May 26, 2013

Hospital Comparison - BGH vs BH

In 2012, Thailand had 2.4 million foreign medical tourists, generating 14 billion baht in revenue. For Singaporean readers, that is about SGD$ 600 million. The Tourism Authority of Thailand (TAT) further projects a growth to 3 million medical tourists over the next 3 years, which will double revenue growth.

According to TAT, 600,000 high income Chinese visited Switzerland and Singapore in 2012 for anti-ageing and cell treatments, expending an average of 2 million baht (SGD$ 84,000) per trip. To begin achieving that growth, the TAT will host the Medical & Wellness Tourism Trade event in August 2013 and about 50 tourism groups and agents globally are expected to attend the event in Bangkok.

The focus of this hospital comparison will be based on the lucrative medical tourism segment of healthcare operators, with little to no regard to the impending ''Silver Wave'' hitting most ASEAN countries in the near future.

Bangkok Hospital 
(Bangkok Dusit Medical Services, Ticker: BGH on the SET)

BGH is a fully equipped, internationally accredited tertiary with more than 40 years of experience. BGH operates hospitals covering Thailand, with a concentration in Bangkok, and also has a presence in Cambodia. It also invests in private hospitals and related healthcare services through its subsidiaries. BGH is the largest operator in Thailand, with a market cap. of 269.7 billion Baht (SGD$ 11.4 billion).

*BGH owns 23.94% of BH.

Bumrungrad Hospital
(Bumrungrad Hospital, Ticker: BH on the SET)

BH is an internationally accredited multi specialty hospital located in the heart of Bangkok. It offers state-of-the-art diagnostic, therapeutic and intensive care facilities in a one-stop medical center. BH is the largest private hospital in Southeast Asia and it serves over a million patients annually with almost half are internationals. BH is well-known worldwide as a leader in medical tourism, due to strong publicity and marketing in various international media and press. BH has a market cap. of 63.02 billion Baht (SGD$ 2.66 billion).

This is an excerpt from a comparison spreadsheet I did for myself.

I favor Bumrungrad for the higher margins. Book value for Bumrungrad stands at Bt. 12.49 vs Bt. 25.27. P/B is on par with each other, however Bumrungrad is a good 12.37% ahead in ROE.
In both cases dividend yields are unattractive so I shall not depend on the value of dividends.

Bangkok Dusit and Bumrungrad run slightly different models. One is a large operator of 30 hospitals and healthcare services and related businesses, while Bumrungrad is a slightly smaller outfit, running an international hospital. Bumrungrad has set the wheels in motion for expansion for an increase in capacity and also a new Women's and Children Hospital.

Bumrungrad is seeing slightly lower portion of revenue contribution from international patients while Bangkok Dusit's top international patient by countries are from the matured economies; Japan, UK, Australia, Germany, and also the new hot country, Myanmar.

Bumrungrad has USA (notorious for expensive healthcare), and the oil rich nations of Qatar, Oman, UAE. Myanmar contributes as much as the USA for Bumrungrad.

Bangkok Dusit will see a new hospital opening in 4Q13 in Cambodia, targetting the local and expat markets. They also increased their stake in Medic Pharma, a pharmaceutical manufacturer and distributor.

Bumrungrad has bought land for expansion, which sees CAPEX at a high in FY13, while CAPEX is projected to drop by about 30% in FY14. I believe Bumrungrad has already begun preparing for the rise in international patient volumes and revenue in the near term by the spike in CAPEX from FY12.

I see both BGH and BH as fundamentally strong companies well-placed to capture a large pie of medical tourism in Asia. However both are still overpriced and any meaningful correction will be a buying opportunity. At this moment, my preference is for Bumrungrad.

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