Most importantly, their knowledge and advice provided to me throughout the course of my studies was extremely important to the completion of this thematic paper. This feature paper intends to evaluate the share price of Bangkok Chain Hospital Public Company Limited (BCH) based on the relative valuation method, which represents the concept of comparing the value of a company with that of its competitors or similar companies in the industry to estimate the financial value of the company.
CAGR Compound Annual Growth Rate CAPM Capital Value Pricing Model CAPEX Capital Expenditure COGS Cost of Goods Sold DCF Discounted Cash Flow D/E Debt/Equity.
VALUATION
Highlight of BCH valuation
- Solid Performance from growth strategies
- Growth from performance of WMC
- Secured recurring income from social security scheme
- Macro environment favors to BCH
The performance of WMC would increase over the years from BCH's strategies to attract the new potential patients. Therefore, BCH's overall performance will increase from the higher capacity to expand new hospitals in strategic location.
Business Description
- Business
- Revenue
- Services and brands
- Management and Administration
- Strategies
- Corporate Governance
The company's main income comes from several types of customer and general income from the Social Security Scheme and the Universal Coverage Scheme. Cash-based patients or walk-ins are the company's main revenue stream, which is slightly down in 2017.
Macro-Economic Analysis
- Private hospital in nutshell
- Health expenditures is lower than other countries
- Income and health expenditure
- Aging population
The healthcare expenditure to GDP in Thailand is 3.8% (both the government expenditure and the private expenditure). The number showed that Thailand's spending on this section is below average (World 6.3%). The higher spending on health care expenses, the increase in number of beds and capacity of the hospital.
Population aging, driven by rising life expectancy and declining fertility rates, is a powerful and transformative demographic force. For Thailand, the total fertility rate fell from over 6 births per woman in the 1960s to below 2 in the mid-1990s. The slowdown means the country's pool of young workers will shrink in the medium term.
The lower middle class is expected to remain the most prevalent in the country. In general, the large size of the lower-middle and lower-class social classes in Thailand represents a large market for necessities. Due to an aging population, the proportion of individuals over 65 years of age will increase significantly in the lower middle class, creating demand for affordable healthcare products and services. Aging also presents challenges such as a shrinking workforce, reduced savings leading to lower investment and growth, and increasing government spending on health care and pensions.
Industry Analysis
- Asia healthcare medical hub
- Digital Innovation integrated in healthcare
- Health awareness
- Medical tourism
An excellent medical foundation that includes world-class medical facilities such as highly accredited doctors and the use of sophisticated technology and equipment. Thai medical services are well known, resulting in rapid growth in supporting industries such as pharmaceuticals, laboratory testing and clinical R&D. Data from the National Electronics and Computer Technology Center (NECTEC) and the National Broadcasting and Telecommunications Commission (NBTC) indicate that the use of ICT is increasing.
The provider can collect information from the apps to improve hospital workflow management, coordinate with suppliers and reduce their operating costs. By 2030, Thai people will be 65+ years old, approximately 19.4% of the total population, as mentioned above. Thailand is one of the main targets for medical tourism, capable of medically personal, convenient infrastructure and facilities.
The number of medical tourists coming to Thailand has increased steadily since the early 2000s. This has made the country take its place at the top of the global medical tourism market. The main reasons that have enabled Thailand to dominate this growing market are: the low cost of medical treatment than their country, the quality of treatment provided by private medical centers and the highly developed tourism industry from the rich culture and friendly personality to Foreigners.
Competition Analysis
BH focuses on high-end and international patients which is suitable to compare with WMC of BCH group, but the size of BH is higher than WMC. RAM, Ramkhamhaeng Hospital, operates a private hospital business providing medical services that focus on middle-income patients and social security patients. CHG, Chularat Hospital Public Company Limited, operates a private hospital business which provides services to 2 main types of clients, general patients and social welfare patients.
The main factors that increased the company's revenues were the number of general patients, the higher average income per case, the increasing number of people with a social security account and an increasing number of people with a social security account and reimbursement for medical services deducted from the social security account received. THG, Thonburi Healthcare group, operates a private hospital business by offering three major segments: medical services, healthcare solutions provider and other businesses targeting middle-income patients, high-end patients and social security patients. The BCH brand overview is just one brand targeting social security patients to high-end and international patients as low-medium-high customer group.
BCH also gains advantage over their competitors because BCH Group's hospitals have referred patients from more than 40 affiliated hospitals that are the main contractor of the Social Security Office and National Security Office with an exclusive rate. WMC is the premium hospital like BH with quite similar service rate focusing on high level to international patients. While BCH as a private hospital is charged at a lower price than average by 50% which is competitive price in the local and international market.
Financial Statement Analysis
- Trend Analysis
- Financial Ratio: Return
- Financial Ratio: Risk
- Forecast financial ratio 2018-2022
However, BCH's EBIT is higher than the VIBHA resulting from higher BCH sales. BCH's interest-bearing debt stands at 5,345 MB, which is higher than VIBHA as 3,523 MB demonstrates BCH's ability to maintain lower debt levels than their competitor. BCH's tax costs are higher than VIBHA's because they generate more profit than VIBHA's.
BCH has higher current assets so it is better than VIBHA due to higher liquidity. BCH is better than VIBHA due to high liquidity, although BCH generated slightly lower interest income than VIBHA around 50 MB in 2017. Comparing the cash flow statement, cash flow from operations of BCH was presented as 1,814 MB in 2017, which was higher than VIBHA as 1,376 MB mainly coming from high net profit.
FATO of BCH as 0.96 is slightly lower than VIBHA as 1.05 because BCH has larger PPE than VIBHA. In terms of solvency risk, BCH's DE ratio and DTA ratio are higher than VIBHA's due to the high debt burden in 2017 for investments in 5 new projects. However, BCH has an ICR of 11.2, which is greater than VIBHA as 9.22, showing that they are better able to repay their interest charges.
Investment Summary
- Profit will hit new high record in 2019
- Rising of World Medical Center (WMC) performance
- Open Kasemrad hospital Ramkhamhaeng in Q4 2018 and three greenfield hospitals over the next three years
As for debt ratios, they were expected to decrease over the years due to the lower level of interest-bearing debt. With higher performance, BCH can generate more cash from operating activities to repay debt and interest expenses. Foreign patients have significant influence as the hospital charges higher price than Thai patients.
WMC generates higher margins than mid-range and low-cost hospitals as it focuses more on foreign patients after the recent construction of specialized clinics. Kasemrad Ramkhamheang Hospital (139 IPD beds) is used to transfer patients from Karunvej Sukhapiban 3 (100 beds, end of 2018). The transition was smooth, the result in Kasemrad Hospital. Ramkhamheang can immediately perceive the revenue.
These offer the opportunity to receive new patients from the OPD and IPD as well as social security patients. In addition, the social security system of patients can increase from 2 new hospitals, about 70 thousand people are expected.
Valuation
- Pro Forma analysis
- Relative valuation
Apply the number of visits per day and bed days to identify the company's capacity after calculating the utilization rate of OPD and IPD respectively. Therefore, assume that the WMC utilization rate will be close to BH in the same period. The amount of IPD comes from the rate of utilization with new capacity growing by the historical CAGR.
BCH's valuation is determined based on the relative valuation method using five multiples: trailing P/E, forward P/E, P/BV, trailing EV/EBITDA and forward EV/EBITDA. After the comparison made, the Forward EV/EBITDA is chosen as the multiple for the calculation of the target price of BCH because the natural business of the hospital always has to invest in a large amount of equipment, tools and buildings. First, start by plotting the Trailing and Forward P/E bands, Trailing and Forward PBV bands, Trailing and Forward EV/EBITDA bands.
The following BCH current trailing EV/EBITDA is between +1 standard deviation and the median, above the 5-year median. EV/EBITDA is chosen as the main multiple representing BCH's target price because the natural business of a hospital always has high depreciation, which is a non-cash transaction, but underlies it. This makes EV/EBITDA suitable for price target calculation as it takes into account the non-cash transaction.
Investment Risks and Downside Possibilities
- The competition in private hospital industry
- Limitation of the numbers of expertise in medical profession The number of medical profession are widely recognized are insufficient to
- The regulatory changes on managed care programs
- Economic downturn
- The consumer behavior
- High Working capital and CAPEX
- Scenario analysis
Nowadays, human cost is considered as one of the main considerations for private hospital. Therefore, the doctor's fee and personal expenses would increase as shown in the hospital cost scenario analysis. BCH has a plan to generate strong brands for every type of patient such as WMC for high-end and international patients and KH and KV for mid-range and social security scheme patients.
New hospitals also create strong brands for specific types of customers, for example the Kasemrad Prachinburi Hospital, which is located next to the Rojana Industrial Estate, aims to serve social security scheme patients. Mainly BCH's working capital item is BCH's trade accounts receivable which are quite high at 1,054 MB or 8% of total assets which mainly come from Social Security Office and National Health Insurance with 78% less than 3 month. However, in 2017, BCH already submitted the letter to the Social Security Office, which was in the process of pursuing the collectability of the remaining portion that some affiliates had partially received.
The second is the limitation of the number of expertise in the medical profession, which also greatly affects the cost of BCH and tends to be average, because BCH offers competitive remuneration package such as employee welfare program and training course to retain doctors and staff. In terms of cost, the hospital cost is greatly affected by the doctor's fee, medical and supply cost, and personal expenses. In conclusion, the decrease in revenue drivers would tend to create the possibility of a decline in BCH's share price.
DATA
Financial statement analysis
- Trend Analysis Table 2.1 Trend Analysis
- Common size Table 2.2 Common Size
- Growth analysis Table 2.3 Growth analysis
Information
- Business Structure
- Major shareholders
- Management and organizational chart
- Patients referral network
