Bangkok Dusit’s strategy is one of capacity and geographical expansion via M&A, with

newbuilds as the fallback option in lieu of any suitable targets. This increased network of

hospitals will be organised via a hub-and-spoke structure to achieve the right siting and

sizing of care. The increased scale of the organisation will naturally yield economies of

scale, even as the group seeks to claw back margins through vertical integration.

Bumrungrad’s strategy juxtaposes that of Bangkok Dusit’s, as it fortifies itself with its

focus on Bangkok and expansion through growth of its current campus. The primary




31

strategy is to drive greater asset intensity of current assets and to leverage the existing

client base in the main campus for further expansion.

The name of the game for Bangkok Chain, in our view, is further segmentation of the

market, as it seeks to out-manoeuvre the competition. It seeks to enter into new market

segments through newbuilds and possibly via M&A, too. Driving asset efficiency remains

another key strategy.

Fig. 46: Comparison of major healthcare groups


Note: Bangkok Dusit growth and margins excludes effect of Health Network acquisition; Bangkok Dusit has 2 more hospitals outside of Thailand in Cambodia.

Fig. 47: Bangkok Dusit expansion plans


Bangkok Dusit Bumrungrad Bangkok Chain

Assets

# of licensed beds in Thailand 5,137 538 1,530

# of hospitals in Thailand 26 1 6

# of Centre of Excellence 6 35

Average # beds/hospital 198 538 255

# of doctors 957 - 345 full time, 612 part time 1200 - 300 full time, 900 part time

# of nurses 932 - 787 full time, 145 part time 900

Brands

BH: Bangkok Hospital,SA: Samithvej,

BNH: BNH HospitalPM: Paolo Memorial,

PH: Pyathai BH: BumrungradKasemrad

WMC - World Medical Centre

Geographical presence All regions, except North-East, Central BKK BKK & vicinity, Central, North

Positioning

Pricing High: BH, SA, BNHUpper-mid: PM, PH High Mid

Geography Nationwide presence Bangkok focused Spread out

Intensity of care High High Mid

Target clientele Mid-high end patients High end patients Public/Mid-income patient

Foreign patient load (% of total revenue) 26% 59% -

Public patient load (% of total revenue) 3% - 30%

Cash payment (% of total revenue) 71% 71% 70%

Strategy

Current strategy

Hub & SpokeVertical Integration

M&A

Campus expansion within BKK

Drive asset intensity

Entry into new market segmentsDrive efficiency

Expansion, possibly via M&A

Key growth drivers

Capacity expansionOperating leverage

Economies of scale/Network effect

Cost synergies

Capacity expansion

Operating leverage

Capacity expansion

Cost efficiency

Key investment holdings

BumrungradRamkhamhaeng - -

Financial ratios (FY11 numbers)

Hospital Revenue growth (y-y),excl FV adj 13% 12% -11%

Profit growth (y-y) 29% 26% -3%

EBITDA margins 23% 26% 34%

Net profit margins 10% 14% 20%

ROE 14% 24% 21%

Leverage (debt/equity) 29% 37% 35%

Asset turnover 0.60 0.82 0.70

Operational statistics

Utilisation of available beds 66% -

# of inpatients-days 972,725 127,750 -

# of outpatients visits 7,417,530 1,022,365 -

Average length of stay 2.9 4.67 -

Top 5 countries - foreign patient

Japan - 3.1%

UK - 2.1%USA - 1.9%

Australia - 1.9%

Germany - 1.6%

UAE - 11%

USA - 5%Myanmar - 5%

Oman - 4%

Bangladesh - 3% -

Renumeration scheme 5 - 10% cut of doctor fees 15% cut of doctor fees 20% cut of doctor fees

Name Type Location Date Details

Bangkok Hospital Chiangmai GreenfieldCentral Chiangmai, on Chiangmai-

Lampang Road (Highway #11)Mid-2014 200 beds (55 1st phase)

Bangkok Hospital Udon Brownfield Udon Thani province Dec-12 120 bedsSunthorn Phu Rayong Hospital Brownfield Rayong, South of BKK 4Q 2013 140 beds (30 - 40 beds in 1st phase)




32

Fig. 48: Bumrungrad expansion plans


Current Details Activity

Bumrungrad International ClinicOnly OPD, 22F - 12F opened + 5F opening + 5Fcarpark; 212 clinics currently

5F opening (4F for clinics): +80 clinics, by 2013

Moved some accounts dept on 4th F to make room for 44 ICUbeds - 8 in FY12, 36 over FY13/14

To move executive area/conference room on 12th F to makeroom for 61 ward beds. Earliest by mid-2013

New

Bumrungrad International - 2nd

Campus

8,000 sqm of land on Petchburi RoadTo construct a 150 - 200 bed hospital, withwomen's & children centre as cornerstone

To be constructed (12mth study; 2.5 - 3yr construction);Est completion: late 2016; est cost: 3.9bn over 4 yrs

Eqpt purchase (6mth before opening)

Campus expansion

6,178 sqm of land on Sukhumvit Soi 1,25 - 50m from BH Residences & existing campus

To be constructed (18 - 24mth construction)Est construction start: early 2013

Est completion: late 2014/early 2015

Bumrungrad International Hospital IPD focused - 12F




33

Key earnings driversWe believe the key revenue driver for Bangkok Dusit and Bumrungrad will be higher

patient acuity, driven by increasing specialisation. Between the two, we expect patient

intensity growth to be relatively slower for Bangkok Dusit, as average treatment intensity

growth is diluted by its mid-market brands.

However, this will likely be offset by stronger volume growth for Bangkok Dusit, driven by

capacity expansion and mid-market private healthcare demand growth on the back of

increasing income levels and tightness in public capacity. Bumrungrad should continue

to see decent volume growth as it expands capacity in its main campus, although it may

be constrained by tight capacity in certain segments (eg, checkups, rehab).

General price increases should be in line with the industry average of 3-4%. Arguably,

there could be higher pricing power going forward as a result of market consolidation.

On the cost front, both hospital groups will likely experience wage cost pressures but

should still see expanding margins. We expect an expansion in Bangkok Dusit’s EBITDA

margins thanks to higher acuity treatments, economies of scale and operating leverage

with some drag from sub-optimal utilisation levels of new capacity. We expect

Bumrungrad’s EBITDA margins to expand faster due to higher operating intensity and

greater increase in patient acuity, although offset by start-up costs arising from its 2nd

campus on Soi 1 which is slated to start operations in 2015F.

Based on our forecasts, we expect Bumrungrad to experience similar growth on an

EBITDA level. However, slower growth in depreciation cost, a decrease in finance

expenses at Bangkok Dusit and recognition of Bumrungrad’s results as share of income

from associates will likely eventually result in a higher growth rate for Bangkok Dusit’s

bottom line.

For BGH, we expect the group to demonstrate a consistent earnings growth profile of 18-

19% pa across the forecast period, on the back of: i) revenue growth of ~13% pa, ii)

EBITDA margin expansion of 0.2-0.3pp per year on economies of scale, iii) a lower rate

of increase in depreciation, iv) a decline in finance cost, and v) lower tax rates in

FY12/13F. Our estimates are most sensitive to changes in cost assumptions.

For BH, we expect growth to sustain in the mid-teens across the forecast period, on the

base case of continued growth in international patients against the backdrop of a stablepolitical and weather climate. Our FY13F net profit growth forecast drops sharply from

FY12F, as FY12F will be boosted by associate income from Bangkok Chain, which was

sold in FY12F. Our FY15F net profit growth forecast will come in stronger y-y for

Bumrungrad due to contribution from its campus extension on Sukhumvit Soi 1.

Fig. 49: Summary of key earnings drivers


Revenue side

Pricing growth

Higher patient acuity Increasing specialisation, foreign patients

BGH < BH due to lower intensity growth of mid‐mkt patients

General price increase In‐line with industry

Volume growth

Capacity expansion BGH expanding faster than BH

Segment growth rate Mid‐mkt faster, premium‐mkt slower

Cost side

Wage cost pressure

offset by…

Higher acuity treatment

Economies of scale BGH's expansion to provide economies of scale

Operating leverage BH's strategy of increasing asset intensity




34

Fig. 50: Key assumptions


Fig. 51: Key forecast numbers


Note: Bangkok Dusit numbers adjusted for FV gain in FY12.

Bumrungrad FY12F FY13F FY14F FY15F Bangkok Dusit FY12F FY13F FY14F FY15F

% growth (y-y) % growth (y-y)

Total Visits per day 5.0% 4.0% 4.0% 4.0% Total Visits per day 2.4% 4.0% 4.0% 4.0%

Total Admissions per day 3.5% 3.0% 3.0% 3.0% Total Admissions per day

Average Daily Census 8.0% 5.5% 5.5% 5.5% Average Daily Census 10.7% 7.0% 7.0% 7.0%


Revenue per visit 10.5% 8.0% 8.0% 8.0% Revenue per visit 4.3% 7.0% 7.0% 7.0%

Revenue per admission 10.0% 9.5% 9.5% 9.5% Revenue per admission

Revenue per patient day 3.5% 6.9% 6.9% 6.9% Revenue per patient day 1.3% 6.0% 6.0% 6.0%

Hospital cost 14.6% 11.5% 11.5% 11.5% Hospital cost 24% 11% 11% 11%

Admin cost 14.6% 11.5% 11.5% 11.5% Admin cost 26% 12% 12% 12%

Bumrungrad FY12F FY13F FY14F FY15F Bangkok Dusit FY12F FY13F FY14F FY15F


Revenue - hospital ops 15.0% 12.5% 12.5% 12.5% Revenue - hospital ops 25.4% 12.5% 12.5% 12.5%

Gross profit - hospital ops 15.6% 14.0% 14.0% 14.0% Gross profit - hospital ops 32.3% 14.7% 14.7% 14.6%

Profit from operations 20.7% 19.2% 12.1% 14.5% Profit from operations 30.0% 15.6% 16.3% 16.7%

EBITDA 17.8% 14.6% 14.3% 14.4% EBITDA 23.9% 13.7% 13.8% 13.9%

PAT attributable to shareholders 31.1% 13.3% 13.0% 15.4% PAT attributable to shareholders 57.8% 18.4% 17.5% 17.7%

Margins FY12F FY13F FY14F FY15F Margins FY12F FY13F FY14F FY15F

Gross profit margins - hospital ops 40.3% 40.8% 41.4% 41.9% Gross profit margins - hospital ops 39.8% 40.6% 41.4% 42.2%

Gross profit margins - group 42.0% 42.7% 42.8% 43.2% Gross profit margins - group 42.2% 42.8% 43.5% 44.1%

Operating profit margins 20.4% 21.5% 21.6% 22.0% Operating profit margins 16.9% 17.5% 18.1% 18.8%

EBITDA margins 25.5% 25.8% 26.4% 26.9% EBITDA margins 23.3% 23.6% 23.9% 24.3%

PBT margins 19.5% 20.0% 20.3% 20.8% PBT margins 17.5% 17.8% 18.6% 19.5%

PAT margins 16.0% 16.0% 16.2% 16.7% PAT margins 14.1% 14.8% 15.4% 16.2%

ROE 31.6% 24.6% 24.2% 24.1% ROE 21.5% 17.8% 18.4% 18.9%




35

Key sector catalysts

Stronger-than-expected foreign patient load

We have not assumed a high level of foreign patient growth. Foreign patient growth is

subject to the economic conditions of source countries, expat population growth in

Thailand, political conditions and in more recent years, weather conditions. We have

seen many years of no or negative growth as a result of these factors. With all these

factors still in play, we believe that investors will be better served by assuming thosefactors in their base-case scenario. As such, we have assumed that growth for high-end

BKK-focused hospitals will come primarily from an increase in patient acuity and price

hikes, with a moderate foreign patient load growth. A higher-than-expected foreign

patient load represents potential upside.

Greater operating leverage

Higher-than-expected operating leverage due to higher utilisation, faster increase in

patient acuity and better cost management would be an upside to our numbers.

More M&A action

On a fundamental level, we would expect more M&A action to lead to further industry

consolidation and arguably stronger pricing power. It could also allow for a higher growth

rate and be accretive to shareholders at the right price. Valuations would also likely

continue to be supported if M&A activity level remains high.

Staffing constraints relieved

Favourable government policies that reduce the foreign doctor/nurses import

requirement would be an immediate positive in containing wage costs and relieve the

labour constraints.

Stronger-than-expected economic growthStronger-than-expected economic growth would likely see increased FDI and possibly,

an increased number of expats in Thailand – a positive for foreign patient load. Arguably,

mid-market volumes and pricing would also grow faster on the back of stronger income

growth driven by stronger economic growth.




36

Key sector risks

Political instability/natural disasters

For the past few years, Thailand has been plagued by political instability and severe

flooding during the monsoon season (in the 2nd half of the year). Such events affect the

continuity of businesses and the operating performance of hospital operators has been

tangibly and negatively affected. One could argue that these events are anomalies but

the frequency of such events poses a risk that an uncertain environment is more likely anew normal rather than an aberration.

Inability to scale the value chain

Increasingly, with each price hike, Thailand faces the risk of losing its proposition as an

affordable healthcare destination for foreign patients, with competition coming from lower

cost locations such as India. It remains to be seen if the Thailand healthcare providers

can successfully reposition themselves and scale the value chain to perform higher

acuity/intensity treatments. An inability to do so would be detrimental to the growth

prospects of premium hospitals catering to the medical tourist segment.

Substitution from the public sectorIn a poorer economic climate, we could see mid-market patients shift from private

healthcare to public healthcare. Wider coverage in terms of scope and population of

public healthcare schemes could also make public healthcare more attractive as a

substitute. Better quality healthcare provision through greater accessibility and shorter

waiting times, if achievable, could pose a threat to private healthcare providers.

Staff shortage and higher wage bill

Higher income levels will drive higher private healthcare expenditure. However, higher

income levels also mean a higher wage bill for businesses. There is a risk of margin

erosion if hospital operators are unable to pass the cost on to consumer or offset that by

other means.

The higher wage bill is also driven by a shortage of healthcare professionals. The

inability to secure the necessary labour supply at a commercially profitable price and to

deploy them at the desired locations will place a constraint on growth plans. Potentially,

there is also a risk that the shortage could grow more acute if other countries seek to

recruit Thai doctors to fill their own manpower shortages.

Regulation

A key theme in the sector is that of M&A, with Bangkok Dusit leading the consolidation

cycle. There is a risk that regulators may clamp down on future acquisition activities if

they deem it to be monopolistic. However, we view that risk as low. With the top-three

players occupying a mere 22%, it is hard for any regulator to argue that the market isbeing unfairly controlled by a handful of players.

Slower income growth

A key premise that underpins our assumptions is continued income growth. Slower

income growth as a result of political instability, natural disaster, a weaker global

macroeconomic environment, amongst other reasons, may see slower volume and

pricing growth. Healthcare demand will not be immune to such economic factors,

although it would likely be more resilient relative to other more cyclical industries.




37

Appendix: Public healthcare schemesThailand has 4 main public insurance schemes that cover 97.4% of the total population.

They are the Civil Servant Medical Benefit Scheme (CSMBS), Social Security Scheme

(SSS), Worker Compensation Scheme (WCS) and Universal Coverage Scheme (UCS).

Fig. 52: Summary of public healthcare schemes


Scheme Universal Coverage Scheme

(UCS)

Social Security Scheme (SSS) Worker Compensation Scheme

(WCS)

Civil Servant Medical Benefit

Scheme (CSMBS)

Background

Eligibility Every Thai National not in otherpublic schemes

Private Sector employees (Mustbe above 15)

All civil se rvants and dependantsincluding pensioners

Objective Focus on health promotion andprevention as well as curative careEmphasize role of primary healthcare and ration use of effectiveand efficient integrated servicesFoster proper referrals to hospitalsEnsure subsisides on publicspending are pro-poor and that allcitizens are protected against thefinancial risks of obtaininghealthcare

Subsidies for non-work relatedhealth problems

Compensation for work relatedhealth problems

Provide fringe benefit withoutcontribution in compensation for agenerally low salary scale

Medical coverage Comprehensive benefit package(excludes: Mental illnesses,cosmetic surgery, infertility,special nurse, private bed))

Comprehensive benefit package(excludes: prevention and healthpromotion services, private bed,special nurse)

Comprehensive benefit package Comprehensive Benefit Package(excludes: special nurse)

Began in Nationwide in April 2002 September 2, 1990 March 16, 1972 1980Related Govt Policies 1997 and 2007 Constitutions

8th National Social and EconomicDevelopment Plan

1990 Social security act 1972 Worker's Compensation Act 1980 Royal Decree on theDisbursement of Medical Benefitsfor Civil Servants

Number ofbeneficiaries

75% of population 903,012 employees (as at April2012), about 16% of thepopulation are members

9% of the population

Funding

Source General tax revenues Tri-party (Government, Employer,Employee) contribution of 1.5%employee's payroll

Employer pays 0.2 - 2.0% ofemployee payroll depending on job risk category

General tax revenues

Providers Contracted Hospitals within districtsystem that the individual isregistered with

Contracted Hospitals within areaof coverage

Free choice Free choice

Purchaser National Health Security Office(NHSO)

Social Security Office (SSO) Ministry of Finance

Government paymentmethod

Capitation for outpatient services(rate = 2,693.5 baht in 2011)Global budget for inpatientservices via Diagnosis RelatedGroups

Capitation Fee for service (ceiling of 35,000baht)

Direct disbursement for outpatient.Coventional DRG for inpatient.

Individual payment Free of charge (30 baht co-payabolished in 2006 after PrimeMinister Saryud Chulanot's 2006policial coup)

Free of charge if designatedcontract hospital is usedFixed amount reimbursement forothers

Employers will cover additionalexpenses up to 200,000 baht forsome conditions.Employees are responsible for

anything over that amount.

Free of charge.

Process

Public Yes, designated primary careprovider

Yes, designated primary careprovider

Yes, any Yes, any

Private hospita l Only i f contracted + designated orreferred

Only if contracted + designated orreferred

Yes, any Yes, any

Implementat ion Development of d istrict healthsystem

Method of treatment Primary treatment at registeredContracting Unit for Primary care(CUP), secondary and tertiarytreatment via referrals

Primary treatment at registeredContracting Unit for Primary care(CUP), secondary and tertiarytreatment via referrals

Any provider for service Any provider for service




38

Civil Servant Medical Benefit Scheme

The Civil Servant Medical Benefit Scheme covers all civil servants and their dependants,

including pensioners, which make up approximately 9% of the population. It was first

established in 1980 through the Royal Decree on Civil Servant Medical Benefit Scheme.

Under the CSMBS, the insured are entitled to a comprehensive healthcare coverage

package without the need for out-of-pocket expenditure. They have a free choice of

visiting any public healthcare provider and can only visit private healthcare operators

through referrals albeit with restricted reimbursements.

The scheme is funded through general tax revenues and the Ministry of Finance is the

designated purchaser for the healthcare services provided. Public payments to providers

are done through direct disbursement to the hospital for outpatient services, whereas for

inpatient services the diagnosis related group (DRG) payment system is used.

Social Security Scheme & Worker Compensation Scheme

The Social Security Scheme (SSS) and Worker Compensation Scheme (WCS) cover all

private sector employees above the age of 15 years, excluding dependants, which make

up approximately 16% of the population. The former was established through the 1990

Social Security Act, while the latter through the 1972 Worker’s Compensation Act.

The key difference between the SSS and WCS lies within their scope of coverage. TheSSS provides subsidies for non-work-related health problems, while the WCS

compensates for work-related health issues.

Under the SSS, workers are entitled to a comprehensive healthcare coverage package,

excluding prevention and health promotion services, and have free choice amongst

entitled or affiliated hospitals (both public and private) without out-of-pocket contribution.

Private providers can also be sought but co-payment is required from the individual. The

SSS is funded through a tri-party contribution of 1.5% employee’s payroll from the

government, employer and employee. The Social Security Office is in charge of

managing this fund and purchasing healthcare services. Public payments to providers

are done through capitation for most services and fee scheduling for selected

treatments.

Under the WCS, workers are compensated for any work-sustained health problems andhave free choice of both public and private healthcare providers. Public payments to

provider for treatments up to THB30,000 will be covered by the worker compensation

fund through fee for service payments. Employers are liable to cover expenses up to

THB50,000 and this may increase to THB200,000 for certain severe conditions. Any

additional expenses will be incurred by the individual. The worker compensation fund,

similarly managed by the SSO, is financed through employer’s contribution of 0.2-2.0%

of the employee’s payroll, depending on job risk category.

Universal Coverage Scheme

The Universal Coverage Scheme covers all Thai nationals that do not belong to any

other public schemes, which make up approximately 76% of the population. It was firstinitiated by the Thai Rak Thai party under the “30 baht treats all disease” slogan. After

winning the election, then Prime Minister Thaksin Shinawatra quickly established the

medical scheme by starting its launch in 6 provinces in April 2001 and then nationwide

by April 2002. In 2006, co-payment was abolished by Prime Minister Surayad

Chulanont’s government.

Under the UCS, the insured is entitled to a comprehensive healthcare package

(excluding mental illnesses, cosmetic surgery, infertility), without the need for out-of-

pocket expenditure, although co-payment is required for medication not included in the

National List of Essential Drugs. Choice of healthcare provider is limited to the

designated Contracting Unit for Primary care (CUP), usually a district public health

centre. Patients must first seek primary treatment at their designated CUP and




39

subsequent secondary and tertiary treatments can be sought elsewhere only through a

referral system.

The UCS is funded through general tax revenues and the National Health Security Office

(NHSO) is responsible for procuring healthcare services. Public payments to providers

are done through capitation for outpatient services and diagnosis related group within a

global budget for inpatient treatments.




40

Appendix: A picture of the Thailandhealthcare situation

Fig. 53: Accessibility

Staff density one of the lowest


Fig. 54: Payment breakdown

Heavily subsidised healthcare


Fig. 55: Life expectancy at birth

Average life expectancy


Fig. 56: Government spending on healthcare

One of the highest govt health exp as % of govt exp


Fig. 57: Health expenditure

One of the lowest despite huge govt expenditure


Fig. 58: Ageing population

Faces a severe ageing issue


1.8 0.9 0.3 0.3 1.2 0.6 1.43.0

5.9

2.7 2.0 1.5

6.0

1.3 1.4

9.6

31.0

18.0

6.0

22.0

5.0

9.0

41.0

38.0

0

5

10

15

20

25

30

35

40

45


Doctors per 1,000 populat ion Nurses per 1,000 populat ion Beds per 10,000 populat ion

41.1 44.851.8

75.8

34.9 32.8

50.1

70.1

55.4 40.5 35.3

16.5

53.950.0

41.2

19.1

3.514.7 12.9 7.7 11.2

17.28.7 13.2

0

10

20

30

40

50

60

70

80

90

100

Singapore Malays ia I ndones ia Thailand Philippines I ndia C hina Aus tralia

%

pub lic/gov t exp pte -out of pocket p te -not ou t of pocket

82

73

6870 70

65

74

82

0

10

20

30

40

50

60

70

80

90


L i f e e x p e c t a n c y a t b i r t h

9.8

7.2 6.9

14

6.1

4.1

10.3

18.3

1.62.2

1.2

3.3

1.3 1.42.3

6.0

0

2

4

6

8

10

12

14

16

18

20

0

500

1,000

1,500

2,000

2,500

Singapore Malays ia Indones ia Thai land Phili pp ines India China Aus tral ia

%

P P P i n t $

Govt health exp per capita (PPP int $)Govt health exp as % of govt exp (%)Govt health exp as % of GDP (%)

2,086

67799 345 136 132 309

3,382

3.9

4.8

2.4

4.3

3.84.2

4.6

8.5

0

1

2

3

4

5

6

7

8

9

0

500

1,000

1,500

2,000

2,500

3,000

3,500

4,000

S in gap ore Mala ys ia I nd one sia Tha il and P hil ip pi nes I nd ia C hi na A us tr alia

%

P P P i n t $

Tota l hea lth exp per capi ta (PPP in t $ ) To ta l heal th exp as % o f GDP (%)

23.3

16.5

10.5

17.6

6.7

8.3

16.5

19.5

0

5

10

15

20

25

Singapore Malaysia I ndonesia Thailand Philippines India China Australia

% o

f p o p u l a t i o n > 6 5 y r s o l d b y 2 0 3 0




41

Appendix: Medical tourism in ThailandThe premium healthcare segment is reliant on foreign patients. 59% of Bumrungrad’s

revenues come from foreign patients, while foreign patient revenues make up 26% of

Bangkok Dusit’s premium hospital revenues.

We estimate that 50% of these foreign patients are expats living in Bangkok. The top

nationalities for this segment are Japan, US, UK, Germany and Australia. Medical

tourists make up ~50% of the foreign patient load, with key source markets being the

Middle East countries. Gradually, the premium Thailand hospitals are seeing more

Asian-based patients from up-and-coming countries with limited quality healthcare

infrastructure, such as Myanmar, Cambodia, and Bangladesh.

Fig. 59: Major procedures: comparative costs (as of Aug 2011)



South


Thai Premium/

(Discount) to SG

Thai Premium/

(Discount) to

Malaysia


graft - CABG$ 88,000 $ 31,500 $ 9 ,500 $ 20,800 $ 27,500 $ 32,000 $ 35,000 $ 21,000 $ 23,000 $ 20,500 -28% 11%


bypass$ 85,000 $ 29,000 $ 8 ,500 $ 18,500 $ 23,500 $ 29,500 $ 33,000 $ 18,000 $ 22,000 $ 20,000 -25% 19%

Hip replacement $ 33,000 $ 14,000 $ 8,000 $ 12,500 $ 12,500 $ 17,000 $ 15,500 $ 10,500 $ 13,000 $ 11,800 -24% 4%


Spinal fusion $ 41,000 $ 17,000 $ 9,500 $ 17,900 $ 16,200 $ 20,500 $ 22,000 $ 18,000 $ 16,000 $ 16,500 -22% -11%

IVF cycle $ 15,000 $ 4,400 $ 3,300 $ 7,200 $ 4,600 $ 9,500 $ 7,500 $ 4,800 $ 6,500 $ 9,500 -32% -10%

Gastric by pass $ 25,000 $ 11,200 $ 6,800 $ 8,200 $ 10,800 $ 14,000 $ 12,500 $ 13,000 $ 12,000 $ 13,000 -14% 46%

Faceli ft $ 14,500 $ 4 ,800 $ 3 ,500 $ 4 ,900 $ 5,400 $ 6 ,200 $ 5 ,900 $ 5 ,600 $ 4 ,700 $ 4 ,800 -24% -4%

Rhinoplasty $ 8 ,500 $ 3 ,400 $ 2 ,800 $ 3 ,600 $ 3,500 $ 4,800 $ 4 ,700 $ 3 ,500 $ 3 ,700 $ 3 ,300 -23% 3%




42

Appendix: Healthcare acquisitions inThailandThis is a non-exhaustive list of healthcare acquisitions in Thailand. Bangkok Dusit was

the key consolidator of the market, starting from 2001. In more recent times (2011), we

saw Bangkok Chain increase its stake in Kasemrad Sriburin Hospital (from 44% to 94%)

and Kasemrad Rattanathibeth Hospital (from 69% to 73%) and Vibha taking over

Chiangmai Ram Medical Business (from 0% to 84%).

Fig. 60: Acquisition history of Bangkok Dusit


Date Acq. Target

%

acquired

Shares

('mn) Price/sh

Value

(THB'mn) Payment Description27-Oct-01 Samitivej PCL 34.00% 320 Cash Acquire stakes in Samitivej, whichis debt-ridden27-Nov-01 Trad Vejchakij Co 7.64 THB4.8 37

27-Nov-01 Udon Pattana 3.00 THB10.55 32 Cash2002 Bangkok Phuket Hospital 48.99% 39.19 THB5.36 210 Cash

3-Dec-04Ramkhamhaeng HospitalPublic Company Limited 7.04% Cash

21-Dec-04

Samitivej PCL,Bangkok Hatyai Hospital Co.Ltd;

Bangkok Phuket Hospital Co.Ltd

Offering 126.5mn new shares (BGHshares worth ~ THB8.30)

2BGH for 1 SVH (THB10 par value,shares worth ~THB17.02)

1BGH for 1.48 Bangkok Phuket

Hospital (THB5 par value)

1BGH for 1.66 Bangkok Hat Yai

Hospital (THB5 par value) Shares Acquire remaining stakes in Samitivej PCL, Bangkok Hatyai HospitalCo. Ltd and Bangkok Phuket Hospital Co. Ltd

1-Apr-05 BNH Medical Center Co Ltd 13.00%

2006

Bangkok Hospital Pattaya;Bangkok Hospital Rayong;Wattanawech;Bangkok Hospital Trat

Bangkok Hospital Pattaya: THB35.84,(par THB10)

Bangkok Hospital Rayong: THB12.07(par THB10)

Wattanawech:

THB26.98 (par THB10)

Bangkok Hospital Trat: THB5.02 (parTHB5)

Dusit par value THB1 Shares

Made a bid offer for Bangkok Hospital Pattaya Company Limited,Bangkok Hospital Rayong Company Limited, Vatthanavej Company

Limited (Bangkok Hospital Chanthaburi) and Bangkok Hospital TratCompany Limited

Increased holdings in the 4 companies to 97.1%, 100%, 99.5%, 99.6%

28-Jun-05

Bangkok HopsitalRatchasima Company

Limited 79.70% 273.03 765 Cash 300 bed hospital in Amphoe Muang, Nakhon Ratchasima Province17-Sep-06 Prasit Patana PLC 15.76% 870 Cash Acquired from Bank of Ayudhya

21-Nov-07

Ramkhamhaeng HospitalPublic Company Limited 7.20% 0.86 THB480 414 Cash Had to make a mandatory tender offer

2008

Ramkhamhaeng HospitalPublic Company Limited 12.06% 1.45 THB480 694 Cash Bid offer at THB480/sh from 4 Jan 08 to 7 Feb 08

2010Krungdhon Hospital PublicCompany Limited 16.80% 2.50 THB33.0 83 Cash

KDH operates a 150 bed hospital, premium to share price ofTHB26.25

2010

Krungdhon Hospital Public

Company Limited 3.19% Cash Acquired shares off mkt

16-Nov-10

A.N.B. Laboratories Company

Limited 100% 730 Cash

14-Dec-10Health Network PublicCompany Limited 9,393

Cash+Shares

Consist of Phyathai Hospital Group and Paolo Hospital Group;THB680mn cash + 230.8mn new shares @ THB37.75 each

16-Feb-11 Bumrungrad Hospital PCL 6.32% 46.12 Cash16-Feb-11 Bumrungrad Hospital PCL 4.79% 35.00 Cash Non-voting depository receipts (shares with no voting rights)

31-May-11 Prasit Patana PCL 72.20 THB37.75 Shares

Tender offer for Prasit Patana PCL after owning 68.64% of company

through acquisition of Health Network.

13-May-12 Bumrungrad Hospital PCL 6.05% 44.20 Cash

They now own 20.28% (148,027,600 shares), implying that they eitherhad 2/3% to start off with or they acquired some without declaring

19-Apr-12 Prasit Patana PCL 1.05% 24.60 THB4.57 Cash

Tender offer for remaining 2.86% stake, acquired 1.05% (24,601,223shares)




43

Appendix: Cross-holdings in theThailand healthcare industryThe current cross-holding situation can be characterised by the following:

• Bangkok Dusit, the market leader, has a significant minority stake in Bumrungrad, the

2nd largest player (23.88%)

• A friendly party of Bumrungrad, Bangkok Bank, has started to accumulate shares in

Bangkok Dusit (1.3%)

• Bangkok Dusit owns a stake in Ramkhamhaeng, the 4th largest group (38.2%)

• Each of the group also has major controlling shareholders who, with their friendly

parties, would act to block any aggression that threatens their interests.

Fig. 61: Cross-shareholding structure

Source: Nomura researchNote: KDH: Krungthon Hospital Co Ltd, BNH: BNH Medical Centre Co Ltd, SVH: Samitivej Plc; BGH: Bangkok Dusit, BH: Bumrungrad, KH: Bangkok Chain, RAM:Ramkhamhaeng; VIBHA: Vibhavadi; CMR: Changmai Ram Medical Business PLC

BGH

KDH BNH SVH PaoloMemorial

4 hospitals

(80.72 -100 %)

Prasit PatanaPhuketInt ernational

Hospital Co. Ltd

Cambodia

(2hospital70 – 80%)

PhnomPenh

Medical Services

Co. Ltd

B.D.M.S.

International

Medical Services

Asia International

Healthcare Co. Ltd

Royal Bangkok

Hospital LLC

BH

KH

RAM

VIBHA

UdonPattana (1994)

Co. Ltd

4x Pyathai hospitals

(64.4 –100%)

CMR

SaraburiWetchakit

Co. Ltd

Rattanatibeth

General Hospital

Co. Ltd

Sriburi Medical Co.

Ltd

Samithvej

70-80%

100%

100%

100%

20.0% 91.5% 95.8% 80 - 100% 97.8%

67.5%

6.2%

64 -100%

15.3%23.88%

25.0%

72.7%

59.9%

93.7%

83.8%

5.6%

9.0%38.2%

30%

SynphaetCo. Ltd

10.2%




44

Fig. 62: Key shareholders of major hospital group


With significant stakes in the 2nd and 4th largest players, Bumrungrad and

Ramkhamhaeng, any attempts to takeover these two companies by other parties will

most likely be blocked by Bangkok Dusit and allow the group to stay ahead of the

competition. On the other hand, any attempts by Bangkok Dusit to take over these

companies can be effectively blocked by the controlling shareholders and their allies.

Game-changing events

We believe there are three potential game-changing events that could change the

current dynamics:

• Changes in shareholders’ relationships. This is particularly the case for Bangkok

Dusit, as Bangkok Dusit’s controlling shareholder currently has the lowest shareholding

percentage of its company, and in turn control, compared to controlling shareholders of

BH and Bangkok Chain. This was due to the introduction of the Thongtang family as a

new shareholder in exchange for the acquisition of Health Network. The transaction

arguably put the founding family in a less favourable position. We note that we have

seen the founding family increase its stake in the company in recent times.

• Bangkok Chain. The identity of the overseas investor(s) who bought out the 24.99%stake is unknown. If the investor(s) is a foreign strategic operator, this could introduce a

new element of foreign competition in the Thailand healthcare market. On the other

hand, if the investor(s) is purely financial, we can expect Bangkok Dusit to be back on

the market as a potential M&A target. An acquisition by Bangkok Dusit is not

unimaginable, as we understand that the latter scenario is the more likely one.

• Ramkhamhaeng – the swing factor – gets acquired or engages in certain corporate

actions that elevates its position to become a credible competitor in this game of

thrones (eg, acquisition of other hospitals) or to ally with the other market followers to

oppose the market leader.

Shareholders Stake Shareholders Stake Shareholders Stake

Prasarttong family & affiliates 30.7% Sophonpanich & affiliaites 22.9% Harnphanich Family 48.5%

- Prasarttong-Osoth family 22.3% - Sophonpanich family members 6.5%

- Bangkok Airways 8.4% - Bangkok Bank and affiliates 16.3%

Thongtang family 15.2% *if include CB converson 35.1%

Viddayakorn Satit 0.0% Bangkok Dusit Medical Services 20.3%

Viriyah Insurance 6.4%

Bangkok Bank 1.3%

Shareholders Stake Shareholders Stake

Dr. Aurchat & allies 58% RAM & allies 35.1%

Bangkok Dusit Medical Services 38.2%

KHBHBGH

VIBHARAM



Key company data: See page 2 for company data and detailed price/index chart.

Bangkok Dusit BGH.BK BGH TB

HEALTH CARE & PHARMACEUTICALSEQUITY RESEARCH

Back the king of thrones

The rise of the empire

January 9, 2013

Rating Starts at

Buy

arget price

Starts at THB 134.50

Closing price

January 7, 2013 THB 114.00

Potential upside +18%

Action: Buy the growth, strategic control included

We initiate on Bangkok Dusit with 18% implied upside to our TP, given astrong growth outlook, driven by i) strong stable growth of its mid-marketand upcountry hospitals; ii) continued performance of its international

patient business against the backdrop of a stable political environment;and iii) capacity growth through hospital expansions and acquisitions.

We also like the group for its position of strategic control via its stakes inmajor competing hospital groups and through its market leader positionthat is reinforced by scale expansion via a hub and spoke model.

Catalyst: Key beneficiary of M&A activityBGH is able to block any attempted industry consolidation and benefit witha sizeable payoff even if one goes through, thanks to significant stakes inthe 2nd and 4th largest healthcare operators. Separately, recent changesin its shareholder structure may make it more susceptible to a takeover.

Valuations/riskThe stock currently trades at 28.6/24.1x FY12/13F P/E and 16.0x/14.2xFY12/13F EV/EBITDA, which is at the high-end of its historical tradingband. We think the stock deserves to trade higher relative to historicals asthe group has since transformed into a much larger entity and diversifiedaway from the international patient market into the mid-market, upcountrysegments which have a more stable high growth profile.

Key risks: 1) lower-than-expected international patient load; 2) substitutionfrom public sector; 3) staff shortages and higher wage bills, 4) regulations;5) slower economic growth leading to lower patient load growth.

31 Dec FY11 FY12F FY13F FY14F

Currency (THB) Actual Old New Old New Old New

Revenue (mn) 37,308 45,885 51,450 57,709

Reported net profit (mn) 4,386 7,961 7,304 8,579

Normalised net profit (mn) 4,386 6,166 7,304 8,579

FD normalised EPS 2.84 3.99 4.73 5.55

FD norm. EPS growth (%) 54.1 40.6 18.4 17.5

FD normalised P/E (x) 40.2 N/A 28.6 N/A 24.1 N/A 20.5

EV/EBITDA (x) 19.9 N/A 16.0 N/A 14.2 N/A 12.2

Price/book (x) 5.5 N/A 4.8 N/A 4.3 N/A 3.8

Dividend yield (%) 1.0 N/A 1.9 N/A 1.7 N/A 2.0

ROE (%) 18.4 23.1 18.7 19.5

Net debt/equity (%) 39.3 34.7 26.3 15.1

Source: Company data, Nomura estimates

Anchor themes

Continued growth in medicaltourism, coupled withstructurally stronger domestic

demand coming from the risingmiddle class, will underpingrowth in Thailand's healthcaresector.

Nomura vs consensus

For FY13F earnings, we are 6%above consensus.

Research analysts

Thailand Healthcare & Pharmaceuticals

Wen Jie Chan - NSL

[email protected]+65 6433 6965

Jit Soon Lim, CFA - NSL


See Appendix A-1 for analystcertification, importantdisclosures and the status ofnon-US analysts.



Nomura | Bangkok Dusit January 9, 2013

46

Key data on Bangkok DusitIncome statement (THBmn) Year-end 31 Dec FY10 FY11 FY12F FY13F FY14F

Revenue 23,997 37,308 45,885 51,450 57,709

Cost of goods sold -13,662 -23,675 -26,579 -29,490 -32,724

Gross profit 10,335 13,633 19,306 21,960 24,985

SG&A -6,945 -7,224 -11,613 -13,065 -14,681

Employee share expense

Operating profit 3,390 6,409 7,694 8,895 10,304

EBITDA 5,540 9,116 10,703 12,172 13,853

Depreciation -2,150 -2,707 -3,009 -3,277 -3,549

Amortisation

EBIT 3,390 6,409 7,694 8,895 10,304

Net interest expense -530 -707 -740 -723 -646

Associates & JCEs 300 382 1,075 989 1,114

Other income

Earnings before tax 3,160 6,083 8,028 9,161 10,772

Income tax -779 -1,456 -1,530 -1,553 -1,835

Net profit after tax 2,380 4,627 6,498 7,608 8,937

Minority interests -85 -241 -332 -304 -357

Other items

Preferred dividends

Normalised NPAT 2,295 4,386 6,166 7,304 8,579

Extraordinary items 1,795

Reported NPAT 2,295 4,386 7,961 7,304 8,579

Dividends -990 -1,700 -3,317 -3,043 -3,575

Transfer to reserves 1,305 2,686 4,644 4,261 5,005

Valuation and ratio analysis

Reported P/E (x) 61.9 40.2 22.1 24.1 20.5

Normalised P/E (x) 61.9 40.2 28.6 24.1 20.5

FD normalised P/E (x) 61.9 40.2 28.6 24.1 20.5

FD normalised P/E at price target (x) 73.0 47.4 33.7 28.5 24.2

Dividend yield (%) 0.6 1.0 1.9 1.7 2.0

Price/cashflow (x) 31.9 28.4 21.9 18.3 15.9

Price/book (x) 11.3 5.5 4.8 4.3 3.8

EV/EBITDA (x) 31.6 19.9 16.0 14.2 12.2

EV/EBIT (x) 49.9 27.8 21.6 18.9 16.0

Gross margin (%) 43.1 36.5 42.1 42.7 43.3EBITDA margin (%) 23.1 24.4 23.3 23.7 24.0

EBIT margin (%) 14.1 17.2 16.8 17.3 17.9

Net margin (%) 9.6 11.8 17.4 14.2 14.9

Effective tax rate (%) 24.7 23.9 19.1 16.9 17.0

Dividend payout (%) 43.1 38.8 41.7 41.7 41.7

Capex to sales (%) 4.8 9.5 9.8 8.7 7.8

Capex to depreciation (x) 0.5 1.3 1.5 1.4 1.3

ROE (%) na 18.4 23.1 18.7 19.5

ROA (pretax %) na 16.0 15.1 15.9 17.7

Growth (%)

Revenue 55.5 23.0 12.1 12.2

EBITDA 64.6 17.4 13.7 13.8

EBIT 89.0 20.1 15.6 15.8

Normalised EPS 54.1 40.6 18.4 17.5

Normalised FDEPS 54.1 40.6 18.4 17.5

Per share

Reported EPS (THB) 1.84 2.84 5.15 4.73 5.55

Norm EPS (THB) 1.84 2.84 3.99 4.73 5.55

Fully diluted norm EPS (THB) 1.84 2.84 3.99 4.73 5.55

Book value per share (THB) 10.12 20.70 23.91 26.58 30.24

DPS (THB) 0.64 1.10 2.15 1.97 2.31


Relative performance chart (one year)

Source: ThomsonReuters, Nomura research

(%) 1M 3M 12M

Absolute (THB) -0.9 5.1 39.0

Absolute (USD) -0.3 5.4 44.8

Relative to index -6.8 -1.9 10.1

Market cap (USDmn) 5,786.0

Estimated free float (%)

52-week range (THB) 116.5/70.25

3-mth avg daily turnover(USDmn)

13.64

Major shareholders (%)

Praarttong-Osoth Prasert 12.7

Thongtang Wichai 9.9

Source: Thomson Reuters, Nomura research

Notes

High growth profile driven by volume

growth and higher patient acuity




47

Cashflow (THBmn) Year-end 31 Dec FY10 FY11 FY12F FY13F FY14F

EBITDA 5,540 9,116 10,703 12,172 13,853

Change in working capital 77 -294 -466 -366 -409

Other operating cashflow -1,167 -2,627 -2,183 -2,180 -2,374

Cashflow from operations 4,449 6,195 8,054 9,626 11,070

Capital expenditure -1,154 -3,560 -4,500 -4,500 -4,500

Free cashflow 3,296 2,635 3,554 5,126 6,570

Reduction in investments -1,359 -275 -2,235 0 0

Net acquisitions

Reduction in other LT assets -372 19 19 19

Addition in other LT liabilities 1,902 -3 8 20

Adjustments 50 -1,470 220 285 276

Cashflow after investing acts 1,987 2,419 1,555 5,438 6,885

Cash dividends -881 -1,056 -1,700 -3,317 -3,043

Equity issue 0 10 0 0 0

Debt issue -493 -46 -100 -100 -580

Convertible debt issue 0 0 0 0 0

Others -10 60 0 0 0

Cashflow from financial acts -1,384 -1,033 -1,800 -3,417 -3,623

Net cashflow 603 1,386 -245 2,021 3,261

Beginning cash 1,886 2,489 3,876 3,631 5,652

Ending cash 2,489 3,876 3,631 5,652 8,913

Ending net debt 8,261 12,581 12,826 10,805 7,064


Balance sheet (THBmn) As at 31 Dec FY10 FY11 FY12F FY13F FY14F

Cash & equivalents 2,489 3,876 3,631 5,652 8,913

Marketable securities 1,740 464 464 464 464

Accounts receivable 1,912 3,377 4,082 4,579 5,138

Inventories 398 1,038 1,311 1,454 1,614

Other current assets 231 122 122 122 122

Total current assets 6,770 8,877 9,609 12,271 16,251

LT investments 3,911 7,865 11,372 12,061 12,872

Fixed assets 18,858 29,430 31,043 32,409 33,527

Goodwill 1,299 10,609 10,609 10,609 10,609

Other intangible assets 201 482 379 256 108

Other LT assets 1,157 1,529 1,509 1,490 1,471

Total assets 32,197 58,792 64,522 69,095 74,838

Short-term debt 3,395 1,044 3,044 6,524 1,044 Accounts payable 1,314 3,391 3,948 4,267 4,621

Other current liabilities 3,518 3,143 3,098 3,054 3,009

Total current liabilities 8,228 7,578 10,090 13,845 8,674

Long-term debt 7,204 15,412 13,412 9,932 14,932

Convertible debt

Other LT liabilities 482 2,384 2,381 2,388 2,408

Total liabilities 15,914 25,375 25,883 26,165 26,014

Minority interest 648 1,422 1,686 1,857 2,093

Preferred stock

Common stock 8,235 21,568 21,568 21,568 21,568

Retained earnings 5,293 9,159 15,488 19,608 25,265

Proposed dividends

Other equity and reserves 2,107 1,268 -103 -103 -103

Total shareholders' equity 15,634 31,995 36,953 41,073 46,730

Total equity & liabilities 32,197 58,792 64,522 69,095 74,838

Liquidity (x)

Current ratio 0.82 1.17 0.95 0.89 1.87

Interest cover 6.4 9.1 10.4 12.3 16.0

Leverage

Net debt/EBITDA (x) 1.49 1.38 1.20 0.89 0.51

Net debt/equity (%) 52.8 39.3 34.7 26.3 15.1

Activity (days)

Days receivable 25.9 29.7 30.7 30.7

Days inventory 11.1 16.2 17.1 17.1

Days payable 36.3 50.5 50.8 49.6

Cash cycle 0.0 0.7 -4.6 -3.0 -1.7


Notes

Improving FCF generation

Notes

Robust balance sheet that will help

support expansion plans




48

About Bangkok DusitBangkok Dusit is the market leader in Thailand, with 15% of private healthcare capacity,

as measured by number of licensed beds. It operates 29 hospitals in Thailand and 2

more in Cambodia. With a market cap of ~US$6bn, its largest shareholder is the

Prasarttong-Osoth family, who also owns Bangkok Airways.




49

Positioned for both domestic and foreignpatient segmentsBangkok Dusit currently has a presence in both the mid and premium markets, in both

BKK and upcountry, providing multiple engines of growth. Its core brands – Bangkok

Hospital, Samitivej and BNH – ply to the high end and international patients who are

seeking high acuity tertiary/super tertiary care. Both its Phyathai and Paolo brands cater

to the mid-market segment, with Phyathai doing more high acuity cases than Paolo. The

brands can be found both in BKK and other regionsGoing forward, we expect BGH to enter into new segments as there are still existing

niches in which they could occupy. In our view, BGH might move to fill the space with a

lower premium offering, in the segment below its BNH brand. Separately, we might see

the group branch into the lower mid-market tertiary segment, where Bangkok Chain is

operating. We believe that the new Soonthornphu Hospital in Rayong is a test bed for

that concept, as it is positioned to target workers with medical benefits such as the Social

Security Scheme.

Fig. 63: Market positioning and potential new niches to occupy


x

x




50

Mid-market and upcountry segments offer strong stablegrowth

Structurally higher domestic private healthcare demand due to growing middle

class

We like the exposure to the mid-market and upcountry segments due to the strong and

stable growth profile of these segments. We expect the domestic private healthcare

market to enjoy strong structural growth driven largely by a growing middle class

population which is proven to have a higher propensity for private healthcare.

Mid-market sweet spot for patients shifting from public to private healthcare

In the growing domestic healthcare market, we believe the mid-market segment offers

more patient growth potential relative to the high-end as patients who shift from public to

private healthcare will naturally transit into the mid market segment rather than leapfrog

into the premium healthcare space.

Higher growth in upcountry due to higher population and economic growth

Geographically, we believe that areas outside of Bangkok – particularly the Central and

Eastern regions – will see higher growth in domestic private healthcare demand due to

higher economic and population growth rates in these areas relative to BKK. BGH is well

exposed to the upcountry market, with 15 hospitals outside of greater Bangkok and a

third of that in the Eastern region.

More stable growth profile As the mid market segment and upcountry primarily service the domestic market, we see

it as less exposed to the vagaries of medical tourist arrivals.

Fig. 64: Top performers in BGH’s stable of hospitals: y-y % revenue growth

Upcountry - stable high growth, BKK mid-mkt - in line with high-end but more stable, BKK high-end - volatile


High end international patient revenues to continue growing

We expect foreign patients revenues – a key revenue driver – to continue growing as i)

BGH hospitals remain relatively affordable in the region; ii) they are moving into higher

acuity treatments; iii) surrounding source markets for medical tourists are sizeable andgrowing; iv) the regional expat community is expanding. The growth momentum looks

intact, based on 9MFY12 results.

Track record of growing foreign patient revenues

The company has demonstrated the ability to consistently grow its foreign patient

revenues across time, through organic and inorganic means.

The outpatient segment has registered volume growth annually, while inpatient volume

growth has always been positive with the exception of FY09 due to the poor economic

climate and political instability in Thailand.

The group has also been able to grow revenue intensity consistently across FY03 –

FY07. Even though the company no longer provides revenue intensity data specific to


Mid/High-mkt BKK Chantaburi (BCH) 25% 21% 20%

Mid/High-mkt BKK Hat Yai (BHH) 24% 21% 22% 25% 25% 20%







Mid-mkt Paolo Samutprakarn (Psamut) 11% 17% 18% 17%Mid-mkt Paolo Paholyothin (Pmed) 21% 18%



High-end BMC 21% 16% 12% 20% 20% 18%







51

the international segment post 2007, we estimate that the group has been able to raise,

or at least maintain pricing power, with the exception of FY09.

Fig. 65: International patients business


Fig. 66: y-y growth in international patient revenue intensity


Fig. 67: International patient revenues


Diversified client base

The clientele base has become increasingly diversified with patients coming from over

100 countries, with the top 5 countries accounting for 10.6% of total foreign patient

revenues. A diversified client base helps to mitigate the volatility in international patient

volumes.

37 39 60146

251306 352 342 346 372

153 182304

991

1,518

1,703

1,9301,987

2,047

2,205

0

500

1,000

1,500

2,000

2,500

FY 02 FY 03 FY 04 FY 05 FY 06 FY 07 FY 08 FY09 FY10 FY11

Average Daily Census (Int'l) Out Patient Department Visits per day (Int'l)

23%

20%

3%

17%

5%

11%

17%

4%

18%

9%

0%

5%

10%

15%

20%

25%

FY 03 FY 04 FY 05 FY 06 FY 07

In Patient Revenues per patient day, Int'l (baht) Out Patient Department Revenues per visit, Int'l (baht)

382 518976

2,656

5,088

6,430

7,663 7,775

8,465

9,158

0

1,000

2,000

3,000

4,000

5,000

6,000

7,000

8,000

9,000

10,000

FY 02 FY 03 FY 04 FY 05 FY 06 FY 07 FY 08 FY09 FY10 FY11

International Patient Revenue (THB'mn)




52

Fig. 68: Top countries for international patient revenues


As % of revenues FY 08 FY09 FY10 FY11 3QFY12

Australia 1.90% 1.70%

UAE 4.70% 3.20% 2.80% 1.70%

Japan 4.30% 4.60% 4.20% 3.10% 2.70%

UK 3.50% 3.30% 3.00% 2.10% 1.80%

USA 2.60% 2.60% 2.40% 1.90% 1.60%

Germany 1.80% 2.00% 2.20% 1.60%




53

Growing through capacity expansionThe group continues to expand into upcountry regions with two hub hospitals slated to

open in the Northern region (Changmai) and the North-Eastern region (Udon Thani). The

addition in capacity through the opening of new hospitals is estimated to be up to 460

beds, a 9% increase in licensed capacity from end Sep 2012 levels. However, as the

expansion is spread across a few years, we estimate the impact to be 2 – 3% p.a.

In addition to the opening of new hospitals via a mix of greenfield and brownfield

projects, we expect more beds to be added to existing hospitals as the current available

beds are only 80% of the total potential licensed capacity. We expect the incremental

increase to be 0 – 3% p.a.

Bangkok Dusit currently operates a total of 4,012 beds available as at end-FY11 and has

a licensed bed capacity of 5,137 beds as at end Sep 2012, up 7.1% from end-FY11.

Utilisation for FY11 stands at a healthy 66%, while 3QFY12 utilisations spiked at 78%,

which we believe can be attributed to the flu season and a spat of hand, foot and mouth

disease (HFMD) in 3QFY12.

Fig. 69: Available beds and utilisation


Fig. 70: Licensed capacity


2,0812,300 2,308

4,012

66%

61%

65%

66%

58%

59%

60%

61%

62%

63%

64%

65%

66%

67%

0

500

1,000

1,500

2,000

2,500

3,000

3,500

4,000

4,500

FY 08 FY09 FY10 FY11

Available beds Utilis ation

# Central Code Ownership

Licensed

Beds Zone # East Code Ownership

Licensed

Beds Zone

1 Bangkok Hospital BMC 100.0% 343 1 0 19 Bangkok Hospital Pattaya BPH 97.2% 400 20

2 Bangkok Heart Hospital BMC 100.0% 97 10 20 Phyathai Sriracha PYTS 64.6% 257 20

3 Wattanosoth Hospital BMC 100.0% 48 10 21 Samitivej Sriracha SSH 67.5% 150 20

4 Pa olo Paholyothin Pmed 100.0% 237 10 22 Bangkok Hospital Rayong BRH 100.0% 220 21

5 Pa olo Chokchai 4 Pchok 84.8% 120 10 23 Bangkok Chantaburi BCH 99.7% 170 22

6 Pa olo Nawamin Pnwm 99.8% 140 10 24 Bangkok Trat BTH 99.8% 114 23

7 P hyatha i 1 PYT1 100.0% 350 10 25 Soonthornphu Hospital 143 21

8 P hyatha i 2 PYT2 99.1% 260 10

9 P hyatha i 3 PYT3 98.1% 230 10 South Beds

1 0 BNH Medical Centre BNH 91.5% 144 10 26 Bangkok Phuket BPK 99.7% 317 83

11 Samitivej Sukhumvit SVH 95.8% 275 10 27 Bangkok Hospital Samui BSH 100.0% 50 84

12 Samitivej Srinakarin SNH 95.8% 400 10 28 Bangkok Hat Yai BHH 98.8% 165 90

13 P aolo Samutprakan Psamut 92.4% 200 11

14 Bangkok Hospital Prapradaeng BPD 79.0% 60 11 West Beds

29 Bangkok Huahin BNH 100.0% 60 77

North Beds

15 Bangkok Changmai 200 50 Outside Thailand

30 Ro yal Angkor International 80.0% 21 Cambodia

North‐East Code Ownership Beds Zone 31 Ro yal Rattanak International 70.0% 30 Cambodia

16 Bangkok Hospital Ratchasima BKH 90.4% 300 30

17 Bangkok Hospital Pakchong 90.4% 3 0 30 Note

18 Bangkok Udon BUD 100.0% 120 41 Hubs are in bold, New hospitals in blue




54

Fig. 71: Expansion


Fig. 72: Non-exhaustive list of possible M&A targets

Note: FY11 data


Name Type Location Date Details

Bangkok Hospital Chiangmai GreenfieldCentral Chiangmai, on Chiangmai-

Lampang Road (Highway #11)Mid-2014 200 beds (55 1st phase)

Bangkok Hospital Udon Brownfield Udon Thani province Dec-12 120 beds

Soonthornphu Hospital BrownfieldRayong, South of BKK;

9km from Bangkok Hospital RayongMid-2013

143 beds (30 - 40 beds in 1st phase),

Target mid income patients (staff w

medical benefits)

NTV AHC M-CHAI SKR

Hospitals

Nonthavej Hospital - 208 beds,

Nonthaburi


Chonburi


Chonburi


Samut Sakorn


Samut Sakorn


Samut Sakorn

Maeklong Hopsital - 60 beds, Samut

Songkram

Petcharat Hospital - 100 beds,

Phetchaburi

Sikarin Hospital - 216 beds, BKK

Rattarin Hospital - 100 beds,

Samut Prakarn

Total beds 208 362 560 316

Revenues (THB'mn) 1,460 1,093 1,487 373

Net profit (THB'mn) 163 102 106 30

ROA (%) 19.6 14.9 15.0 12.0

ROE (%) 16.0 12.3 17.3 11.4

Net profit margin (%) 11.1 9.3 7.1 8.1




55

Reinforcing #1 position by scaling upthrough a hub and spoke strategy Already the market leader, Bangkok Dusit’s strategy is one of capacity and geographical

expansion via M&A, with newbuilds as the fallback option in lieu of any suitable targets.

This increased network of hospitals will be organised via a hub-and-spoke structure to

achieve the right-siting and right-sizing of care. The increased scale of the organization

will naturally yield economies of scale, even as the group seeks to claw back margins

through vertical integration.The general plan is to establish regional hubs, with each regional hub hospital positioned

to be the highest-end hospital in the region. With key regional hubs in Phuket and

Chonburi (Pattaya) and their headquarters in Bangkok, they are now moving into the

Northern region with their planned Bangkok Hospital in Chiangmai. They have also

recently established a new subsidiary in Udon Thani with the intention to establish

another regional hub for the North-Eastern region. With our view that the upcountry

segment is a sweet spot to be in going forward, we view this strategy favourably.

Fig. 73: Hub and spoke strategy


2x BGH - BH

1x BGH - BH

1x BGH - BH

1x BGH - BH

1x BGH - BH

1x BGH - BH

1x BGH - BH

1x BGH – PH

1x BGH – BH

1x BGH – SA;

1x under construction1x BGH – PM1x BGH - BH

1x BGH - BH

1x BGH – BH(under

construction)

1x BGH – BH(new hub in the

NE region)




56

Fig. 74: Major geographical presence in Bangkok

Source: Nomura research; BGH: Bangkok Dusit, KH: Bangkok Chain, BH: Bumurungrad, BK: Kasemrad Bangkae Hospital, P: Kasemrad Prachachuen Hospital, S: KasemradSukhapibal 3 BH: Bangkok Hospital, PM: Paolo Memorial, SA: Samithvej, PH: Pyathai, BNH: BNH Hospital




57

Maintaining strategic control via cross-holdings

Current cross-holding structure

The current cross-holding situation can be characterised by the following:

• Bangkok Dusit, the market leader, has a significant minority stake in Bumrungrad, the

2nd largest player (23.88%).• A friendly party of Bumrungrad, Bangkok Bank, has started to accumulate shares in

Bangkok Dusit (1.3%). Note: the President of Bangkok Bank and his family are the

major shareholders of Bumrungrad.

• Bangkok Dusit owns a stake in Ramkhamhaeng, the 4th largest group (38.2%)

• Each of the groups also has major controlling shareholders who, with their friendly

parties, would likely act to block any aggression that threatens their interests.

Fig. 75: Cross shareholding structure

Source: Nomura research, KDH: Krungthon Hospital Co Ltd, BNH: BNH Medical Centre Co Ltd, SVH: Samitivej Plc; BGH: Bangkok Dusit, BH: Bumrungrad, KH: Bangkok Chain,RAM: Ramkhamhaeng; VIBHA: Vibhavadi; CMR: Changmai Ram Medical Business PLC




58

Fig. 76: Key shareholders of major hospital group


Heads I win, tail I win too

With significant stakes in the 2nd and 4th largest players, Bumrungrad and

Ramkhamhaeng, we think any attempts to takeover these two companies by other

parties will most likely be blocked by Bangkok Dusit and allow the group to stay ahead of

the competition. On the other hand, any successful attempt would most likely be done atrich valuations, which would see Bangkok Dusit receiving a steep payout. As such, we

think Bangkok Dusit would be in a heads-I-win-tails-I-win-too position in any M&A

situation.

Is Bangkok Dusit more susceptible to a takeover now?

A recent disposal of its entire shareholding by Pongsak Viddayakorn (and affiliates), the

co-founder of Bangkok Dusit, hints of a change in the power structure within the

shareholder roster and the boardroom.

Though the founding family has strengthened its own position by purchasing part of the

shares sold, the recent transaction has meant that they have lost a reliable ally in

Pongsak Viddayakorn and their overall control has weakened. More shares have foundtheir way to other investors who may be keen to sell out if the right price comes along.

To put things in perspective, 10.7% of the entire issued share base may have fallen into

unfriendly/unfamiliar hands.

In total 17.12% of the total issued shares of BGH was sold into the market, with 6.4%

going to the Prasarttong-Osoth family and affiliated entities, thus boosting their combined

stake to 30.7% (from 24.3%). The Thongtang family remains the second largest

shareholder with 15.2% stake.

Shareholders Stake Shareholders Stake Shareholders Stake

Prasarttong family & affiliates 30.7% Sophonpanich & affiliaites 22.9% Harnphanich Family 48.5%

- Prasarttong-Osoth family 22.3% - Sophonpanich family members 6.5%

- Bangkok Airways 8.4% - Bangkok Bank and affiliates 16.3%

Thongtang family 15.2% *if include CB converson 35.1%

Viddayakorn Satit 0.0% Bangkok Dusit Medical Services 20.3%

Viriyah Insurance 6.4%

Bangkok Bank 1.3%

Shareholders Stake Shareholders Stake

Dr. Aurchat & allies 58% RAM & allies 35.1%

Bangkok Dusit Medical Services 38.2%

KHBHBGH

VIBHARAM




59

Key Earning DriversWe expect the group to demonstrate a consistent earnings growth profile of 18 – 19%

p.a. across the forecast period, on the back of i) revenue growth of ~13% p.a., ii)

EBITDA margin expansion of 0.2 – 0.3ppt per year due to economies of scale, iii) a

lower rate of increase in depreciation, iv) a decline in finance cost and v) lower tax rates

in FY12/13F. Our estimates are most sensitive to changes in cost assumptions.

Fig. 77: Earnings outlook


Revenue drivers

Key revenue drivers for BGH will be higher patient acuity, driven by increasing

specialisation, volume growth and general price increases.

Higher patient acuity will be driven by increasing specialisation such as the opening of

new Centres of Excellence. For instance, we saw the opening of the new Phyathai 3

Heart Centre in Bangkok Heart Hospital and the Paolo Memorial Nawamin cancer

Centre in Wattanosoth Hospital, both in May 2012.

Volume growth for Bangkok Dusit will be driven by capacity expansion and mid-market

private healthcare demand growth on the back of increasing income levels and tightness

in public capacity.

PnL (ex FV adjustments) 2009 2010 2011 2012F 2013F 2014F 2015F

Revenue ‐ hospital ops 21,597 23,513 35,224 44,156 49,655 55,844 62,810

Revenue ‐ group 21,974 24,051 36,892 45,982 51,559 57,879 65,016

COGS ‐ group 12,454 13,662 21,460 26,579 29,490 32,724 36,315

Gross profit ‐ hospital ops 9,143 9,851 13,286 17,577 20,165 23,120 26,495

Gross profit ‐ group 9,520 10,389 15,433 19,403 22,069 25,155 28,701

Profit from operations 2,771 3,444 5,993 7,790 9,004 10,473 12,220

EBITDA 5,015 5,540 8,637 10,703 12,172 13,853 15,775

Finance expense (608) (530) (707) (740) (723) (646) (532)

PBT 2,332 3,160 5,604 8,028 9,161 10,772 12,689

PAT 1,785 2,380 4,148 6,498 7,608 8,937 10,520

PAT attributable to shareholders 1,725 2,295 3,907 6,166 7,304 8,579 10,099

EPS 1.42 1.88 3.00 3.99 4.73 5.55 6.53

%growth (ex FV adjustments) 2009 2010 2011 2012F 2013F 2014F 2015F

Revenue ‐ hospital ops 2% 9% 50% 25% 12% 12% 12%

Revenue ‐ group 1% 9% 53% 25% 12% 12% 12%

COGS ‐ group 5% 10% 57% 24% 11% 11% 11%

Gross profit ‐ hospital ops ‐2% 8% 35% 32% 15% 15% 15%

Gross profit ‐ group ‐3% 9% 49% 26% 14% 14% 14%

Profit from operations ‐4% 24% 74% 30% 16% 16% 17%

EBITDA 0% 10% 56% 24% 14% 14% 14%

Finance expense 0% ‐13% 33% 5% ‐2% ‐11% ‐18%

PBT ‐3% 36% 77% 43% 14% 18% 18%

PAT 4% 33% 74% 57% 17% 17% 18%

PAT attributable to shareholders 4% 33% 70% 58% 18% 17% 18%

EPS 4% 32% 60% 33% 18% 17% 18%

Margins (ex

‐FV

adjustments) 2009 2010 2011 2012F 2013F 2014F 2015F

Gross profit margins ‐ hospital ops 42.3% 41.9% 37.7% 39.8% 40.6% 41.4% 42.2%

Gross profit margins ‐ group (ex FV adj) 43.3% 43.2% 41.8% 42.2% 42.8% 43.5% 44.1%

Operating profit margins (on hospital ops) 12.8% 14.6% 17.0% 17.6% 18.1% 18.8% 19.5%

Operating profit margins (on group) 12.6% 14.3% 16.2% 16.9% 17.5% 1 8.1% 18.8%

EBITDA margins (on hospital ops) 23.2% 23.6% 24.5% 24.2% 24.5% 24.8% 25.1%

EBITDA margins (on group) 22.8% 23.0% 23.4% 23.3% 23.6% 23.9% 24.3%

PBT margins (on hospital ops) 10.8% 13.4% 15.9% 18.2% 18.4% 19.3% 20.2%

PBT margins (on group) 10.6% 13.1% 15.2% 17.5% 17.8% 18.6% 19.5%

PAT margins (on hospital ops) 8.3% 10.1% 11.8% 14.7% 15.3% 16.0% 16.7%

PAT margins (on group) 8.1% 9.9% 11.2% 14.1% 14.8% 15.4% 16.2%

PAT attributable to shareholders margins (on hospital ops) 8.0% 9.8% 11.1% 14.0% 14.7% 15.4% 16.1%

PAT to s/h margins (on group) 7.9% 9.5% 10.6% 13.4% 14.2% 14.8% 15.5%




60

General price increases should be in line with the industry average of 3 – 4%. Arguably,

there could be higher pricing power going forward as a result of market consolidation.

Performance across segments

Across service segments, we expect the inpatient segment to demonstrate both strong

volume growth and pricing power across the high-end and mid-market hospitals. We

expect the same for the high-end outpatient segment. However, we estimate that the

mid-market outpatient volume tends to see a greater trade-off against pricing, though

they remain generally price inelastic (i.e. a 1% hike in price lead to a <1% drop involume).

Across brands and geographies, we expect the upcountry hospitals to generally

demonstrate the strongest revenue growth consistently, followed by mid-market Bangkok

hospitals. Across time, the high-end Bangkok hospitals will perform in line or poorer than

mid-market Bangkok hospitals, in our view. However, they have the potential to perform

significantly above trend and above the other mid-market/upcountry hospitals, subject to

international patient flows.

Fig. 78: Top performers: y-y % revenue growth

Upcountry - stable high growth, BKK mid-mkt - in line with high-end but more stable, BKK high-end - volatile


Fig. 79: Top hospitals by revenue and EBITDA contribution

Phyathai cluster and Bangkok Phuket seeing fastest expansion in EBITDA margins, the former likely driven by price increases on the outpatient segment,by our estimates. Samitivej cluster's margins expanding slower or shrinking

Source: Company data, Nomura research,

^ BMC comprises of Bangkok Hospital, Bangkok Heart Hospital, Wattanosoth Hospital; *PYT includes PYT1, PYT2, PYT3, PYTS; ** SVH includes SVH, SNH, SHH


Mid/High-mkt BKK Chantaburi (BCH) 25% 21% 20%Mid/High-mkt BKK Hat Yai (BHH) 24% 21% 22% 25% 25% 20%







Mid-mkt Paolo Samutprakarn (Psamut) 11% 17% 18% 17%

Mid-mkt Paolo Paholyothin (Pmed) 21% 18%



High-end BMC 21% 16% 12% 20% 20% 18%




Revenue contribution 2Q2011 3Q2011 4Q2011 1Q2012 2Q2012 3Q2012 Comments

BMC^ BMC Cluster 22% 22% 21% 22% 22% 22% Maintain importance

PYT* Phyathai Cluster 20% 21% 20% 19% 19% 20% Flat

SVH** Samitivej Cluster 18% 17% 18% 17% 17% 17% Flat

BPH Bangkok Pattaya 7% 6% 7% 9% 8% 7% Volatile, stable on avg

BPK Bangkok Phuket 5% 5% 5% 6% 5% 5% Flat

PMED Paolo Paholyothin 6% 5% 5% 5% 5% 5% Flat

BNH BNH Hospital 4% 4% 4% 4% 4% 4% Flat

BRH Bangkok Rayong 3% 4% 4% 3% 3% 4% Flat

Others 16% 16% 16% 16% 16% 17% Flat

EBTIDA contribution 2Q2011 3Q2011 4Q2011 1Q2012 2Q2012 3Q2012 Comments

BMC^ BMC Cluster 22% 22% 21% 21% 21% 22% Maintain importance

PYT* Phyathai Cluster 22% 21% 20% 19% 21% 22% Increasing contribution

SVH** Samitivej Cluster 18% 17% 17% 15% 15% 15% Declining

BPH Bangkok Pattaya 7% 6% 9% 11% 10% 8% Volatile, stable on avg

BPK Bangkok Phuket 4% 4% 6% 7% 6% 6% Increasing contribution

PMED Paolo Paholyothin 7% 6% 5% 5% 5% 5% Declining

BNH BNH Hospital 4% 4% 4% 4% 4% 4% Flat

BRH Bangkok Rayong 4% 4% 4% 3% 4% 4% Flat

Others 12% 14% 13% 14% 14% 14%




61

Costs and Margins

On the cost front, BGH will experience wage cost pressures but should still see

expanding margins. We expect an expansion in Bangkok Dusit’s EBITDA margins

thanks to higher acuity treatments, economies of scale and operating leverage with

some drag from sub-optimal utilisation level of new capacity.

We expect finance expenses to decline gradually as internal cashflows are sufficient to

fund its expansion without taking on incremental debt. We expect the asset base to

continue growing and depreciation to rise but at a declining rate, partly due to economies

of scale.



Sensitivity Analysis

Our estimates are most sensitive to changes in cost assumptions. A slower rate of

expansion and a period of consolidation/asset intensification could potentially see the

economies of scale kick in earlier, leading to stronger margin expansion and profit

growth.

Fig. 81: Sensitivity analysis – Impact on FY13F PAT to shareholders


Bangkok Dusit FY12F FY13F FY14F FY15F

% growth (y-y)

Total Visits per day 2.4% 4.0% 4.0% 4.0%

Average Daily Census 10.7% 7.0% 7.0% 7.0%

% growth (y-y)

Revenue per visit 4.3% 7.0% 7.0% 7.0%

Revenue per patient day 1.3% 6.0% 6.0% 6.0%

Hospital cost 24% 11% 11% 11%

Admin cost 26% 12% 12% 12%

Change in ppt growth rate +1% -1%

Total Visit per day 0.5% -0.5%

Average Daily Census 0.6% -0.6%

Revenue per visit 0.4% -0.4%

Revenue per patient day 0.6% -0.6%

Hospital cost -2.8% 2.8%

Admin cost -0.9% 0.9%




62

ValuationsBangkok Dusit currently trades at 28.6/24.1x FY12/13F P/E and 16.0x/14.2x FY12/13F

EV/EBITDA, towards the high end of its 5-year ranges of 9.8-28.8x and 5.8-14.6x

respectively.

We value BGH on a SOTP basis, with a 16.3x EV/EBTIDA multiple applied for its core

business. This is higher than its historical valuation range and we think is justifiable as

the group has since transformed into a much larger entity and diversified away from the

international patient market into the mid-market, upcountry segments, which have a

more stable high growth profile.

On a comparables basis, this represents a 10% premium to regional peers due to its

stronger growth profile. BGH should grow at a PAT CAGR of 25.0% over FY12-14F,

while the average growth rate for regional peers is 15.7%. In addition, its FY12F ROE is

above the regional average (17.9% vs 17.5%) while FY12F EBITDA margins on an

adjusted basis is 29.6%, above the regional average of 25.1%.

The valuation multiple is at a 5% premium to Bumrungrad due to BGH’s position as the

market leader and what we deem as a strategic leadership position.

We cross-checked our valuations using various methodologies (DCF, EV/EBITDA) and

in general, found support for our target prices.

Fig. 82: SOTP valuations


Fig. 83: Valuation range


Comments


Target Valuation (THB'mn) 198,411 FY13

Less Debt, Add Cash (13,061)

Add stake in Bumrungrad 15,332 24%

Add stake in RAM 7,243 38%

Target valuation (THB'mn) 207,924

# of shares ('000) 1,545,459


137.00

134.50

138.75

132.00

0.00 20.00 40.00 60.00 80.00 100.00 120.00 140.00 160.00

Takeout

EV/EBITDA (SOTP)

DCF

P/E (peers basis)




63

Fig. 84: Bangkok Dusit’s forward P/E band (5yr)


Fig. 85: Bangkok Dusit’s forward EV/EBITDA band (5yr)


0

20

40

60

80

100

120

140

160

180

J u l - 0 7

J a n - 0 8

J u l - 0 8

J a n - 0 9

J u l - 0 9

J a n - 1 0

J u l - 1 0

J a n - 1 1

J u l - 1 1

J a n - 1 2

J u l - 1 2

J a n - 1 3

(THB)

16x

12x

20x

24x

28x

32x

5

7

9

11

13

15

17

19

Jul-07 Jan-08 Jul-08 Jan-09 Jul-09 Jan-10 Jul-10 Jan-11 Jul-11 Jan-12 Jul-12

EV/ EBITDA (x)





64

Key catalysts

Stronger-than-expected foreign patient load


subjected to the economic conditions of source countries, expat population growth in

Thailand, the political conditions and in more recent years, the weather conditions. We

have seen many years of no or negative growth as a result of these factors. With all

these factors still in play, we believe that investors will be better served by assumingthose factors in their base case scenario. As such, we have assumed that growth for

high-end BKK-focused hospital will come primarily from increases in patient acuity and

price hikes, with a moderate foreign patient load growth. A higher than expected foreign

patient load represents potential upside.


Higher than expected operating leverage would push earnings growth above

expectations. Better cost management, through higher productivity, will be a key swing

factor, as labour is the key constraint.

Greater operating leverage could also be achieved through higher utilisation, which could

be driven by higher than expected volume growth or a slower rate of expansion and agreater rate of asset intensification. A stronger rate of increase in patient acuity could

also lead to the same effect.

More M&A action

Bite-size acquisitions of brownfield hospitals would help bring incremental growth and

provide upside to our numbers. We think acquisitions of large scale hospital groups,

such as the Ramkhamhaeng group or the Bangkok Chain group could help the stock re-

rate further. We wouldn’t discount the possibility of an aggressive takeover of Bangkok

Dusit, in which case, a takeover premium would cause the stock to re-rate.

Staffing constraint relievedFavourable government policies that reduce the foreign doctor/nurses import

requirement would be an immediate positive in containing wage cost and relieving the

labour constraint.

Stronger than expected economic growth

Stronger than expected economic growth would see increased FDI and possibly, an

increased number of expats in Thailand – a positive for the foreign patient load.

Arguably, mid-market volumes and pricing would also grow faster on the back of

stronger income growth driven by stronger economic growth.




65

Key risks

Lower than expected international patient load

A lower than expected international patient load would have a significant impact on

earnings as this patient group is the most profitable of the lot and constitutes a significant

proportion of revenues (26% of FY11 revenues). A lower than expected international

patient load could be due to local events such as political instability and natural disasters

or due to the loss of competitiveness relative to other medical destinations.



continuity of businesses and operating performance of hospital operators has been


the frequency of such events poses a risk that an uncertain environment is more likely a

new normal rather than an aberration.

Furthermore, with each price hike, Thailand and in turn BGH, faces the risk of losing its

proposition as an affordable healthcare destination for foreign patients, with competition

coming from lower cost locations such as India. It remains to be seen if they can

successfully reposition themselves and scale the value chain to perform higher

acuity/intensity treatments. An inability to do so would be detrimental to the growth

prospects of BGH’s premium hospitals.

Substitution from the public sector

In a poorer economic climate, we could see mid-market patient shift from private

healthcare to public healthcare. Populist polices such as having a wider coverage in term

of scope and population of public healthcare schemes could also make public healthcare

more attractive as a substitute good. Better quality healthcare provision through greater

accessibility and shorter waiting time, if achievable, could pose a threat to private

healthcare providers.

All these could reduce the growth rate of mid-market private hospitals, though mitigated

by the fact that a tight supply of doctors makes it hard to increase public healthcare

coverage without a increase in cost or a decrease in quality, especially since private

sector doctors are paid multiple-folds of public sector doctors.

Staff shortage and higher wage bill

Higher income levels will drive higher private healthcare expenditure. However, higher

income levels also mean a higher wage bill for BGH. There is a risk of margin erosion if

BGH is unable to pass the cost on to consumers or offset that by other means.

The higher wage bill is also driven by a shortage of healthcare professionals. The


deploy them at the desired locations will place a constraint on BGH’s aggressive plans to

increase the scale of operations through a greater number of hospitals across

geographies.

Regulation

A key growth driver for BGH has been inorganic expansion via acquisitions. Going

forward, there is a risk that regulators may clamp down on future acquisition activities if

they deem it to be monopolistic. However, we view that risk as low. With the top 3

players occupying a mere 22%, it is hard for any regulator to argue that the market is

being unfairly controlled by a handful of players.




66

Slower economic growth, locally or globally

Slower income growth as a result of political instability, natural disasters, weaker global

macroeconomic environment, amongst other reasons, may see slower volume and

pricing growth domestically. Slower global growth may see slower growth in international

patient volumes.




67

Appendix: Operational Statistics

Fig. 86: Inpatients


Fig. 87: Outpatients


Fig. 88: Patients by Nationality


Fig. 89: Patient types


Fig. 90: International patient volume


Fig. 91: Payment types


1,367 1,3911,499

2,665

23,676

22,867

24,004

22,205

21,000

21,500

22,000

22,500

23,000

23,500

24,000

24,500

0

500

1,000

1,500

2,000

2,500

3,000


I n p a t i e n t r e v e n u e s

/ p a t i e n t d a y ( T H B )

Average Daily Census In Patient Department Revenues per patient day (baht)

9,650 9,950 10,317

20,322

2,584 2,572

2,644

2,516

2,450

2,500

2,550

2,600

2,650

2,700

0

5,000

10,000

15,000

20,000

25,000


O u t p a t i e n t r e v e n u e s / v i s t ( T H B )

Out Patient Visits per day Out Patient Department Revenues per visit (baht)

64% 64% 64%

74%

36% 36% 36%

26%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%


Local Patient (%) Internat ional Patient (%)

54% 56% 54% 54%

43%43% 45% 46%

3% 1% 1% 0%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%


I n Pat ient Out Pat ient Ot her s

352 342 346 372

1,9301,987

2,047

2,205

0

500

1,000

1,500

2,000

2,500


Average Daily Census (Int'l) Out Patient Department Visits per day (Int' l)

78% 77% 77%71%

8% 8% 8%

7%

12% 13% 14%

16%

2% 2% 2%3%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%


Self pay Cont rac t I ns ur anc e Ot hers Soc ial Sec urit y Scheme




68

Fig. 92: Q-Q revenue growth – international v local

Source: Company data, Nomura

Fig. 93: Top international patient revenues


12%

-7%

3% 3%

16%

12%

-2%

39%

-15%

-1%

-20%

-10%

0%

10%

20%

30%

40%

50%

3Q11 4Q11 1Q12 2Q12 3Q12

Growth -local patient (q-q) Growth -Int ' l patient (q-q)

As a % of revenues 4Q12 1Q12 2Q12 2Q12

Japan 3.10% 2.80% 2.70% 2.70%

UK 2.10% 2.10% 2.00% 1.80%

UAE 1.70% 1.70%

Australia 1.90% 1.60% 1.70%

USA 1.90% 1.90% 1.60%

Germany 1.60% 1.80%

France 1.60%

Myanmar 1.50%



Key company data: See page 2 for company data and detailed price/index chart.

Bumrungrad BH.BK BH TB

HEALTH CARE & PHARMACEUTICALSEQUITY RESEARCH

Like the company, not the price

Hold on to it

January 9, 2013

Rating Starts at

Neutral

arget price

Starts at THB 80.50

Closing price

January 7, 2013 THB 76.25

Potential upside +5.6%

Action: Like the company, but not the price

We initiate with a Neutral rating and implied upside of 6% to our TP. We

like the company, with its strong brand name and well-run franchise. Byfocusing on Bangkok and through expansion of its current campus, growth

will continue to be achieved through greater asset intensity.However, valuations look rich at this level. The stock is trading at the high-

end of both its 2-year & 5-year historical P/E bands. Despite the growthprofile, we struggle to justify further significant multiple expansion on thebasis of fundamentals to warrant a Buy call.

Catalyst: Higher than expected foreign patient loadForeign patient loads tend to be more volatile than domestic demand and

could surprise on the upside. Foreign patient numbers could exceed

expectations if the weather and political climate prove favourable in2013F. With foreign patients making up 50% of its patient load, the groupis heavily exposed to the international patient segment.

Valuations/RisksBumrungrad trades at a 26.7x/23.5x FY12/13F P/E and 16.4/15.2x

FY12/13F EV/EBITDA. These valuations are at the high end of its 5 yearranges of 10.1-26.8x and 7.1-16.1x, respectively. We value Bumrungrad

on 15.6x EV/EBITDA, at a 5% premium to regional peers on the basis ofhigher growth profile compared to regional peers. We cross-check ourvaluations against various methodologies.

Key risks: 1) lower than expected international patient load; 2) lower thanexpected repricing ability; 3) staff shortages and higher wage bills.

31 Dec FY11 FY12F FY13F FY14F

Currency (THB) Actual Old New Old New Old New

Revenue (mn) 11,276 12,979 14,568 16,357

Reported net profit (mn) 1,588 2,722 2,360 2,667

Normalised net profit (mn) 1,588 2,083 2,360 2,667

FD normalised EPS 2.18 2.86 3.24 3.66

FD norm. EPS growth (%) 26.2 31.1 13.3 13.0

FD normalised P/E (x) 35.0 N/A 26.7 N/A 23.5 N/A 20.8

EV/EBITDA (x) 20.4 N/A 16.4 N/A 15.2 N/A 13.2

Price/book (x) 8.2 N/A 6.4 N/A 5.8 N/A 5.0

Dividend yield (%) 1.4 N/A 2.5 N/A 2.1 N/A 2.4

ROE (%) 24.8 35.5 25.9 25.9

Net debt/equity (%) 54.9 7.8 24.6 19.6


Anchor themes

Continued growth in medicaltourism, coupled withstructurally stronger domestic

demand coming from the risingmiddle class, will underpingrowth in Thailand's healthcaresector.

Nomura vs consensus

For FY13F earnings, we are 1%below consensus.

Research analysts

Thailand Healthcare & Pharmaceuticals

Wen Jie Chan - NSL


Jit Soon Lim, CFA - NSL


See Appendix A-1 for analystcertification, importantdisclosures and the status ofnon-US analysts.



Nomura | Bumrungrad January 9, 2013

70

Key data on BumrungradIncome statement (THBmn) Year-end 31 Dec FY10 FY11 FY12F FY13F FY14F

Revenue 10,069 11,276 12,979 14,568 16,357

Cost of goods sold -5,944 -6,599 -7,560 -8,433 -9,407

Gross profit 4,125 4,678 5,419 6,135 6,950

SG&A -2,256 -2,506 -2,807 -3,120 -3,492

Employee share expense

Operating profit 1,869 2,171 2,612 3,016 3,457

EBITDA 2,465 2,819 3,319 3,803 4,349

Depreciation -596 -648 -707 -788 -891

Amortisation

EBIT 1,869 2,171 2,612 3,016 3,457

Net interest expense -68 -160 -185 -80 -139

Associates & JCEs -35 83 117 11 12

Other income

Earnings before tax 1,766 2,094 2,544 2,947 3,331

Income tax -507 -506 -461 -587 -664

Net profit after tax 1,258 1,588 2,083 2,360 2,667

Minority interests 0 0 0 0 0

Other items

Preferred dividends

Normalised NPAT 1,258 1,588 2,083 2,360 2,667

Extraordinary items 640

Reported NPAT 1,258 1,588 2,722 2,360 2,667

Dividends -657 -802 -1,361 -1,180 -1,334

Transfer to reserves 601 786 1,361 1,180 1,334

Valuation and ratio analysis

Reported P/E (x) 44.1 35.0 20.4 23.5 20.8

Normalised P/E (x) 44.1 35.0 26.7 23.5 20.8

FD normalised P/E (x) 44.1 35.0 26.7 23.5 20.8

FD normalised P/E at price target (x) 46.6 36.9 28.2 24.8 22.0

Dividend yield (%) 1.2 1.4 2.5 2.1 2.4

Price/cashflow (x) 33.7 29.6 22.6 19.0 16.5

Price/book (x) 9.2 8.2 6.4 5.8 5.0

EV/EBITDA (x) 23.2 20.4 16.4 15.2 13.2

EV/EBIT (x) 30.8 26.3 20.6 19.1 16.6

Gross margin (%) 41.0 41.5 41.8 42.1 42.5EBITDA margin (%) 24.5 25.0 25.6 26.1 26.6

EBIT margin (%) 18.6 19.3 20.1 20.7 21.1

Net margin (%) 12.5 14.1 21.0 16.2 16.3

Effective tax rate (%) 28.7 24.2 18.1 19.9 19.9

Dividend payout (%) 52.2 50.5 50.0 50.0 50.0

Capex to sales (%) 6.9 9.7 24.2 23.0 12.6

Capex to depreciation (x) 1.2 1.7 4.4 4.3 2.3

ROE (%) na 24.8 35.5 25.9 25.9

ROA (pretax %) na 21.7 23.2 23.9 23.5

Growth (%)

Revenue 12.0 15.1 12.2 12.3

EBITDA 14.4 17.8 14.6 14.3

EBIT 16.2 20.3 15.4 14.7

Normalised EPS 26.2 31.1 13.3 13.0

Normalised FDEPS 26.2 31.1 13.3 13.0

Per share

Reported EPS (THB) 1.73 2.18 3.74 3.24 3.66

Norm EPS (THB) 1.73 2.18 2.86 3.24 3.66

Fully diluted norm EPS (THB) 1.73 2.18 2.86 3.24 3.66

Book value per share (THB) 8.33 9.24 11.84 13.16 15.16

DPS (THB) 0.90 1.10 1.87 1.62 1.83


Relative performance chart (one year)

Source: ThomsonReuters, Nomura research

(%) 1M 3M 12M

Absolute (THB) 3.0 -5.3 58.9

Absolute (USD) 3.7 -5.0 65.4

Relative to index -2.9 -12.3 29.9

Market cap (USDmn) 1,824.0

Estimated free float (%)

52-week range (THB) 85.5/43.5

3-mth avg daily turnover(USDmn)

1.67

Major shareholders (%)

Bangkok Dusit 24.0

Bangkok Insurance

Source: Thomson Reuters, Nomura research

Notes

Margin expansion to drive growth




71

Cashflow (THBmn) Year-end 31 Dec FY10 FY11 FY12F FY13F FY14F

EBITDA 2,465 2,819 3,319 3,803 4,349

Change in working capital -289 -262 -18 -68 -83

Other operating cashflow -527 -678 -841 -817 -893

Cashflow from operations 1,649 1,879 2,461 2,919 3,372

Capital expenditure -694 -1,090 -3,135 -3,357 -2,064

Free cashflow 955 789 -674 -438 1,308

Reduction in investments -3,041 3,577 -11 -12

Net acquisitions 0 -2,948 0 0 0

Reduction in other LT assets 0 0 0 0

Addition in other LT liabilities 278 0 0 0

Adjustments 28 2,855 951 161 103

Cashflow after investing acts 983 -2,066 3,854 -288 1,399

Cash dividends -620 -693 -801 -1,361 -1,180

Equity issue

Debt issue -90 -1,530 0 0 0

Convertible debt issue

Others -32 4,922 -33 -33 -33

Cashflow from financial acts -742 2,700 -834 -1,394 -1,212

Net cashflow 241 633 3,020 -1,682 187

Beginning cash 387 627 1,261 4,281 2,599

Ending cash 627 1,261 4,281 2,599 2,786

Ending net debt 903 3,694 674 2,356 2,169


Balance sheet (THBmn) As at 31 Dec FY10 FY11 FY12F FY13F FY14F

Cash & equivalents 627 1,261 4,281 2,599 2,786

Marketable securities

Accounts receivable 958 1,126 1,284 1,445 1,626

Inventories 218 266 311 347 387

Other current assets 51 52 52 52 52

Total current assets 1,855 2,704 5,927 4,442 4,850

LT investments 1,212 4,253 677 688 700

Fixed assets 5,785 6,242 8,726 11,360 12,609

Goodwill

Other intangible assets 282 256 200 134 58

Other LT assets 18 17 17 17 17

Total assets 9,152 13,473 15,546 16,641 18,234

Short-term debt 100 0 0 0 0 Accounts payable 556 603 738 817 905

Other current liabilities 996 903 953 1,003 1,053

Total current liabilities 1,652 1,506 1,691 1,820 1,958

Long-term debt 1,430 4,955 4,955 4,955 4,955

Convertible debt

Other LT liabilities 0 278 278 278 278

Total liabilities 3,082 6,739 6,924 7,053 7,191

Minority interest 0 2 2 2 2

Preferred stock 2 2 2 2 2

Common stock 1,266 1,014 1,014 1,014 1,014

Retained earnings 4,528 5,115 6,811 7,777 9,232

Proposed dividends

Other equity and reserves 273 601 794 794 794

Total shareholders' equity 6,069 6,732 8,620 9,586 11,041

Total equity & liabilities 9,152 13,473 15,546 16,641 18,234

Liquidity (x)

Current ratio 1.12 1.80 3.51 2.44 2.48

Interest cover 27.4 13.6 14.1 37.8 24.9

Leverage

Net debt/EBITDA (x) 0.37 1.31 0.20 0.62 0.50

Net debt/equity (%) 14.9 54.9 7.8 24.6 19.6

Activity (days)

Days receivable 33.7 34.0 34.2 34.3

Days inventory 13.4 14.0 14.2 14.2

Days payable 32.0 32.4 33.6 33.4

Cash cycle 0.0 15.1 15.5 14.8 15.1


Notes

Cashflow will be used to fund

expansion of facilities

Notes

Strong balance sheet to help support

expansion




72

About BumrungradBumrungrad is a stand-alone hospital in Bangkok catering to the premium market. This is

a stark contrast to its competitor BGH, which runs a network of 29 hospitals across

Thailand and across different price segments.

BH’s management is focused on driving revenue intensity, rather than aggressive

capacity expansion. As such, BH’s volume growth is slower relative to BGH, though this

is compensated by higher growth in revenue intensity. BH’s adjusted FY12F EBITDA

margins (31.6%) are also one of the highest in the region and higher than BGH’s(29.6%), due to its focus on driving higher asset intensity and efficiency from its stand-

alone hospital.

BH obtains more than 50% of its revenues from foreign patients, higher than BGH’s

26%, and is the most leveraged to the flow of international patients amongst all the listed

healthcare players in Thailand.




73

Like the business …We like the company for its strong track record. BH has demonstrated the ability to

consistently grow both volumes and revenue intensity in the inpatient segment. Its strong

re-pricing power is also evident in the outpatient segment, though volumes suffered in

FY09/10 due to a poor economic climate and political instability in Thailand.

We also like the group for its strong brand name which help attracts patients from over

100 countries. The group has consistently been able to grow international patient

revenues across the years. The top 5 countries make up 29% of all its international

patient revenues, with a significant 20% coming from the Middle East.

Fig. 94: Inpatients

Increasing revenue/admissions shows increasing acuity



Growth in revenue/visit a significant driver


Fig. 96: Revenue and volume by nationality

International patient contribution increasing in volumes and revenues



Middle East patients almost 20% of international patient revenues


80 78 78 80

317 310

335350

156,487

171,587

188,203

206,353

0

50,000

100,000

150,000

200,000

250,000

0

50

100

150

200

250

300

350

400

FY08 FY09 FY10 FY11

R e v e n u e / a d m i s s i o n ( T H B )

Tot al Adm iss ions per day Av erage D ail y C ens us R ev enue per adm is si on

2,707

2,677 2,680

2,801

4,794

5,1745,440

5,992

0

1,000

2,000

3,000

4,000

5,000

6,000

7,000

2,600

2,620

2,640

2,660

2,680

2,700

2,720

2,740

2,760

2,780

2,800

2,820

FY08 FY09 FY10 FY11

R e v e n u e / v i s i t ( T H B )

Tot al V is it s per day R ev enue per vis it

45.0% 45.0% 43.5% 41.0%

55.0% 55.0% 56.5% 59.0%

59.00% 60.00%57.75%

56.00%

41.00% 40.00%42.25%

44.00%

0.00%

10.00%

20.00%

30.00%

40.00%

50.00%

60.00%

70.00%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

FY08 FY09 FY10 FY11

Local (of revenue) I nt ernational (of revenue)

Loc al (of v olume) - R HS I nt er nat ional (of volum e) - R HS

As % of Revenues 9M11 FY11 1Q12 1H12 9M12

UAE 12% 11% 8% 9% 9%

US 5% 5% 6% 6% 5%

Myanmar 5% 5% 5% 5% 6%

Oman 4% 4% 5 % 5% 5%

Kuwait 4% 4% 4%

Bangladesh 3% 3%




74

…But not the priceHowever, valuations are looking rich at this level. Bumrungrad trades at 26.7x/23.5x

FY12/13F P/Es and 16.4/15.2x FY12/13F EV/EBITDA. These valuations are at the high

end of its 5-year ranges of 10.1-26.8x and 7.1-16.1x, respectively.

Despite already applying an EV/EBITDA multiple that is higher relative to both peers and

historical experience, we struggle to justify further significant multiple expansion on the

basis of fundamentals to warrant a Buy rating.

We value BGH on a 15.6x FY13F EV/EBTIDA multiple, which is premised on a 5%discount to BGH. Even though BH has historically traded at a premium to BGH on both a

P/E and EV/EBITDA basis, this premium has narrowed and turned into a discount over

the past 2 years. We think this trend will continue as BGH continues to maintain strategic

control and gain market share in Thailand. As such, we have applied a 5% discount to

BGH which we think is appropriate and in line with recent experience.

This EV/EBITDA multiple represents a 5% premium to regional peers, which is

consistent with our view that it has a stronger growth profile than regional peers. BH is

growing at a PAT CAGR of 18.9% across FY12F – FY14F, while the average growth rate

for regional peers is 15.7%.

As a sensitivity analysis, if the discount is removed, our TP would increase 4.3% to

THB84.0. If a premium of 5% is applied, our TP would further increase to THB88.25.

Fig. 98: EV/EBITDA Valuations


Fig. 99: Valuation range


Comments


Target EV (THB'mn) 59,334 FY13

Less Debt, Add Cash (674)

Target valuation 58,660

# of shares ('000) 728,337


93.75

80.50

88.00

83.75

0.00 10.00 20.00 30.00 40.00 50.00 60.00 70. 00 80.00 90.00 100.00

Takeout

EV/EBITDA (peer basis)

DCF

P/E (peers basis )




75

Fig. 100: Bumrungrad’s forward P/E band (5yr)


Fig. 101: Bumrungrad forward EV/EBITDA band (5yr)


Fig. 102: BH’s P/E premium/discount to BGH


Fig. 103: BH’s EV/EBITDA premium/discount to BGH


0

10

20

30

40

50

60

70

80

90

100

J u l - 0 7

J a n - 0 8

J u l - 0 8

J a n - 0 9

J u l - 0 9

J a n - 1 0

J u l - 1 0

J a n - 1 1

J u l - 1 1

J a n - 1 2

J u l - 1 2

J a n - 1 3

(THB)

15x

12x

18x

21x

24x

27x

5

7

9

11

13

15

17

19

21

23

25

J a n - 0 6

A p r - 0 6

J u l - 0 6

O c t - 0 6

J a n - 0 7

A p r - 0 7

J u l - 0 7

O c t - 0 7

J a n - 0 8

A p r - 0 8

J u l - 0 8

O c t - 0 8

J a n - 0 9

A p r - 0 9

J u l - 0 9

O c t - 0 9

J a n - 1 0

A p r - 1 0

J u l - 1 0

O c t - 1 0

J a n - 1 1

A p r - 1 1

J u l - 1 1

O c t - 1 1

J a n - 1 2

A p r - 1 2

J u l - 1 2

O c t - 1 2

EV/ EBITDA (x)


-80%

-70%

-60%

-50%

-40%

-30%

-20%

-10%

0%

10%

20%

30%

40%

50%

60%

3-Jan-06 3-Jan-07 3-Jan-08 3-Jan-09 3-Jan-10 3-Jan-11 3-Jan-12

-20%

-10%

0%

10%

20%

30%

40%

50%

60%

70%

80%

J a n - 0 6

A p r - 0 6

J u l - 0 6

O c t - 0 6

J a n - 0 7

A p r - 0 7

J u l - 0 7

O c t - 0 7

J a n - 0 8

A p r - 0 8

J u l - 0 8

O c t - 0 8

J a n - 0 9

A p r - 0 9

J u l - 0 9

O c t - 0 9

J a n - 1 0

A p r - 1 0

J u l - 1 0

O c t - 1 0

J a n - 1 1

A p r - 1 1

J u l - 1 1

O c t - 1 1

J a n - 1 2

A p r - 1 2

J u l - 1 2

O c t - 1 2




76

Fortifying in BangkokBumrungrad’s strategy juxtaposes that of Bangkok Dusit’s, as it fortifies its position within

Bangkok where they think they have an advantage due to their existing client base. The

primary strategy is to drive greater asset intensity of current assets and to leverage the

existing client base in the main campus for further expansion. We expect management to

further segment the premium market, with the main campus serving the highest acuity

patients and its other facilities serving slightly lower acuity patients within the premium

segment.

Expanding capacity

The company has recently purchased 2 plots of land – on Petchburi Road and on

Sukhumvit Soi 1 – around its existing campus to provide the space to expand i ts

operations beyond the current facilities, at which they estimate to run out of space by

2017F.

Campus extension

Sukhumvit Soi 1 is just next to the existing campus (on Sumkhumvit Soi 3) and is a

natural extension of its existing campus. The general thrust, as we understand, is to

relieve the constraints seen in specific segments such as checkup and rehab. The

extension will probably see these segments moved to the new extension and free up

space for more beds and higher acuity care in the main campus.

2nd

campus

The women’s and children practice in the current campus will be spun out into the new

campus to be built on Petchburi Road. This will free up space in the current campus for

higher acuity treatments, while providing a baseload for the new campus.

The new campus may potentially have a slightly different positioning from the existing

one, with a focus on lower acuity treatments and a slightly less premium proposition to

appeal to a different segment, in our view. The company is currently doing a study which

we expect to be completed mid-2013.

Acquisitions

The group has expressed interest in moving into a less premium offering, in the segment

which Samitvej and BNH operates. Location wise, we think Bangkok remains thepreferred location, with established tourism centres such as Pattaya and Phuket being a

possibility too.

The preferred approach for execution will be via acquisition of an existing franchise as a

greenfield project will take too long to construct and ramp up, particularly since it will not

be able to leverage off BH’s existing client base to reduce the ramp up period.




77

Fig. 104: Bumrungrad expansion plans


Fig. 105: Market positioning


Current Details Activity

Bumrungrad International ClinicOnly OPD, 22F - 12F opened + 5F opening + 5F

carpark; 212 clinics currently5F opening (4F for clinics): +80 clinics, by 2013

Moved some accounts dept on 4th F to make room for 44 ICU

beds - 8 in FY12, 36 over FY13/14

To move executive area/conference room on 12th F to make

room for 61 ward beds. Earliest by mid-2013

New

Bumrungrad International - 2nd

Campus

8,000 sqm of land on Petchburi Road

To construct a 150 - 200 bed hospital, with

women's & children centre as cornerstone

To be constructed (12mth study; 2.5 - 3yr construction);

Est completion: late 2016; est cost: 3.9bn over 4 yrs

Eqpt purchase (6mth before opening)

Campus expansion

6,178 sqm of land on Sukhumvit Soi 1,

25 - 50m from BH Residences & existing campus

To be constructed (18 - 24mth construction)

Est construction start: early 2013

Est completion: late 2014/early 2015

Bumrungrad International Hospital IPD focused - 12F

Expansion Capex FY12F FY13F FY14F FY15F FY16F FY17F

Capex ('mn THB) 2,585 2,807 1,514 487 2,239 114




78

Continued growth in international patientrevenuesWe expect international patients to continue visiting Thailand for treatment and

Bumrungrad, being the premier treatment destination in Thailand with >50% of revenues

coming from foreign patients, will be the key beneficiary of this growth trend.

Pricing still attractive relative to other medical touristlocations

We believe that medical tourists will continue to patronize Bumrungrad, and Thai

hospitals in general, because it remains affordable on a relative basis even as they get

increasingly more expensive on an absolute basis. We believe there is room to continue

raising prices in line with other markets such as Singapore without compromising on the

relative affordability of Thai hospitals.

Thai hospitals are priced at 20-30% discounts to Singapore across major procedures,

based on data from Patients Beyond Borders. A comparison of Bumrungrad’s

revenue/patient day with IHH’s Singapore hospitals demonstrates a similar price

differential.

Thai hospitals are priced in line with Malaysian hospitals for major procedures, based on

the same data set from Patients Beyond Borders. A comparison of Bumrungrad’s

revenues/patient day with IHH’s Malaysian hospital indicates a significantly higher

premium for Thai hospitals but this might be due to hospital specific factors such as

patient mix and treatment mix.

Fig. 106: Major Procedures: Comparative Costs (as of Aug 2011)


Fig. 107: Comparison across hospitals in the region

Thai hospitals are at a significant discount to Singapore

Source: Company data, Nomura research; N.B. 2010 is the best year for comparison across hospitals as BGH’s 2011number is distorted by acquisitions of mid-market hospitals; BH is the best comparison with SG hospitals as it is a stand-alone hospitals operating at the top end of the premium market


South


Thai Premium/

(Discount) to SG

Thai Premium/

(Discount) to

Malaysia


graft - CABG$ 88,000 $ 31,500 $ 9,500 $ 20,800 $ 27,500 $ 32,000 $ 35,000 $ 21,000 $ 23,000 $ 20,500 -28% 11%


bypass$ 85,000 $ 29,000 $ 8,500 $ 18,500 $ 23,500 $ 29,500 $ 33,000 $ 18,000 $ 22,000 $ 20,000 -25% 19%

Hip replacement $ 33,000 $ 14,000 $ 8,000 $ 12,500 $ 12,500 $ 17,000 $ 15,500 $ 10,500 $ 13,000 $ 11,800 -24% 4%


Spinal fusion $ 41,000 $ 17,000 $ 9,500 $ 17,900 $ 16,200 $ 20,500 $ 22,000 $ 18,000 $ 16,000 $ 16,500 -22% -11%

IVF cycle $ 15,000 $ 4,400 $ 3,300 $ 7,200 $ 4,600 $ 9,500 $ 7,500 $ 4,800 $ 6,500 $ 9,500 -32% -10%

Gastric bypass $ 25,000 $ 11,200 $ 6,800 $ 8,200 $ 10,800 $ 14,000 $ 12,500 $ 13,000 $ 12,000 $ 13,000 -14% 46%

Faceli ft $ 14,500 $ 4 ,800 $ 3 ,500 $ 4 ,900 $ 5 ,400 $ 6 ,200 $ 5 ,900 $ 5 ,600 $ 4 ,700 $ 4 ,800 -24% -4%

Rhinoplasty $ 8 ,500 $ 3 ,400 $ 2 ,800 $ 3 ,600 $ 3 ,500 $ 4 ,800 $ 4 ,700 $ 3 ,500 $ 3 ,700 $ 3 ,300 -23% 3%

Rev ppd, S$ 2009 2010 2011

Parkway - SG 1,962 2,091 2,275

Parkway - M'sia 497 555 558BGH - Thailand 1,009 997 806

BH - Thailand 1,663 1,738 1,776

Discount to SG

Parkway - M'sia -75% -73% -75%

BGH - Thailand -49% -52% -65%

BH - Thailand -15% -17% -22%

M'sia discount to.. 2009 2010 2011

BGH - Thailand -51% -44% -31%

BH - Thailand -70% -68% -69%




79

Ability to scale the value chain will allow more revenue perpatient

Over the past 10 years, the Thai healthcare landscape has changed as the leading

hospitals have progressed to offer higher acuity treatments such as cancer and cardiac-

related treatments. We expect this trend to persist and allow Thai hospitals to continue

growing revenues by extracting more revenues per patient. Specifically, we expect BH to

continue to scale the value chain by building more depth and breadth in its offering of

high acuity treatments.

The scale in which Thai hospitals are moving into higher acuity treatments cannot be

understated – the scale of their operations is multiple-folds that of Singapore. To put

things in perspective, Bumrungrad’s Heart Centre alone has more doctors than all IHH’s

Singapore hospitals combined (68 v.s. 51 cardiology specialists).

Surrounding source markets for medical tourists sizeable andcontinues to grow


prospects as source countries for medical tourists. To put things in perspective,

Myanmar is already one of the top 5 contributors of foreign patient revenues for BH.

Economic growth in these markets is increasing demand for healthcare, which whencoupled with an inadequate domestic healthcare system, pushes people to seek

treatment in medical destinations such as Thailand. Together, their population size

exceeds 300mn, larger than Indonesia, the 4th most populous country in the world.

The Middle East market will continue to be a key contributor as Middle Eastern travelers

continue to seek healthcare beyond their borders, funded by the public coffers and

income supported by high oil prices. We have not factored Indonesia as a key source

market for Thailand as we expect Indonesia to continue being the key source markets for

Malaysia and Singapore due to proximity and familiarity.

Fig. 108: Source countries

Source: CEIC, World Bank, UN,

*Growth rate based on 2010


International patients also include the expat population in Thailand and the surrounding

countries. Although we don’t have hard data to quantify the growth rate, continued

foreign direct investment into the market should lead to a growing expat population in the

region.

Potential to surprise on the upside but a double-edged sword

Due to the volatility in international patient flows, there is potential for the numbers to


case can be made on the downside. BH, which derives more than 50% of its revenues

from international patients, is most leveraged to the flow of international patients.

Country Population GDP per capita 2011 grwth rate

Bangladesh* 150.5 735 6.66

Cambodia 14.3 900 6.93

Lao PDR 6.3 1320 8.04

Myanmar 48.3 380 N.A

Vietnam 87.8 1411 5.89

Total/Average 307.2 949 6.88

Indonesia 242.3 3495 6.46




80

Key Earning DriversWe expect growth to sustain in the mid-teens across the forecast period, on the base

case of continued growth in international patients against the backdrop of a stable

political and weather climate. FY13F net profit growth rate drops sharply from FY12F as

FY12F was boosted by associate income from Bangkok Chain, which they sold in

FY12F. FY15F net profit growth rates will come in stronger y-y for Bumrungrad due to

the contribution from its campus extension on Sukhumvit Soi 1.

Our forecasts are at risk, both on the up and downside, if international patient volumes,

which have seen huge annual variations historically, deviate significantly from our

expectations. Our estimates are most sensitive to changes in cost assumptions.

Fig. 109: Key forecast numbers


PnL (adjusted for gains on sale of associate) FY09 FY10 FY11 FY12F FY13F FY14F FY15F

Revenue ‐ hospital ops 9,068.93 9,805.68 11,014.83 12,663.41 14,252.47 16,040.99 18,054.03

Revenue - group 9, 337 .8 6 10,06 8.96 11 ,3 06. 10 1 3,0 23.35 1 4,718 .1 2 16, 44 7. 76 18 ,4 67.34

COGS 5,553 .19 5,943.55 6,598.75 7,559 .99 8,433.05 9,406.97 10,493.41

Gross profit - hospital ops 3,515.74 3,862.14 4,416.08 5,103.42 5,819.42 6,634.02 7,560.62

Gross profit - group 3,784.66 4,125.41 4,707.35 5,463.36 6,285.07 7,040.79 7,973.93

Profit from operations 1,733.74 1,868.96 2,200.92 2,656.34 3,165.33 3,548.31 4,061.67

EBITDA 2,271.39 2,464.80 2,818.90 3,319.48 3,803.49 4,348.80 4,974.99

Finance expense (net) ‐

89.32 ‐

68.20 ‐

159.59 ‐

185.44 ‐

79.73 ‐

138.60 ‐

132.06

PBT 1,690.05 1,765.83 2,094.18 2,543.78 2,946.77 3,330.85 3,845.42

PAT 1,245.65 1,258.49 1,588.03 2,082.69 2,359.62 2,667.10 3,079.00

PAT attributable to shareholders 1,245.65 1,258.49 1,588.03 2,082.69 2,359.62 2,667.10 3,079.00

EPS 1.71 1.73 2.18 2.86 3.24 3.66 4.23

% growth

Revenue ‐ hospital ops 5.1% 8.1% 12.3% 15.0% 12.5% 12.5% 12.5%

Revenue ‐ group 5.1% 7.8% 12.3% 15.2% 13.0% 11.8% 12.3%

COGS ‐ group 4.3% 7.0% 11.0% 14.6% 11.5% 11.5% 11.5%

Gross profit ‐ hospital ops 6.4% 9.9% 14.3% 15.6% 14.0% 14.0% 14.0%

Gross profit ‐ group 6.4% 9.0% 14.1% 16.1% 15.0% 12.0% 13.3%

Profit from operations 1.9% 7.8% 17.8% 20.7% 19.2% 12.1% 14.5%

EBITDA 5.4% 8.5% 14.4% 17.8% 14.6% 14.3% 14.4%

Finance expense

‐17.4%

‐23.6% 134.0% 16.2%

‐57.0% 73.8%

‐4.7%

PBT 3.6% 4.5% 18.6% 21.5% 15.8% 13.0% 15.4%

PAT 4.6% 1.0% 26.2% 31.1% 13.3% 13.0% 15.4%

PAT attributable to shareholders 4.6% 1.0% 26.2% 31.1% 13.3% 13.0% 15.4%

EPS 4.3% 1.2% 25.9% 31.2% 13.3% 13.0% 15.4%

Margins

Gross profit margins ‐ hospital ops 38.8% 39.4% 40.1% 40.3% 40.8% 41.4% 41.9%

Gross profit margins ‐ group 40.5% 41.0% 41.6% 42.0% 42.7% 42.8% 43.2%

Operating profit margins 19.1% 19.1% 20.0% 21.0% 22.2% 22.1% 22.5%

Operating profit margins (on group) 18.6% 18.6% 19.5% 20.4% 21.5% 21.6% 22.0%

EBITDA margins 25.0% 25.1% 25.6% 26.2% 26.7% 27.1% 27.6%

EBITDA margins (on group) 24.3% 24.5% 24.9% 25.5% 25.8% 26.4% 26.9%

PBT margins 18.6% 18.0% 19.0% 20.1% 20.7% 20.8% 21.3%

PBT

margins

(on

group) 18.1% 17.5% 18.5% 19.5% 20.0% 20.3% 20.8%PAT margins 13.7% 12.8% 14.4% 16.4% 16.6% 16.6% 17.1%

PAT margins (on group) 13.3% 12.5% 14.0% 16.0% 16.0% 16.2% 16.7%

PAT attributable to shareholders margins 13.7% 12.8% 14.4% 16.4% 16.6% 16.6% 17.1%

PAT attributable to shareholders margins (on group) 13.3% 12.5% 14.0% 16.0% 16.0% 16.2% 16.7%




81



Revenue drivers

The key revenue drivers for Bumrungrad will be higher patient acuity (higher

revenue/admission), driven by increasing specialization and longer average length ofstay. Bumrungrad should continue to see decent volume growth as it expands capacity

in its main campus, though it may be constrained by tight capacity in certain segments

(e.g. checkups, rehab).

General price increases should be in l ine with the industry average of 3-4%.

Performance across segments

We expect both the inpatient and outpatient segments to demonstrate volume growth,

with higher volume growth in the outpatient segment, as per historical experience.

Capacity limitations are an issue, though the addition of new outpatient facilities and

beds over the next few years should help alleviate some of the pressure – a 37%

increase in examination rooms (80) and 20% increase in beds (44 ICU + 61 ward).Nonetheless, we might continue to see some bottlenecks in certain segments –

checkups, rehab – as flagged by management.

We expect any volume growth constraints to be compensated via higher pricing which

would help balance demand with supply. As demand in the premium market is relatively

price inelastic, this might be a positive. We expect revenue/admission to grow at 9.5%

p.a. in the inpatient segment driven by higher acuity and longer average length of stay.

Outpatient revenue/visit is forecasted to grow at 8% p.a. in our base case, which is in

line with historical experience. Our basis is largely premised on the performance in FY11

and FY12 under a stable operating environment and assuming that such a benign

environment persists going forward.

Costs and Margins

On the cost front, BH will experience wage cost pressures but should still see expanding

margins. We expect Bumrungrad’s EBITDA margins to expand due to higher operating

intensity and greater increase in patient acuity, though offset by start-up costs arising

from its 2nd campus on Soi 1 which is slated to start operations in 2015F.

Sensitivity Analysis

Our estimates are most sensitive to changes in cost assumptions. The opening of new

clinics and more beds within the main campus will help to extract more revenues from

the existing fixed assets such as operating theatres, with limited increase in fixed costs.

The leverage effect arising from that could surprise on the upside.

FY12F FY13F FY14F FY15F

% growth (y-y)

Total Visits per day 5.0% 4.0% 4.0% 4.0%

Total Admissions per day 3.5% 3.0% 3.0% 3.0%

Average Daily Census 8.0% 5.5% 5.5% 5.5%

% growth (y-y)

Revenue per visit 10.5% 8.0% 8.0% 8.0%

Revenue per admission 10.0% 9.5% 9.5% 9.5%

Revenue per patient day 3.5% 6.9% 6.9% 6.9%

Hospital cost 14.6% 11.5% 11.5% 11.5%

Admin cost 14.6% 11.5% 11.5% 11.5%




82

Fig. 111: Sensitivity analysis


Impact on FY13 Earnings +1% -1%

Total Visit per day 0.6% -0.6%

Average Daily Census 0.5% -0.5%

Revenue per visit 0.5% -0.5%

Revenue per patient day 0.5% -0.5%

Hospital cost -2.6% 2.6%

Admin cost -0.7% 0.7%




83

Key catalysts

Stronger than expected foreign patient load


subjected to the economic conditions of source countries, expat population growth in

Thailand, the political conditions and in more recent years, the weather conditions. We

have seen many years of no or negative growth as a result of these factors. With all

these factors still in play, we believe that investors will be better served by assumingthose factors in their base case scenario. As such, we have assumed that growth for

BGH will come primarily from increase in patient acuity and price hikes, with a moderate

foreign patient load growth. A higher than expected foreign patient load represents

potential upside.


Higher than expected operating leverage due to higher utilisation, faster increases in

patient acuity and better cost management will be an upside to our numbers. More

specifically, the opening of new clinics and more beds within the main campus will help

to extract more revenues from the existing fixed assets such as operating theatres, with

limited amount increase in fixed cost. The leverage effect arising from that could surprise

on the upside.

M&A action

If management succeeds in acquiring a brownfield hospital, this could potentially super-

charge earnings growth in the immediate period, especially since management has a

strong track record in managing hospitals.




84

Key risks

Lower than expected international patient load

A lower than expected international patient load would have a significant impact on

earnings as this patient group is the most profitable of the lot and constitutes a major

proportion of revenues (59% of FY11 revenues). A lower than expected international

patient load could be due to local events such as political instability and natural disasters

or due to the loss of competitiveness relative to other medical destinations.



continuity of businesses and operating performance of hospital operators have been


the frequency of such events poses a risk that an uncertain environment is more likely a

new normal rather than an aberration.

Lower than expected re-pricing ability

Furthermore, with each price hike, Thailand and in turn BH, faces the risk of losing its

proposition as an affordable healthcare destination for foreign patients, with competition

coming from lower cost locations such as India. It remains to be seen if they cansuccessfully reposition themselves and scale the value chain to perform higher

acuity/intensity treatments. It also remains to be seen if they can continue to increase

prices year after year. An inabili ty to do so would be detrimental to the growth prospects

of BH.

Staff shortages and higher wage bills

There is a shortage of healthcare professionals and this drives up staff costs. The


deploy them at the desired locations will place a constraint on BH’s growth plans.




85

Operational Statistics

Fig. 112: Inpatients

Increasing revenue/admissions shows increasing acuity



Growth in revenue/visit a significant driver


Fig. 114: Revenue and volume by nationality

International patient contribution increasing in volumes and revenues


Fig. 115: Revenue by patient types

Stable 50/50 mix



Middle East patients almost 20% of international patient revenues


Fig. 117: Revenue by payment types


80 78 78 80

317 310

335350

156,487

171,587

188,203

206,353

0

50,000

100,000

150,000

200,000

250,000

0

50

100

150

200

250

300

350

400

FY08 FY09 FY10 FY11

R e v e n u e / a d m i s s i o n ( T H B )

Tot al Adm is sions per day Average D aily C ens us R ev enue per adm iss ion

2,707

2,677 2,680

2,801

4,794

5,1745,440

5,992

0

1,000

2,000

3,000

4,000

5,000

6,000

7,000

2,600

2,620

2,640

2,660

2,680

2,700

2,720

2,740

2,760

2,780

2,800

2,820

FY08 FY09 FY10 FY11

R e v e n u e / v i s i t ( T

H B )

Tot al V is it s per day R ev enue per visi t

45.0% 45.0% 43.5% 41.0%

55.0% 55.0% 56.5% 59.0%

59.00% 60.00%57.75%

56.00%

41.00% 40.00%42.25%

44.00%

0.00%

10.00%

20.00%

30.00%

40.00%

50.00%

60.00%

70.00%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

FY08 FY09 FY10 FY11

Local (of revenue) I nt ernational (of revenue)

Loc al (of v olume) - R HS I nt er nat ional (of volum e) - R HS

49.0% 49.0% 50.4% 50.0%

51.0% 51.0% 49.6% 50.0%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

FY08 FY09 FY10 FY11

Inpatient % of Revenue Outpatient % of Revenue

As % of Revenues 9M11 FY11 1Q12 1H12 9M12

UAE 12% 11% 8% 9% 9%

US 5% 5% 6% 6% 5%

Myanmar 5% 5% 5% 5% 6%

Oman 4% 4% 5% 5% 5%

Kuwait 4% 4% 4%

Bangladesh 3% 3%

72.5% 71.5% 71.5% 70.5%

12.3% 12.8% 13.0% 13.0%

15.3% 15.8% 15.5% 16.5%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

FY08 FY09 FY10 FY11

Sel f pa y I ns ura nc e Corp ora te c ont ra ct s




86

Appendix A-1

Analyst Certification

We, Wen Jie Chan and Jit Soon Lim, hereby certify (1) that the views expressed in this Research report accurately reflect our

personal views about any or all of the subject securities or issuers referred to in this Research report, (2) no part of our

compensation was, is or will be directly or indirectly related to the specific recommendations or views expressed in this

Research report and (3) no part of our compensation is tied to any specific investment banking transactions performed by

Nomura Securities International, Inc., Nomura International plc or any other Nomura Group company.

Issuer Specific Regulatory Disclosures

The term "Nomura Group" used herein refers to Nomura Holdings, Inc. or any of its affiliates or subsidiaries, and may refer to one or more

Nomura Group companies.

Materially mentioned issuers

Issuer Ticker Price Price date Stock rating Sector rating Disclosures

Bangkok Dusit BGH TB THB 114.00 07-Jan-2013 Buy Not rated

Bumrungrad BH TB THB 76.25 07-Jan-2013 Neutral Not rated

Bangkok Dusit (BGH TB) THB 114.00 (07-Jan-2013) Buy (Sector rating: Not rated)

Chart Not Available

Valuation Methodology We have applied a 16.3x EV/EBTIDA multiple to FY13F EBITDA, a 10% premium to peers’ averageforward EV/EBITDA, on the basis of a higher growth profile than regional peers.

Risks that may impede the achievement of the target price Key risks: 1) lower than expected international patient load; 2)substitution from public sector; 3) staff shortages and higher wage bills, 4) regulations; 5) slower economic growth leading tolower patient load growth.

Bumrungrad (BH TB) THB 76.25 (07-Jan-2013) Neutral (Sector rating: Not rated)

Chart Not Available

Valuation Methodology We apply a 15.6x EV/EBITDA to FY13F EBITDA, a 5% premium to regional peers, on the basis of ahigher growth profile for Bumrungrad, and a 5% discount to BGH, the market leader.

Risks that may impede the achievement of the target price Key risks: 1) lower than expected international patient load; 2)lower than expected repricing ability; 3) staff shortages and higher wage bills.

Rating and target price changes

Issuer Ticker Old stock rating New stock rating Old target price New target price

Bangkok Dusit BGH TB Not rated Buy N/A THB 134.50

Bumrungrad BH TB Not rated Neutral N/A THB 80.50




87

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Thai healthcare initiation report

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