Thai Healthcare Initiation Report

Thailand healthcare
HEALTH CARE & PHARMACEUTICALS
EQ U I T Y R E S E A R C H
Go for the king of thrones
January 9, 2013
Positive outlook driven by both foreign and domestic patient revenue growth
Initiate with Bullish view; foreign patients remain key growth driver We expect foreign patient revenues to keep growing, driven by higher revenue per patient and admission as Thailand moves into higher acuity treatments, while keeping pace with regional price hikes. Thailand remains an attractive destination with a pricing discount of 20-30% to Singapore. Volume growth will also contribute as economic growth in surrounding countries has led to citizens of these countries seeking higher quality healthcare in destinations such as Thailand. With a collective population of 300mn, this pool of potential patients is sizeable and growing. Domestic demand provides a new growth driver At the same time, we expect structurally higher domestic demand driven by higher demand from a rising middle class. National statistics show that middle class patients are 4% more likely to choose private healthcare than their lower-income peers. Our analysis shows that hospitals catering to the middle class are seeing y-y revenue growth of ~15-20%. Mid-market and upcountry as the next frontier of growth In the growing domestic healthcare market, we believe that the mid-market segment offers higher growth potential, while upcountry areas outside of Bangkok will be the next frontier of growth geographically. This ties in with our Thailand strategists view that we will see a higher rate of income growth and urbanisation outside of Bangkok. A tale of consolidation, segmentation and M&A M&A has and will likely continue to be a driver of growth and share prices, with Bangkok Dusit leading the way, having spent over THB20bn in the past 10 years. The market will consolidate and at the same time be further segmented as industry participants seek to secure positions of control. Bangkok Dusit our preferred pick In the listed space, we prefer Bangkok Dusit (BGH TB, Buy) over Bumrungrad (BH TB, Neutral). We believe that BGH, the market leader, will be a key beneficiary of both domestic and foreign patient revenue growth through its wide cross-nation hospital network and multiple hospital brands across both the mid- and high-end segments. This contrasts with BH which focuses only on the high-end segment in Bangkok. Valuations not cheap, but look justified We believe the Thailand healthcare sector deserves a premium to regional peers as it has the highest growth profile in the region. We apply EV/EBTIDA multiples of 16.3x for BGH and 15.6x for BH, which represent premiums of 10% and 5% to the peer average forward EV/EBITDA, respectively. The higher premium for BGH is due to its strategic leadership position, through its significant shareholdings in major competing hospital groups such as BH, and market leader status. Anchor themes Continued growth in medical tourism, coupled with structurally stronger domestic demand coming from the rising middle class, will underpin growth in Thailand's healthcare sector. Nomura vs consensus For FY13F earnings, we are 6% above consensus for Bangkok Dusit and 1% below consensus for Bumrungrad.
Research analysts Thailand Healthcare & Pharmaceuticals Wen Jie Chan - NSL wenjie.chan@nomura.com +65 6433 6965 Jit Soon Lim, CFA - NSL jitsoon.lim@nomura.com +65 6433 6969
See Appendix A-1 for analyst certification, important disclosures and the status of non-US analysts.
Nomura | Thailand healthcare
January 9, 2013
Contents
5
Thailand healthcare: A game of thrones

5
Positive on sector, Bangkok Dusit our preferred choice
5 key themes
Limited supply of qualified healthcare professional a key growth constraint Valuations
Key risks
Key catalysts

8
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 Sweet spot #1: Mid-market
14
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 in Thailand

22
Private healthcare demand is growing
January 9, 2013
24
but supply is not
26
Limited supply of qualified healthcare professionals a key growth constraint Competitive landscape
27
27
Fragmented market
28
Geographical presence
30
Market positioning
30
Strategy Outgrow, out-last, out-manoeuvre
33
Key earnings drivers Key sector catalysts

35
35
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
January 9, 2013
38
Universal Coverage Scheme
40
Appendix: A picture of the Thailand healthcare situation Appendix: Medical tourism in Thailand Appendix: Healthcare acquisitions in Thailand Appendix: Cross-holdings in the Thailand healthcare industry
44
41
42
43
Game-changing events
45
Bangkok Dusit Bumrungrad Appendix A-1
69
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January 9, 2013
Thailand healthcare: A game of thrones

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 to control 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-andspoke 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 BHs 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 locations 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 on the relative affordability of Thailand hospitals. Ability to scale the value chain will allow more revenue per patient Over the past 10 years, Thailands 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 th Thailand. Together, their population size exceeds 300mn, larger than Indonesia, the 4 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 dont 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.
January 9, 2013
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 higher propensity 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 midmarket segment rather than leapfrog into the premium healthcare space. As the midmarket 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 strategists view that we will see a higher rate of income growth and urbanisation outside of Bangkok (see pages 1819 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 Chains 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 key growth 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.
January 9, 2013
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.
Valuations
Valuations 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; staff shortage/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.
January 9, 2013

We 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-andspoke hospital network. With a PEG of 1.57x relative to BHs 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
Mkt Cap Bloomberg Ticker (US$ mn) RFMD SP Equity IHH MK Equity KPJ MK Equity BCH TB Equity BGH TB EQUITY BH TB EQUITY 1,239 9,074 1,210 590 5,785 1,824 P/E (x) 2012E 27.2 34.4 24.4 20.1 28.6 26.7 26.9 P/E (x) 2013E 23.6 42.7 21.4 19.3 24.1 23.5 25.8 P/B (x) 2012E 3.9 16.3 3.5 4.7 4.8 6.4 6.6 P/B (x) 2013E 3.4 15.6 3.3 4.3 4.3 5.8 6.1 EV/EBITDA (x) EV/EBITDA (x) ROE (%) Div yield (%) Div yield (%) 3yr EPS 2012E 2013E 2012E 2012E 2013E CAGR (fw) 19.6 22.0 14.3 12.4 16.0 16.4 16.8 16.4 19.0 12.6 11.3 14.2 15.2 14.8 15.4 4.7 15.1 25.1 17.9 27.1 17.5 1.4 0.5 2.1 2.8 1.9 2.5 1.9 1.4 0.6 2.1 2.4 1.7 2.1 1.7 14.7 14.8 4.1 16.7 25.0 18.9 15.7
Rating Singapore Raffles Medical Group Malaysia IHH KPJ Healthcare Thailand Bangkok Chain Bangkok Dusit Bumrungrad Hospital Asia (simple avg) NEUTRAL REDUCE Not Rated Not Rated BUY NEUTRAL
Price 2.8 3.43 5.7 9 114 76.25
Australia Ramsay Health Care* NEUTRAL Primary Health Care* NEUTRAL USA HCA Holdings Not Rated Universal Health Services Not Rated Community Health System Not Rated Lifepoint Hospital Not Rated Tenet Healthcare Not Rated Developed market (simple average)
RHC AU EQUITY PRY AU EQUITY HCA US EQUITY UHS US EQUITY CYH US EQUITY LPNT US EQUITY THC US EQUITY
5,890 2,139 14,147 4,843 2,943 1,993 3,632
27.76 4.05 31.94 50 32.27 40.38 34.11
19.0 14.4 9.1 12.2 8.9 13.6 18.2 13.6
16.5 13.4 9.0 11.0 8.4 12.0 11.7 11.7
3.6 0.8 n.a. 1.8 1.1 0.9 2.7 1.8
3.3 0.7 -2.1 1.5 1.0 0.8 2.2 1.1
10.3 8.4 6.6 7.3 6.6 6.8 7.1 7.6
9.2 8.0 6.4 6.8 6.3 6.3 6.2 7.0
18.4 4.6 n.a 15.5 12.6 7.3 15.5 12.3
2.5 3.5 0.0 0.0 0.0 0.0 0.0 0.8
2.9 3.7 0.0 0.4 0.0 0.0 0.0 1.0
14.2 9.0 -8.2 7.2 15.3 4.1 N.M. 6.9
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 lets 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.
January 9, 2013
Fig. 2: Bangkok Dusit YTD price chart

120.00
Fig. 3: Bumrungrad YTD price chart

85.00 80.00
110.00 75.00 100.00 70.00 65.00 90.00 60.00 80.00 55.00 50.00 70.00 45.00 60.00 40.00
Source: Bloomberg, Nomura research
Fig. 4: Bangkok Dusit: valuation summary

Comments FY13 FY13 24% 38%
Fig. 5: Bumrungrad: valuation summary
TargetMultiple(x) TargetValuation(THB'mn) LessDebt,AddCash AddstakeinBumrungrad AddstakeinRAM Targetvaluation(THB'mn) #ofshares('000) TargetPrice

Source: Nomura research
16.3 198,411 (13,061) 15,332 7,243 207,924 1,545,459 134.50
134.5
TargetMultiple(x) TargetEV(THB'mn) LessDebt,AddCash Targetvaluation #ofshares('000) TargetPrice

15.6 59,334 (674) 58,660 728,337 80.50
Comments FY13 FY13
78.25
Fig. 6: Bangkok Dusit: valuation comparison
Fig. 7: Bumrungrad: valuation comparison
P/E (peers basis )
132.00
P/E (peers basis)
83.75
D CF
138.75
DCF
88.00
EV/EBITDA (SOTP)
134.50
EV/EBITDA (peer basis)
80.50
Takeout
137.00
Takeout
93.75
0.00
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160.00
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Fig. 8: BGHs forward P/E band (5-year)

(THB) 180 160 140 120 100 80 60 40 20 0
Fig. 9: BGHs forward EV/EBITDA band (5-year)

EV/ EBITDA (x) 19
32x 28x 24x
17
15
13
20x 16x 12x

11
5 Jul-07
Jan -08 Jan -09 Jan -10 Jan -11 Jan -12 Jan -13 Jul-07 Jul-08 Jul-09 Jul-10 Jul-11 Jul-12
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Average
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January 9, 2013
Fig. 10: Bumrungrads forward P/E band (5-year)

(THB) 100 90 80 70 60 50 40 30 27x 24x
Fig. 11: Bumrungrads forward EV/EBITDA band (5-year)

EV/ EBITDA (x) 25 23 21 19
21x
17
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15
15x 12x
13 11 9
20 10 0
7 5
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EV/EBITDA
Av erag e
SD -
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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-andspoke strategy, multiple brandings across the mid- and high-end segments and its wide hospital 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.
Apr-12
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January 9, 2013
Five major 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, with M&A as a driver

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 of revenue/patient day with IHHs 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 IHHs 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)
Thai Premium/ South Procedure Coronary artery bypass graft - CABG Valve replacement with bypass Hip replacement Knee replacement Spinal fusion IVF cycle Gastric bypass Facelift Rhinoplasty $ $ $ $ $ $ $ $ $ US Cost Costa Rica 88,000 85,000 33,000 34,000 41,000 15,000 25,000 14,500 8,500 $ $ $ $ $ $ $ $ $ 31,500 29,000 14,000 9,500 17,000 4,400 11,200 4,800 3,400 $ $ $ $ $ $ $ $ $ India 9,500 8,500 8,000 7,500 9,500 3,300 6,800 3,500 2,800 $ $ $ $ $ $ $ $ $ Malaysia 20,800 18,500 12,500 12,500 17,900 7,200 8,200 4,900 3,600 $ $ $ $ $ $ $ $ $ Mexico Singapore 27,500 23,500 12,500 10,500 16,200 4,600 10,800 5,400 3,500 $ $ $ $ $ $ $ $ $ 32,000 29,500 17,000 16,500 20,500 9,500 14,000 6,200 4,800 $ $ $ $ $ $ $ $ $ Korea 35,000 33,000 15,500 18,500 22,000 7,500 12,500 5,900 4,700 $ $ $ $ $ $ $ $ $ Taiwan 21,000 18,000 10,500 12,000 18,000 4,800 13,000 5,600 3,500 Thailand $ $ $ $ $ $ $ $ $ 23,000 22,000 13,000 11,500 16,000 6,500 12,000 4,700 3,700 $ $ $ $ $ $ $ $ $ Thai Premium/ Turkey (Discount) to SG 20,500 20,000 11,800 12,000 16,500 9,500 13,000 4,800 3,300 -28% -25% -24% -30% -22% -32% -14% -24% -23% (Discount) to Malaysia 11% 19% 4% -8% -11% -10% 46% -4% 3%
Source: Patient Beyond Borders
Fig. 13: Comparison across hospitals in the region

Thailand hospitals are at a significant discount to Singapore hospitals
Rev ppd, S$ Parkway - SG Parkway - M'sia BGH - Thailand BH - Thailand Discount to SG Parkway - M'sia BGH - Thailand BH - Thailand M'sia discount to.. BGH - Thailand BH - Thailand -75% -49% -15% 2009 -51% -70% -73% -52% -17% 2010 -44% -68% -75% -65% -22% 2011 -31% -69% 2009 1,962 497 1,009 1,663 2010 2,091 555 997 1,738 2011 2,275 558 806 1,776
Source: Company data, Nomura research Note: 2010 is the best year for comparison across hospitals as BGHs 2011 number is distorted by acquisitions of midmarket hospitals; BH is the best comparison with SG hospitals as it is a stand-alone hospital operating at the top end of the premium market; Thailand revenues include share of doctors fee that accrues to the doctors, and as such Rev ppd numbers are slightly inflated by 10-15% relative to other regional peers
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January 9, 2013
Ability to scale the value chain will allow more revenue per patient Over the past 10 years, Thailands 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, Bumrungrads Heart Centre alone has more doctors than all IHHs 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 Dusits 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 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. 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
Country Bangladesh* Cambodia LaoPDR Myanmar Vietnam Total/Average Indonesia

Source: CEIC, World Bank, UN, *Growth rate based on 2010
Population 150.5 14.3 6.3 48.3 87.8 307.2 242.3
GDPpercapita 735 900 1320 380 1411 949 3495
2011grwthrate 6.66 6.93 8.04 N.A 5.89 6.88 6.46
Expat population continues to grow International patients also include the expat population in Thailand and the surrounding countries. We dont 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 surprise on the upside and lead to outperformance in the results. Conversely, the same 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.
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January 9, 2013
Rise of the middle class to drive structurally stronger demand for 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$3,000 annual income threshold. We estimate that a significant proportion of the population will soon cross this threshold. Our economist estimates that 7mn people (~10% of the Thai population) will enter the middle-class segment between 2009 and 2014, making ~40% of the Thai population middle class. The recent increase in minimum wages up an average 40% to THB300 a day will also help boost the growth of the rising middle class.
Fig. 15: Growth in middle-class population
2009 Ranking No.1 Million people China Urban Rural No.2 No.3 No.4 No.5 Indonesia Korea Thailand India Urban Rural No.6 No.7 No.8 No.9 No.10 No.11 Taiwan Malaysia Philippines Hong Kong Singapore Vietnam Asia ex-Japan J apan Change from 2004 to2009 263.9 na 48.8 3.1 11.9 na na 0.2 6.6 17.3 0.0 0.2 na 380.0 0.0 Change from 2009 to 2014 197.0 108.8 99.3 2.0 7.0 121.6 82.1 0.4 5.7 27.4 0.3 0.4 26.5
US$
Fig. 16: Healthcare expenditure growth

700 600 500 400 300 200 100 0 2001 2002 2003 2004 2005 2006 2007 2008
OverallExpenditure
Private Expenditure
Public Expenditure
Source: MoPH, Nomura research
Average annual income in Thailand

3,600 3,400 3,200 3,000 2,800 2,600 2,400 2,200 2,000 Dec06 Dec 07 Dec 08 Dec09 Dec10 Dec 11
5 yrCAGR: 5.6%
678.5 -1.0
Source: Nomura Global Economics
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 the middle-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.
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January 9, 2013
Fig. 17: Healthcare facility selection when ill (as of 2009)

100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% Poorest Poor MiddleIncome Private
Source: National Statistical Office, Nomura research
15%
15%
19%
24% Rich
34%
Richest
Public
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 segments which 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 midmarket 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 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. 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
Financials summary (FY11, THB'mn) FY11 Hopsital revenues FY11 EBITDA EBITDA Margin
* Dusit (excl. HNW)
KH 3,903 1,335 34.2%
Mid-market RAM 3,044 1,119 42.8%
HNW 8,593 2,207 25.2%
Premium BH Dusit* 11,015 26,631 2,819 6,327 25.6% 22.6%
Source: Nomura research Note: KH: Bangkok Chain, RAM: Ramkhamhaeng, HNW: Health Network, BH: Bumrungrad
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January 9, 2013
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 strategists 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 BGHs 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
Upcountry Hospitals Mid/High-mkt BKK Chantaburi (BCH) Mid/High-mkt BKK Hat Yai (BHH) Mid-mkt Phyathai Sriracha (PYTS) Mid/High-mkt Samitivej Sriracha (SSH) Mid/High-mkt BKK Trat (BTH) Total Upcountry Average BKK Hospitals Mid-mkt Paolo Chokchai 4 (Pchok) Mid-mkt Paolo Samutprakarn (Psamut) Mid-mkt Paolo Paholyothin (Pmed) Average High-end Samitivej Srinakarin (SNH) High-end BMC High-end Samitivej Sukhumvit (SVH) Average Total BKK Average 2Q2011 24% 21% 16% 20% 2Q2011 3Q2011 21% 4Q2011 22% 20% 21% 3Q2011 14% 11% 13% 16% 12% 14% 13% 21% 4Q2011 20% 23% 1Q2012 26% 17% 18% 20% 17% 20% 19% 20% 23% 2Q2012 21% 18% 20% 21% 20% 21% 20% 21% 3Q2012 20% 17% 19% 21% 18% 20% 19% Generally higher growth, stable Comments 1Q2012 25% 25% 20% 2Q2012 21% 25% 24% 3Q2012 20% 20% 24% Comments
21% 21% 21% 21% 21% 21%
20% 12% 12% 16%
In line with high-end but more stable
Volatile Lower than upcountry
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 only 2.4% 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%.
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January 9, 2013
Fig. 20: Growth prospects of the various regions

# of provinces > Thailand GDP 5 4 2 1 1 1 0
Region BKK & Vicinity Eastern Central West South North North-east
GDP per capita 1 2 3 4 5 6 7
GDP growth 7 2 1 5 6 3 4
Population density 1 5 2 6 4 7 3
Population growth 3 1 5 4 2 7 6
Total 6 8 6 6 14 17 19
> 100k ppl per sq km 6 5 3 4 8 2 0
Overall Ranking 4 2 1 5 3 6 7
Source: CEIC, Nomura research (1 the best; 7 the worst)
Fig. 21: GDP per capita by province

400,000.00
350,000.00
300,000.00
250,000.00
200,000.00
150,000.00
100,000.00
50,000.00
0.00
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
Whole
BKK & Vicinities
Central
Eastern
Northern
Southern
Western
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January 9, 2013
Fig. 22: Population density by province

200.00
180.00
160.00
140.00
120.00
100.00
80.00
60.00
40.00
20.00
0.00
1976
1977
1978
1979
1980
1981
1982
1983
1984
1985
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
Thailand
Central
Northern
Southern
Eastern
Western
Northeastern
Fig. 23: Population growth rate by province

6.0%
4.0%
2.0%
0.0%
1976
1977
1978
1979
1980
1981
1982
1983
1984
1985
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
-2.0%
-4.0%
-6.0% BKK and Vicinity Central Northern Eastern Northeastern Western Southern
2011
2011
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January 9, 2013
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
BangkokDusit 15% Bumrungrad 2% BangkokChain 5%
Others 78%
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 Chains 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 are still a few with 2 or 3 campuses available.
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Fig. 25: Non-exhaustive list of M&A targets

NTV AHC M-CHAI Mahachai Hospital 1 - 180 beds, Samut Sakorn Mahachai Hospital 2 - 120 beds, Samut Sakorn Mahachai Hospital 3 - 100 beds, Samut Sakorn Maeklong Hopsital - 60 beds, Samut Songkram Petcharat Hospital - 100 beds, Phetchaburi 560 1,487 106 15.0 17.3 7.1
SKR
Hospitals Total beds Revenues (THB'mn) Net profit (THB'mn) ROA (%) ROE (%) Net profit margin (%)
Nonthavej Hospital - 208 beds, Nonthaburi 208 1,460 163 19.6 16.0 11.1
Aikchol Hospital 1 - 262 beds, Chonburi Aikchol Hospital 2 - 100 beds, Chonburi 362 1,093 102 14.9 12.3 9.3
Sikarin Hospital - 216 beds, BKK Rattarin Hospital - 100 beds, Samut Prakarn 316 373 30 12.0 11.4 8.1
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January 9, 2013
Role of the government

The 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 medical coverage, 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
200,000 180,000 160,000 140,000 120,000 100,000 80,000 60,000 40,000 20,000 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 10.0% 9.0% 8.0% 7.0% 6.0% 5.0% 4.0% 3.0% 2.0% 1.0% 0.0%
MoPHBudget(THBmn)
Source: Bureau of the Budget, Nomura research
MoPHBudget%ofNational Budget
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January 9, 2013
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 hospitals 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
Capitationrate
3,000 2,500
Baht per capita
2,000 1,500 1,000 500 0

2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
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.
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January 9, 2013
Industry outlook: A case for private healthcare in Thailand

Demographic 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 healthcare demand 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
70 60 1.96 50 1.94 1.89 1.82 1.93 1.72 2.0 1.82 1.73 1.67 1.62 2.5
Ppoulation ('mn)
1.72
40 30 20
1.5
1.0
0.5 10 0 2000 2001 2002 2003 Ruralpopulation 2004 2005 2006 2007 2008 2009 2010 UrbanPopulation TotalPopulation Growth Rate Urbanpopulation growth rate 0.0
Source: World Bank, Nomura research
%Growthrate
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January 9, 2013
Fig. 29: Top killers in 2005
Diseases Rank 1 2 3 4 5
Men Type Cerebrovascular disease AIDS Ischemic heart disease Pulmonary disease Cirrhosis
Number 23,741 19,953 16,164 14,396 12,628
Female % of deaths Type Number 9.40% Cerebrovascular disease 21,546 7.90% Diabetes 15,254 6.40% Ischemic heart disease 14,300 5.70% AIDS 10,868 5% Chronic kidney failure 7,627
% of deaths 11.30% 8% 7.50% 5.70% 4%
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
100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
Aged 0 14
Aged 1564
Aged65 and Above
Source: UN, Nomura research
Rising income Increasing income levels translate to an increased ability to pay for healthcare. Thailands 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
180,000 160,000 140,000 120,000 100,000 80,000 60,000 40,000 20,000 0 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 GDP perCapita (inTHB)
Source: World Bank, Nomura research
THB
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January 9, 2013
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 lowerincome 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)
100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% Poorest Poor Middle Income Private
Source: National Statistical Office, Nomura research
Rich
Richest
Public
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
350000 300000 250000 200000 150000 100000 50000 0 2001 2002 2003 2004 2005 Private providers 2006 2007 Public providers 2008 80% 70% 60% 50% 40% 30% 20% 10% 0%
Expenditure (inTHB mn)
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.
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January 9, 2013
Fig. 34: Total supply growth

Supply growth almost flat
154,000 152,000 150,000 148,000 146,000 144,000 142,000 140,000 138,000 136,000 134,000 2001 Total# ofbeds 2002 2003 2004 2005 2006 2007 2008 1% 2% 3% 4% 3% 2%
Fig. 35: Total public supply growth

Supply growth almost flat
118,000 116,000 114,000 5% 4% 3% 2% 1% 0% 1% 2% 3% 2001 2002 2003 2004 2005 2006 2007 2008 2009 PublicBeds PublicGrowth (%)
#ofpublic beds
#of totalbeds
0%
% growth rate
110,000 108,000 106,000 104,000 102,000 100,000
Growth rate
Source: Bangkok Dusit, Health Research Repositories, MoPH, Nomura research
Source: Bangkok Dusit, Health Research Repositories, MoPH, Nomura research
Fig. 36: Public capacity tight

Utilisation >80%, capacity tight
120,000 100,000 88% 87% 86% 85% 84% 60,000 40,000 20,000 0 2003 2004 Occupied 2005 2006 2007 Utilization 2008 83% 82% 81% 80% 79% 78%
Fig. 37: Private capacity benefitting

Utilisation increasing across time
40,000 35,000
# ofprivatebeds
70% 60%
Occupancy rate
30,000 25,000 20,000 15,000 10,000 5,000 0 2003 2004 Occupied 2005 2006 Unoccupied 2007 Utilization 2008
# ofpublic beds
80,000
Occupancy rate
50% 40% 30% 20% 10% 0%
Unoccupied
Source: MopH, World Bank, Nomura research
Source: MoPH, World Bank, Nomura research
% growth rate
1%
112,000
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January 9, 2013
Limited supply of qualified healthcare professionals a key growth constraint

The 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 lowest in 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 productivity through the use of technology and further systems integration will also help combat against the cost pressure of rising wages.
Fig. 38: # of doctors graduating
1700 1600 1500 1400
Fig. 39: # of nurses graduating

7000 6500 6000 5500
1300 1200 1100 1000 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 DoctorsGraduated
Source: Bureau of Policy and Planning, Medical Council (Thailand), Nomura research
5000 4500 4000 2001 2002 2003 2004 2005 2006 2007 2008 2009 NursesGraduated
Source: Nursing Council of Thailand, Nomura research
Fig. 40: Doctors and nurses per 1,000 population across the region
12 10 8 6 4 2 0 Singapore Malaysia Indonesia Thailand Philippines India China Australia 1.8 0.9 0.3 5.9 6.0 9.6
2.7 2.0 0.3 1.5 1.2 1.3 0.6 1.4 1.4
3.0
Doctors per 1,000 population
Nurses per 1,000 population
Source: WHO, Nomura research
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January 9, 2013
Competitive landscape
The 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-andspoke 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. Bumrungrads 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
Thailands 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
Licensed beds 343 97 48 60 275 400 150 144 400 220 170 114 50 317 165 300 30 60 350 260 230 257 237 200 120 140 5,137 21 30 51 5,188 Total 538 Total 1,530 Licensed beds 538 Licensed beds 337 373 100 400 200 120
Bangkok Dusit Bangkok Hospital Bangkok Heart Hospital Wattanosoth Hospital Bangkok Huahin Samitivej Sukhumvit Samitivej Srinakarin Samitivej Sriracha BNH Hospital Bangkok Pattaya Bangkok Rayong Bangkok Chantaburi Bangkok Trat Bangkok Samui Bangkok Phuket Bangkok Hat Yai Bangkok Ratchasima Bangkok Pakchong Bangkok Prapradaeng Phyathai 1 Phyathai 2 Phyathai 3 Phyathai Sriracha Paolo Paholyothin Paolo Samutprakan Paolo Chokchai 4 Paolo Nwamin Domestic Royal Angkor International Royal Rattanak International International Total
Bumrungrad Bumrungrad Hospital
Bangkok Chain Kasemrad Bangkae Kasemrad Prachachuen Kasemrad Sukhapibal 3 Kasemrad Rattanatibeth Kasemrad Saraburi Kasemrad Sriburin
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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
1x KH - SR
1x KH - SA 1x KH - RA
2x BGH - BH
1x BGH - BH 1x BGH - BH 1x BGH - BH 1x BGH PH 1x BGH BH 1x BGH - SA 1x BGH PM 1x BGH - BH 1x BGH - BH 1x BGH - BH 1x BGH - BH 1x BGH - BH
Source: Nomura research 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
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Fig. 43: Major geographical presence in Bangkok
Source: Nomura research 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
PrivateHospitals Bangkok Central Northeast North South Total PrivateBeds Bangkok Central Northeast North South Total
Source: NHSO, Nomura research
110Beds 2 10 5 4 5 26 110Beds 15 97 67 40 45 264
1130Beds 12 11 1 6 5 35 1130Beds 306 298 30 170 136 940
3150Beds 51100Beds101200Beds 15 20 26 12 41 22 14 16 4 7 22 8 9 5 9 57 104 69 3150Beds 51100Beds101200Beds 643 1,759 4,158 539 3,575 3,623 660 1,390 560 337 1,800 1,104 413 415 1,444 2,592 8,939 10,889
>200Beds 21 7 1 2 0 31 >200Beds 7,052 1,895 214 620 0 9,781
Total 96 103 41 49 33 322 Total 13,933 10,027 2,921 4,071 2,453 33,405
% 30% 32% 13% 15% 10% 100% % 42% 30% 9% 12% 7% 100%
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January 9, 2013
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 Chains World Medical 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 Dusits 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. Bumrungrads strategy juxtaposes that of Bangkok Dusits, as it fortifies itself with its focus on Bangkok and expansion through growth of its current campus. The primary
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January 9, 2013
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
Bangkok Dusit Assets # of licensed beds in Thailand # of hospitals in Thailand # of Centre of Excellence Average # beds/hospital # of doctors # of nurses 5,137 26 6 198 957 - 345 full time, 612 part time 932 - 787 full time, 145 part time BH: Bangkok Hospital, SA: Samithvej, BNH: BNH Hospital PM: Paolo Memorial, PH: Pyathai All regions, except North-East, Central High: BH, SA, BNH Upper-mid: PM, PH Nationwide presence High Mid-high end patients 26% 3% 71% Hub & Spoke Vertical Integration M&A Capacity expansion Operating leverage Economies of scale/Network effect Cost synergies Bumrungrad Ramkhamhaeng 13% 29% 23% 10% 14% 29% 0.60 66% 972,725 7,417,530 2.9 Japan - 3.1% UK - 2.1% USA - 1.9% Australia - 1.9% Germany - 1.6% 5 - 10% cut of doctor fees Bumrungrad 538 1 35 538 1200 - 300 full time, 900 part time 900 Bangkok Chain 1,530 6 255
Brands Geographical presence Positioning Pricing Geography Intensity of care Target clientele Foreign patient load (% of total revenue) Public patient load (% of total revenue) Cash payment (% of total revenue) Strategy
BH: Bumrungrad BKK
Kasemrad WMC - World Medical Centre BKK & vicinity, Central, North
High Bangkok focused High High end patients 59% 71%
Mid Spread out Mid Public/Mid-income patient 30% 70% Entry into new market segments Drive efficiency Expansion, possibly via M&A
Current strategy
Campus expansion within BKK Drive asset intensity
Key growth drivers Key investment holdings Financial ratios (FY11 numbers) Hospital Revenue growth (y-y),excl FV adj Profit growth (y-y) EBITDA margins Net profit margins ROE Leverage (debt/equity) Asset turnover Operational statistics Utilisation of available beds # of inpatients-days # of outpatients visits Average length of stay
Capacity expansion Operating leverage 12% 26% 26% 14% 24% 37% 0.82
Capacity expansion Cost efficiency -11% -3% 34% 20% 21% 35% 0.70 -
Top 5 countries - foreign patient Renumeration scheme
127,750 1,022,365 4.67 UAE - 11% USA - 5% Myanmar - 5% Oman - 4% Bangladesh - 3% 15% cut of doctor fees
20% cut of doctor fees
Source: Nomura research 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
Name Bangkok Hospital Chiangmai Bangkok Hospital Udon Sunthorn Phu Rayong Hospital
Type Greenfield Brownfield Brownfield
Location Central Chiangmai, on ChiangmaiLampang Road (Highway #11) Udon Thani province Rayong, South of BKK
Date Mid-2014 Dec-12 4Q 2013
Details 200 beds (55 1st phase) 120 beds 140 beds (30 - 40 beds in 1st phase)
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January 9, 2013
Fig. 48: Bumrungrad expansion plans

Current Bumrungrad International Clinic Details Only OPD, 22F - 12F opened + 5F opening + 5F carpark; 212 clinics currently IPD focused - 12F Activity 5F 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
Bumrungrad International Hospital
New Bumrungrad International - 2nd Campus 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) To be constructed (18 - 24mth construction) 6,178 sqm of land on Sukhumvit Soi 1, Est construction start: early 2013 25 - 50m from BH Residences & existing campus Est completion: late 2014/early 2015 8,000 sqm of land on Petchburi Road To construct a 150 - 200 bed hospital, with women's & children centre as cornerstone
Campus expansion
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January 9, 2013
Key earnings drivers

We 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 Dusits 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 Bumrungrads EBITDA margins to expand faster due to higher operating intensity and nd greater increase in patient acuity, although offset by start-up costs arising from its 2 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 Bumrungrads results as share of income from associates will likely eventually result in a higher growth rate for Bangkok Dusits bottom line. For BGH, we expect the group to demonstrate a consistent earnings growth profile of 1819% 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 stable political 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
Revenueside Pricinggrowth Higherpatientacuity Generalpriceincrease Volumegrowth Capacityexpansion Segmentgrowthrate Costside Wagecostpressure offsetby Higheracuitytreatment Economiesofscale Operatingleverage
Increasingspecialisation,foreignpatients BGH<BHduetolowerintensitygrowthofmidmktpatients Inlinewithindustry
BGHexpandingfasterthanBH Midmktfaster,premiummktslower
BGH'sexpansiontoprovideeconomiesofscale BH'sstrategyofincreasingassetintensity
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January 9, 2013
Fig. 50: Key assumptions

Bumrungrad % growth (y-y) Total Visits per day Total Admissions per day Average Daily Census % growth (y-y) Revenue per visit Revenue per admission Revenue per patient day Hospital cost Admin cost 10.5% 10.0% 3.5% 14.6% 14.6% 8.0% 9.5% 6.9% 11.5% 11.5% 8.0% 9.5% 6.9% 11.5% 11.5% 8.0% 9.5% 6.9% 11.5% 11.5% FY12F 5.0% 3.5% 8.0% FY13F 4.0% 3.0% 5.5% FY14F 4.0% 3.0% 5.5% FY15F 4.0% 3.0% 5.5% Bangkok Dusit % growth (y-y) Total Visits per day Total Admissions per day Average Daily Census % growth (y-y) Revenue per visit Revenue per admission Revenue per patient day Hospital cost Admin cost 4.3% 1.3% 24% 26% 7.0% 6.0% 11% 12% 7.0% 6.0% 11% 12% 7.0% 6.0% 11% 12% FY12F 2.4% 10.7% FY13F 4.0% 7.0% FY14F 4.0% 7.0% FY15F 4.0% 7.0%
Fig. 51: Key forecast numbers

Bumrungrad % growth (y-y) Revenue - hospital ops Gross profit - hospital ops Profit from operations EBITDA PAT attributable to shareholders FY12F 15.0% 15.6% 20.7% 17.8% 31.1% FY13F 12.5% 14.0% 19.2% 14.6% 13.3% FY14F 12.5% 14.0% 12.1% 14.3% 13.0% FY15F 12.5% 14.0% 14.5% 14.4% 15.4% Bangkok Dusit % growth (y-y) Revenue - hospital ops Gross profit - hospital ops Profit from operations EBITDA PAT attributable to shareholders FY12F 25.4% 32.3% 30.0% 23.9% 57.8% FY13F 12.5% 14.7% 15.6% 13.7% 18.4% FY14F 12.5% 14.7% 16.3% 13.8% 17.5% FY15F 12.5% 14.6% 16.7% 13.9% 17.7%
Margins Gross profit margins - hospital ops Gross profit margins - group Operating profit margins EBITDA margins PBT margins PAT margins ROE
FY12F 40.3% 42.0% 20.4% 25.5% 19.5% 16.0%
FY13F 40.8% 42.7% 21.5% 25.8% 20.0% 16.0%
FY14F 41.4% 42.8% 21.6% 26.4% 20.3% 16.2%
FY15F 41.9% 43.2% 22.0% 26.9% 20.8% 16.7%
Margins Gross profit margins - hospital ops Gross profit margins - group Operating profit margins EBITDA margins PBT margins PAT margins ROE
FY12F 39.8% 42.2% 16.9% 23.3% 17.5% 14.1%
FY13F 40.6% 42.8% 17.5% 23.6% 17.8% 14.8%
FY14F 41.4% 43.5% 18.1% 23.9% 18.6% 15.4%
FY15F 42.2% 44.1% 18.8% 24.3% 19.5% 16.2%
31.6%
24.6%
24.2%
24.1%
21.5%
17.8%
18.4%
18.9%
Source: Nomura research Note: Bangkok Dusit numbers adjusted for FV gain in FY12.
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January 9, 2013
Key sector catalysts

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 those factors 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.

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 growth

Stronger-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.
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January 9, 2013
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 a new 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.

In 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.

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 is being 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.
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January 9, 2013
Appendix: Public healthcare schemes

Thailand 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 Civil Servant Medical Benefit Scheme (CSMBS) (WCS)
Background Eligibility
Every Thai National not in other public schemes
Private Sector employees (Must be above 15) Compensation for work related health problems
All civil servants and dependants including pensioners Provide fringe benefit without contribution in compensation for a generally low salary scale
Objective
Focus on health promotion and Subsidies for non-work related prevention as well as curative care health problems Emphasize role of primary health care and ration use of effective and efficient integrated services Foster proper referrals to hospitals Ensure subsisides on public spending are pro-poor and that all citizens are protected against the financial risks of obtaining healthcare
Medical coverage
Began in Related Govt Policies
Number of beneficiaries
Comprehensive benefit package (excludes: Mental illnesses, cosmetic surgery, infertility, special nurse, private bed)) Nationwide in April 2002 1997 and 2007 Constitutions 8th National Social and Economic Development Plan 75% of population
Comprehensive benefit package (excludes: prevention and health promotion services, private bed, special nurse) September 2, 1990 1990 Social security act
Comprehensive benefit package
Comprehensive Benefit Package (excludes: special nurse)
903,012 employees (as at April 2012), about 16% of the population are members
March 16, 1972 1980 1972 Worker's Compensation Act 1980 Royal Decree on the Disbursement of Medical Benefits for Civil Servants 9% of the population
Funding Source
General tax revenues
Tri-party (Government, Employer, Employer pays 0.2 - 2.0% of Employee) contribution of 1.5% employee payroll depending on employee's payroll job risk category Contracted Hospitals within area of coverage Social Security Office (SSO) Capitation Fee for service (ceiling of 35,000 baht) Free choice
General tax revenues
Contracted Hospitals within district system that the individual is registered with Purchaser National Health Security Office (NHSO) Government payment Capitation for outpatient services method (rate = 2,693.5 baht in 2011) Global budget for inpatient services via Diagnosis Related Groups Individual payment Free of charge (30 baht co-pay abolished in 2006 after Prime Minister Saryud Chulanot's 2006 policial coup)
Providers
Free choice
Ministry of Finance Direct disbursement for outpatient. Coventional DRG for inpatient.
Free of charge if designated contract hospital is used Fixed amount reimbursement for others
Employers will cover additional expenses up to 200,000 baht for some conditions. Employees are responsible for anything over that amount.
Free of charge.
Process Public Private hospital Implementation Method of treatment
Yes, designated primary care provider Only if contracted + designated or referred Development of district health system Primary treatment at registered Contracting Unit for Primary care (CUP), secondary and tertiary treatment via referrals
Yes, designated primary care Yes, any provider Only if contracted + designated or Yes, any referred
Yes, any Yes, any
Primary treatment at registered Contracting Unit for Primary care (CUP), secondary and tertiary treatment via referrals
Any provider for service
Any provider for service
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January 9, 2013
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 Workers Compensation Act. The key difference between the SSS and WCS lies within their scope of coverage. The SSS 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% employees 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 and have 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 employers contribution of 0.2-2.0% of the employees 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 first initiated 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 Chulanonts government. Under the UCS, the insured is entitled to a comprehensive healthcare package (excluding mental illnesses, cosmetic surgery, infertility), without the need for out-ofpocket 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
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January 9, 2013
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.
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January 9, 2013
Appendix: A picture of the Thailand healthcare situation

Fig. 53: Accessibility
Staff density one of the lowest
45 40 35 30 31.0 41.0 38.0
Fig. 54: Payment breakdown

Heavily subsidised healthcare
100 90 80 70
22.0
3.5
14.7
12.9
7.7 16.5
11.2
17.2
8.7
13.2 19.1
55.4
20 15 10 5 0 Singapore
18.0
25
60 50 40
9.0 9.6 3.0
40.5
35.3 53.9 50.0
41.2
75.8 41.1 44.8 51.8 34.9 32.8 50.1
30 20
70.1
5.9 1.8 2.7 0.9 Malaysia
6.0 2.0 0.3 Indonesia 1.5 0.3 Thailand
6.05.0 1.2 Philippines 0.61.3 India 1.41.4 China
10 0 Singapore public/govt exp Malaysia Indonesia Thailand Philippines India China Australia
Australia
Doctors per 1,000 population
Nurses per 1,000 population
Beds per 10,000 population
pte - out of pocket
pte - not out of pocket
Fig. 55: Life expectancy at birth

Average life expectancy
90 82 80 70 73 68 74 70 70 65 82
Fig. 56: Government spending on healthcare

One of the highest govt health exp as % of govt exp
2,500 18.3 20 18 2,000 14 10.3 7.2 6.9 3.3 1.2 1.3 16 14
PPP int $
Life expectancy at birth
60 50 40 30 20 10 0 Singapore Malaysia Indonesia Thailand Philippines India China Australia
1,500
9.8 6.1 4.1 1.4
12 10 6.0 8 6
%
1,000
500
1.6
2.2
2.3
4 2 0
0 Singapore Malaysia Indonesia Thailand Philippines India China Australia
Govt health exp per capita (PPP int $) Govt health exp as % of govt exp (%) Govt health exp as % of GDP (%)
Fig. 57: Health expenditure

One of the lowest despite huge govt expenditure
4,000 3,500 3,000 2,500 4.8 3.9 4.3 3.8 4.2 8.5 9 8
Fig. 58: Ageing population

Faces a severe ageing issue
25
% of population >65 yrs old by 2030
23.3 19.5 16.5 17.6 16.5
7 6 4.6 5 3,382 4 3 2 677 1 99 345 136 132 India 309 0 Singapore Malaysia Indonesia Thailand Philippines China Australia
20
PPP int $
15 10.5 10 6.7 5 8.3
2,000 1,500 1,000 500 0
2.4 2,086
0
Total health exp per capita (PPP int $) Total health exp as % of GDP (%)
Singapore
Malaysia
Indonesia
Thailand
Philippines
India
China
Australia
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January 9, 2013
Appendix: Medical tourism in Thailand

The premium healthcare segment is reliant on foreign patients. 59% of Bumrungrads revenues come from foreign patients, while foreign patient revenues make up 26% of Bangkok Dusits 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)
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January 9, 2013
Appendix: Healthcare acquisitions in Thailand

This 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 27-Oct-01 27-Nov-01 27-Nov-01 2002 Acq. Target Samitivej PCL Trad Vejchakij Co Udon Pattana Bangkok Phuket Hospital Ramkhamhaeng Hospital 3-Dec-04 Public Company Limited % acquired 34.00% Shares ('mn) 7.64 3.00 39.19 Price/sh THB4.8 THB10.55 THB5.36 Offering 126.5mn new shares (BGH shares 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) Bangkok Hospital Pattaya: THB35.84, (par THB10) Bangkok Hospital Rayong: THB12.07 (par THB10) Wattanawech: THB26.98 (par THB10) Bangkok Hospital Trat: THB5.02 (par THB5) Dusit par value THB1 Value (THB'mn) 320 37 32 210 Payment Cash Cash Cash Cash Description Acquire stakes in Samitivej, whichis debt-ridden
48.99% 7.04%
Samitivej PCL, Bangkok Hatyai Hospital Co. Ltd; Bangkok Phuket Hospital Co. 21-Dec-04 Ltd 1-Apr-05 BNH Medical Center Co Ltd
Shares
Acquire remaining stakes in Samitivej PCL, Bangkok Hatyai Hospital Co. Ltd and Bangkok Phuket Hospital Co. Ltd
13.00%
2006
28-Jun-05 17-Sep-06 21-Nov-07 2008 2010 2010 16-Nov-10 14-Dec-10 16-Feb-11 16-Feb-11
Bangkok Hospital Pattaya; Bangkok Hospital Rayong; Wattanawech; Bangkok Hospital Trat Bangkok Hopsital Ratchasima Company Limited Prasit Patana PLC Ramkhamhaeng Hospital Public Company Limited Ramkhamhaeng Hospital Public Company Limited Krungdhon Hospital Public Company Limited Krungdhon Hospital Public Company Limited A.N.B. Laboratories Company Limited Health Network Public Company Limited Bumrungrad Hospital PCL Bumrungrad Hospital PCL
Made a bid offer for Bangkok Hospital Pattaya Company Limited, Bangkok Hospital Rayong Company Limited, Vatthanavej Company Limited (Bangkok Hospital Chanthaburi) and Bangkok Hospital Trat Company Limited Shares Increased holdings in the 4 companies to 97.1%, 100%, 99.5%, 99.6%
79.70% 15.76% 7.20% 12.06% 16.80% 3.19% 100%
273.03
765 870 THB480 THB480 THB33.0 414 694 83
Cash Cash Cash Cash Cash Cash
300 bed hospital in Amphoe Muang, Nakhon Ratchasima Province Acquired from Bank of Ayudhya Had to make a mandatory tender offer Bid offer at THB480/sh from 4 Jan 08 to 7 Feb 08 KDH operates a 150 bed hospital, premium to share price of THB26.25 Acquired shares off mkt
0.86 1.45 2.50
730 9,393
6.32% 4.79%
46.12 35.00 72.20 THB37.75
Cash Cash +Shares Cash Cash Shares
Consist of Phyathai Hospital Group and Paolo Hospital Group; THB680mn cash + 230.8mn new shares @ THB37.75 each Non-voting depository receipts (shares with no voting rights) Tender offer for Prasit Patana PCL after owning 68.64% of company through acquisition of Health Network. They now own 20.28% (148,027,600 shares), implying that they either had 2/3% to start off with or they acquired some without declaring Tender offer for remaining 2.86% stake, acquired 1.05% (24,601,223 shares)
31-May-11 Prasit Patana PCL
13-May-12 Bumrungrad Hospital PCL 19-Apr-12 Prasit Patana PCL
6.05% 1.05%
44.20 24.60 THB4.57
Cash Cash
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January 9, 2013
Appendix: Cross-holdings in the Thailand healthcare industry

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%) 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
72.7% Rattanatibeth General Hospital Co. Ltd Saraburi Wetchakit Co. Ltd Sriburi Medical Co. Ltd 5.6% 10.2% 83.8%
59.9%
KH
93.7% 25.0%
VIBHA
BH
38.2% 23.88%
RAM
Synphaet Co. Ltd 9.0%
CMR
15.3%
BGH
Udon Pattana (1994) Co. Ltd
70-80% Cambodia (2hospital 70 80%) 100% Phnom Penh Medical Services Co. Ltd 100% B.D.M.S. International Medical Services 100% Asia International Healthcare Co. Ltd
20.0%
91.5%
95.8%
80 - 100%
97.8%
KDH
BNH
SVH
67.5%
Paolo Memorial
4 hospitals (80.72 -100 %)
Prasit Patana
64 - 100% 4x Pyathai hospitals (64.4 100%)
6.2%
Phuket International Hospital Co. Ltd
Samithvej
30%
Royal Bangkok Hospital LLC
Source: Nomura research Note: 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
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January 9, 2013
Fig. 62: Key shareholders of major hospital group

BGH Shareholders Prasarttong family & affiliates - Prasarttong-Osoth family - Bangkok Airways Thongtang family Viddayakorn Satit Viriyah Insurance Bangkok Bank RAM Shareholders Dr. Aurchat & allies Bangkok Dusit Medical Services
Stake 30.7% 22.3% 8.4% 15.2% 0.0% 6.4% 1.3%
BH Shareholders Sophonpanich & affiliaites - Sophonpanich family members - Bangkok Bank and affiliates *if include CB converson Bangkok Dusit Medical Services
KH Stake Shareholders 22.9% Harnphanich Family 6.5% 16.3% 35.1% 20.3% Stake 48.5%
VIBHA Stake Shareholders 58% RAM & allies 38.2% Stake 35.1%
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 Dusits 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.
44
Bangkok Dusit
BGH.BK BGH TB
Back the king of thrones
January 9, 2013 Rating Starts at Target price Starts at Closing price January 7, 2013 Potential upside
The rise of the empire
Buy
THB 134.50 THB 114.00 +18%
Action: Buy the growth, strategic control included We initiate on Bangkok Dusit with 18% implied upside to our TP, given a strong growth outlook, driven by i) strong stable growth of its mid-market and 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 in major competing hospital groups and through its market leader position that is reinforced by scale expansion via a hub and spoke model. Catalyst: Key beneficiary of M&A activity BGH is able to block any attempted industry consolidation and benefit with a sizeable payoff even if one goes through, thanks to significant stakes in the 2nd and 4th largest healthcare operators. Separately, recent changes in its shareholder structure may make it more susceptible to a takeover. Valuations/risk The stock currently trades at 28.6/24.1x FY12/13F P/E and 16.0x/14.2x FY12/13F EV/EBITDA, which is at the high-end of its historical trading band. We think the stock deserves to trade higher relative to historicals 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. 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 to lower patient load growth.
31 Dec Currency (THB) FY11 Actual Old FY12F New Old FY13F New Old FY14F New
Anchor themes Continued growth in medical tourism, coupled with structurally stronger domestic demand coming from the rising middle class, will underpin growth in Thailand's healthcare sector. Nomura vs consensus For FY13F earnings, we are 6% above consensus.
Revenue (mn) Reported net profit (mn) Normalised net profit (mn) FD normalised EPS FD norm. EPS growth (%) FD normalised P/E (x) EV/EBITDA (x) Price/book (x) Dividend yield (%) ROE (%) Net debt/equity (%)
37,308 4,386 4,386 2.84 54.1 40.2 19.9 5.5 1.0 18.4 39.3 N/A N/A N/A N/A
45,885 7,961 6,166 3.99 40.6 28.6 16.0 4.8 1.9 23.1 34.7 N/A N/A N/A N/A
51,450 7,304 7,304 4.73 18.4 24.1 14.2 4.3 1.7 18.7 26.3 N/A N/A N/A N/A
57,709 8,579 8,579 5.55 17.5 20.5 12.2 3.8 2.0 19.5 15.1
Source: Company data, Nomura estimates
Key company data: See page 2 for company data and detailed price/index chart.
Nomura | Bangkok Dusit
January 9, 2013
Key data on Bangkok Dusit

Incomestatement(THBmn)
Year-end 31 Dec Revenue Cost of goods sold Gross profit SG&A Employee share expense Operating profit EBITDA Depreciation Amortisation EBIT Net interest expense Associates & JCEs Other income Earnings before tax Income tax Net profit after tax Minority interests Other items Preferred dividends Normalised NPAT Extraordinary items Reported NPAT Dividends Transfer to reserves Valuation and ratio analysis Reported P/E (x) Normalised P/E (x) FD normalised P/E (x) FD normalised P/E at price target (x) Dividend yield (%) Price/cashflow (x) Price/book (x) EV/EBITDA (x) EV/EBIT (x) Gross margin (%) EBITDA margin (%) EBIT margin (%) Net margin (%) Effective tax rate (%) Dividend payout (%) Capex to sales (%) Capex to depreciation (x) ROE (%) ROA (pretax %) Growth (%) Revenue EBITDA EBIT Normalised EPS Normalised FDEPS Per share Reported EPS (THB) Norm EPS (THB) Fully diluted norm EPS (THB) Book value per share (THB) DPS (THB)
Relative performance chart (one year)

FY10 23,997 -13,662 10,335 -6,945 3,390 5,540 -2,150 3,390 -530 300 3,160 -779 2,380 -85 FY11 37,308 -23,675 13,633 -7,224 6,409 9,116 -2,707 6,409 -707 382 6,083 -1,456 4,627 -241 FY12F 45,885 -26,579 19,306 -11,613 7,694 10,703 -3,009 7,694 -740 1,075 8,028 -1,530 6,498 -332 FY13F 51,450 -29,490 21,960 -13,065 8,895 12,172 -3,277 8,895 -723 989 9,161 -1,553 7,608 -304 FY14F 57,709 -32,724 24,985 -14,681 10,304 13,853 -3,549 10,304 -646 1,114 10,772 -1,835 8,937 -357
Source: ThomsonReuters, Nomura research

(%) Absolute (THB) Absolute (USD) Relative to index Market cap (USDmn) Estimated free float (%) 52-week range (THB) 3-mth avg daily turnover (USDmn) Major shareholders (%) Praarttong-Osoth Prasert Thongtang Wichai 116.5/70.25 13.64 1M -0.9 -0.3 -6.8 5,786.0 3M 12M 5.1 39.0 5.4 44.8 -1.9 10.1
12.7 9.9
2,295 2,295 -990 1,305
4,386 4,386 -1,700 2,686
6,166 1,795 7,961 -3,317 4,644
7,304 7,304 -3,043 4,261
8,579 8,579 -3,575 5,005
Source: Thomson Reuters, Nomura research
Notes
61.9 61.9 61.9 73.0 0.6 31.9 11.3 31.6 49.9 43.1 23.1 14.1 9.6 24.7 43.1 4.8 0.5 na na
40.2 40.2 40.2 47.4 1.0 28.4 5.5 19.9 27.8 36.5 24.4 17.2 11.8 23.9 38.8 9.5 1.3 18.4 16.0
22.1 28.6 28.6 33.7 1.9 21.9 4.8 16.0 21.6 42.1 23.3 16.8 17.4 19.1 41.7 9.8 1.5 23.1 15.1
24.1 24.1 24.1 28.5 1.7 18.3 4.3 14.2 18.9 42.7 23.7 17.3 14.2 16.9 41.7 8.7 1.4 18.7 15.9
20.5 20.5 20.5 24.2 2.0 15.9 3.8 12.2 16.0 43.3 24.0 17.9 14.9 17.0 41.7 7.8 1.3 19.5 17.7
High growth profile driven by volume growth and higher patient acuity
55.5 64.6 89.0 54.1 54.1
23.0 17.4 20.1 40.6 40.6
12.1 13.7 15.6 18.4 18.4
12.2 13.8 15.8 17.5 17.5
1.84 1.84 1.84 10.12 0.64
2.84 2.84 2.84 20.70 1.10
5.15 3.99 3.99 23.91 2.15
4.73 4.73 4.73 26.58 1.97
5.55 5.55 5.55 30.24 2.31
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January 9, 2013
Cashflow(THBmn)
Year-end 31 Dec EBITDA Change in working capital Other operating cashflow Cashflow from operations Capital expenditure Free cashflow Reduction in investments Net acquisitions Reduction in other LT assets Addition in other LT liabilities Adjustments Cashflow after investing acts Cash dividends Equity issue Debt issue Convertible debt issue Others Cashflow from financial acts Net cashflow Beginning cash Ending cash Ending net debt
FY10 5,540 77 -1,167 4,449 -1,154 3,296 -1,359 FY11 9,116 -294 -2,627 6,195 -3,560 2,635 -275 -372 1,902 -1,470 2,419 -1,056 10 -46 0 60 -1,033 1,386 2,489 3,876 12,581 FY12F 10,703 -466 -2,183 8,054 -4,500 3,554 -2,235 19 -3 220 1,555 -1,700 0 -100 0 0 -1,800 -245 3,876 3,631 12,826 FY13F 12,172 -366 -2,180 9,626 -4,500 5,126 0 19 8 285 5,438 -3,317 0 -100 0 0 -3,417 2,021 3,631 5,652 10,805 FY14F 13,853 -409 -2,374 11,070 -4,500 6,570 0 19 20 276 6,885 -3,043 0 -580 0 0 -3,623 3,261 5,652 8,913 7,064
Notes
Improving FCF generation
50 1,987 -881 0 -493 0 -10 -1,384 603 1,886 2,489 8,261
Balancesheet(THBmn)
As at 31 Dec Cash & equivalents Marketable securities Accounts receivable Inventories Other current assets Total current assets LT investments Fixed assets Goodwill Other intangible assets Other LT assets Total assets Short-term debt Accounts payable Other current liabilities Total current liabilities Long-term debt Convertible debt Other LT liabilities Total liabilities Minority interest Preferred stock Common stock Retained earnings Proposed dividends Other equity and reserves Total shareholders' equity Total equity & liabilities Liquidity (x) Current ratio Interest cover Leverage Net debt/EBITDA (x) Net debt/equity (%) Activity (days) Days receivable Days inventory Days payable Cash cycle
FY10 2,489 1,740 1,912 398 231 6,770 3,911 18,858 1,299 201 1,157 32,197 3,395 1,314 3,518 8,228 7,204 482 15,914 648 8,235 5,293 2,107 15,634 32,197
FY11 3,876 464 3,377 1,038 122 8,877 7,865 29,430 10,609 482 1,529 58,792 1,044 3,391 3,143 7,578 15,412 2,384 25,375 1,422 21,568 9,159 1,268 31,995 58,792
FY12F 3,631 464 4,082 1,311 122 9,609 11,372 31,043 10,609 379 1,509 64,522 3,044 3,948 3,098 10,090 13,412 2,381 25,883 1,686 21,568 15,488 -103 36,953 64,522
FY13F 5,652 464 4,579 1,454 122 12,271 12,061 32,409 10,609 256 1,490 69,095 6,524 4,267 3,054 13,845 9,932 2,388 26,165 1,857 21,568 19,608 -103 41,073 69,095
FY14F 8,913 464 5,138 1,614 122 16,251 12,872 33,527 10,609 108 1,471 74,838 1,044 4,621 3,009 8,674 14,932 2,408 26,014 2,093 21,568 25,265 -103 46,730 74,838
Notes
Robust balance sheet that will help support expansion plans
0.82 6.4
1.17 9.1
0.95 10.4
0.89 12.3
1.87 16.0
1.49 52.8
1.38 39.3
1.20 34.7
0.89 26.3
0.51 15.1
0.0
25.9 11.1 36.3 0.7
29.7 16.2 50.5 -4.6
30.7 17.1 50.8 -3.0
30.7 17.1 49.6 -1.7
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January 9, 2013
About Bangkok Dusit

Bangkok 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.
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January 9, 2013
Positioned for both domestic and foreign patient segments

Bangkok 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 regions Going 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
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January 9, 2013
Mid-market and upcountry segments offer strong stable growth

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 BGHs 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
21% 21% 21% 21% 21% 21%
20% 12% 12% 16%
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 and growing; 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
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January 9, 2013
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
2,500 2,205 2,000 1,703 1,518 1,500 15% 11% 991 1,000 10% 5% 9% 1,930 1,987 2,047 20% 20% 17% 17% 18%
Fig. 66: y-y growth in international patient revenue intensity

25% 23%
5% 500 153 37 0 FY 02 FY 03 FY 04 FY 05 FY 06 FY 07 FY 08 FY09 FY10 FY11 In Patient Revenues per patient day, Int'l (baht) 182 39 60 304 146 251 306 352 342 346 372 0% FY 03 FY 04
4% 3%
FY 05
FY 06
FY 07
Average Daily Census (Int'l)
Out Patient Department Visits per day (Int'l)
Out Patient Department Revenues per visit, Int'l (baht)
Fig. 67: International patient revenues
10,000 9,000 8,000 7,000 6,000 5,000 4,000 3,000 2,000 976 1,000 0 FY 02 FY 03 FY 04 FY 05 FY 06 FY 07 FY 08 FY09 FY10 382 518 2,656 5,088 6,430 7,663 7,775 8,465
9,158
FY11
International Patient Revenue (THB'mn)

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.
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January 9, 2013
Fig. 68: Top countries for international patient revenues
As%ofrevenues Australia UAE

Japan
FY08
FY09
FY10
FY11
1.90%
3QFY12 1.70% 1.70%

2.70%
4.70%
4.30%
3.20%
4.60% 3.30%
2.80% 4.20% 3.00%

2.40% 2.20%
3.10% 2.10% 1.90% 1.60%
UK USA Germany
3.50% 2.60% 1.80%
1.80% 1.60%
2.60% 2.00%
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January 9, 2013
Growing through capacity expansion

The 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
4,500 4,012 4,000 3,500 3,000 2,500 2,000 1,500 1,000 500 0 FY 08 Available beds FY09 Utilisation FY10 FY11 61% 2,300 2,081 66% 65% 66% 66% 65% 64% 63% 62% 61% 60% 59% 58% 67%
2,308
Fig. 70: Licensed capacity

Licensed Beds 343 97 48 237 120 140 350 260 230 144 275 400 200 60 Beds 200 Code BKH BUD Ownership 90.4% 90.4% 100.0% Beds 300 30 120 Licensed Beds 400 257 150 220 170 114 143 Beds 317 50 165 Beds 60
# 1 2 3 4 5 6 7 8 9 10 11 12 13 14
Central BangkokHospital BangkokHeartHospital WattanosothHospital PaoloPaholyothin PaoloChokchai4 PaoloNawamin Phyathai1 Phyathai2 Phyathai3 BNHMedicalCentre SamitivejSukhumvit SamitivejSrinakarin PaoloSamutprakan BangkokHospitalPrapradaeng North BangkokChangmai NorthEast BangkokHospitalRatchasima BangkokHospitalPakchong BangkokUdon
Code BMC BMC BMC Pmed Pchok Pnwm PYT1 PYT2 PYT3 BNH SVH SNH Psamut BPD
Ownership 100.0% 100.0% 100.0% 100.0% 84.8% 99.8% 100.0% 99.1% 98.1% 91.5% 95.8% 95.8% 92.4% 79.0%
Zone 10 10 10 10 10 10 10 10 10 10 10 10 11 11
# 19 20 21 22 23 24 25
East BangkokHospitalPattaya PhyathaiSriracha SamitivejSriracha BangkokHospitalRayong BangkokChantaburi BangkokTrat SoonthornphuHospital South BangkokPhuket BangkokHospitalSamui BangkokHatYai West BangkokHuahin OutsideThailand RoyalAngkorInternational RoyalRattanakInternational
Code BPH PYTS SSH BRH BCH BTH
Ownership 97.2% 64.6% 67.5% 100.0% 99.7% 99.8%
Zone 20 20 20 21 22 23 21
26 27 28
BPK BSH BHH
99.7% 100.0% 98.8%
83 84 90
29 15 50 Zone 30 30 41 30 31
BNH
100.0%
77
80.0% 70.0%
21 30
Cambodia Cambodia
16 17 18
Note Hubsareinbold,Newhospitalsinblue
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January 9, 2013
Fig. 71: Expansion

Name Bangkok Hospital Chiangmai Bangkok Hospital Udon Soonthornphu Hospital
Type Greenfield Brownfield Brownfield
Location Central Chiangmai, on ChiangmaiLampang Road (Highway #11) Udon Thani province
Date Mid-2014 Dec-12
Details 200 beds (55 1st phase) 120 beds 143 beds (30 - 40 beds in 1st phase), Target mid income patients (staff w medical benefits)
Rayong, South of BKK; Mid-2013 9km from Bangkok Hospital Rayong
Fig. 72: Non-exhaustive list of possible M&A targets

NTV AHC M-CHAI Mahachai Hospital 1 - 180 beds, Samut Sakorn Mahachai Hospital 2 - 120 beds, Samut Sakorn Mahachai Hospital 3 - 100 beds, Samut Sakorn Maeklong Hopsital - 60 beds, Samut Songkram Petcharat Hospital - 100 beds, Phetchaburi 560 1,487 106 15.0 17.3 7.1
SKR
Hospitals Total beds Revenues (THB'mn) Net profit (THB'mn) ROA (%) ROE (%) Net profit margin (%)
Nonthavej Hospital - 208 beds, Nonthaburi 208 1,460 163 19.6 16.0 11.1
Aikchol Hospital 1 - 262 beds, Chonburi Aikchol Hospital 2 - 100 beds, Chonburi 362 1,093 102 14.9 12.3 9.3
Sikarin Hospital - 216 beds, BKK Rattarin Hospital - 100 beds, Samut Prakarn 316 373 30 12.0 11.4 8.1
Note: FY11 data Source: Company data, Nomura research
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January 9, 2013
Reinforcing #1 position by scaling up through a hub and spoke strategy

Already the market leader, Bangkok Dusits 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
1x BGH BH (under construction)
1x BGH BH (new hub in the NE region)
2x 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 construction 1x BGH PM 1x BGH - BH 1x BGH - BH 1x BGH - BH
1x BGH - BH
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January 9, 2013
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: Kasemrad Sukhapibal 3 BH: Bangkok Hospital, PM: Paolo Memorial, SA: Samithvej, PH: Pyathai, BNH: BNH Hospital
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January 9, 2013
Maintaining strategic control via crossholdings

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
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January 9, 2013
Fig. 76: Key shareholders of major hospital group

BGH Shareholders Prasarttong family & affiliates - Prasarttong-Osoth family - Bangkok Airways Thongtang family Viddayakorn Satit Viriyah Insurance Bangkok Bank RAM Shareholders Dr. Aurchat & allies Bangkok Dusit Medical Services
Stake 30.7% 22.3% 8.4% 15.2% 0.0% 6.4% 1.3%
BH Shareholders Sophonpanich & affiliaites - Sophonpanich family members - Bangkok Bank and affiliates *if include CB converson Bangkok Dusit Medical Services
KH Stake Shareholders 22.9% Harnphanich Family 6.5% 16.3% 35.1% 20.3% Stake 48.5%
VIBHA Stake Shareholders 58% RAM & allies 38.2% Stake 35.1%
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 at rich 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 found their 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.
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January 9, 2013
Key Earning Drivers

We 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
PnL(exFVadjustments) Revenuehospital ops Revenuegroup COGSgroup Grossprofithospital ops Grossprofitgroup Profitfromoperations EBITDA Financeexpense PBT PAT PATattributabletoshareholders EPS 2009 2010 2011 2012F 2013F 2014F 2015F
21,597 21,974 12,454 9,143 9,520 2,771 5,015 (608) 2,332 1,785 1,725 1.42
23,513 24,051 13,662 9,851 10,389 3,444 5,540 (530) 3,160 2,380 2,295 1.88
35,224 36,892 21,460 13,286 15,433 5,993 8,637 (707) 5,604 4,148 3,907 3.00
44,156 45,982 26,579 17,577 19,403 7,790 10,703 (740) 8,028 6,498 6,166 3.99
49,655 51,559 29,490 20,165 22,069 9,004 12,172 (723) 9,161 7,608 7,304 4.73
55,844 57,879 32,724 23,120 25,155 10,473 13,853 (646) 10,772 8,937 8,579 5.55
62,810 65,016 36,315 26,495 28,701 12,220 15,775 (532) 12,689 10,520 10,099 6.53
%growth(exFVadjustments) Revenuehospital ops Revenuegroup COGSgroup Grossprofithospital ops Grossprofitgroup Profitfromoperations EBITDA Financeexpense PBT PAT PATattributabletoshareholders EPS
2009 2% 1% 5% 2% 3% 4% 0% 0% 3% 4% 4% 4%
2010 9% 9% 10% 8% 9% 24% 10% 13% 36% 33% 33% 32%
2011 50% 53% 57% 35% 49% 74% 56% 33% 77% 74% 70% 60%
2012F 25% 25% 24% 32% 26% 30% 24% 5% 43% 57% 58% 33%
2013F 12% 12% 11% 15% 14% 16% 14% 2% 14% 17% 18% 18%
2014F 12% 12% 11% 15% 14% 16% 14% 11% 18% 17% 17% 17%
2015F 12% 12% 11% 15% 14% 17% 14% 18% 18% 18% 18% 18%
Margins (exFVadjustments) Grossprofit marginshospitalops Grossprofit marginsgroup(ex FVadj) Operating profit margins(onhospital ops) Operating profit margins(ongroup) EBITDAmargins(on hospitalops) EBITDAmargins(on group) PBTmargins(onhospital ops) PBTmargins(ongroup) PATmargins(onhospital ops) PATmargins(ongroup) PATattributabletoshareholdersmargins(onhospitalops) PATtos/hmargins(ongroup)
2009 42.3% 43.3% 12.8% 12.6% 23.2% 22.8% 10.8% 10.6% 8.3% 8.1% 8.0% 7.9%
2010 41.9% 43.2% 14.6% 14.3% 23.6% 23.0% 13.4% 13.1% 10.1% 9.9% 9.8% 9.5%
2011 37.7% 41.8% 17.0% 16.2% 24.5% 23.4% 15.9% 15.2% 11.8% 11.2% 11.1% 10.6%
2012F 39.8% 42.2% 17.6% 16.9% 24.2% 23.3% 18.2% 17.5% 14.7% 14.1% 14.0% 13.4%
2013F 40.6% 42.8% 18.1% 17.5% 24.5% 23.6% 18.4% 17.8% 15.3% 14.8% 14.7% 14.2%
2014F 41.4% 43.5% 18.8% 18.1% 24.8% 23.9% 19.3% 18.6% 16.0% 15.4% 15.4% 14.8%
2015F 42.2% 44.1% 19.5% 18.8% 25.1% 24.3% 20.2% 19.5% 16.7% 16.2% 16.1% 15.5%
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.
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January 9, 2013
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 in volume). 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
21% 21% 21% 21% 21% 21%
20% 12% 12% 16%
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
Revenue contribution BMC^ BMC Cluster PYT* Phyathai Cluster SVH** Samitivej Cluster BPH Bangkok Pattaya BPK Bangkok Phuket PMED Paolo Paholyothin BNH BNH Hospital BRH Bangkok Rayong Others EBTIDA contribution BMC^ BMC Cluster PYT* Phyathai Cluster SVH** Samitivej Cluster BPH Bangkok Pattaya BPK Bangkok Phuket PMED Paolo Paholyothin BNH BNH Hospital BRH Bangkok Rayong Others 2Q2011 22% 20% 18% 7% 5% 6% 4% 3% 16% 2Q2011 22% 22% 18% 7% 4% 7% 4% 4% 12% 3Q2011 22% 21% 17% 6% 5% 5% 4% 4% 16% 3Q2011 22% 21% 17% 6% 4% 6% 4% 4% 14% 4Q2011 21% 20% 18% 7% 5% 5% 4% 4% 16% 4Q2011 21% 20% 17% 9% 6% 5% 4% 4% 13% 1Q2012 22% 19% 17% 9% 6% 5% 4% 3% 16% 1Q2012 21% 19% 15% 11% 7% 5% 4% 3% 14% 2Q2012 22% 19% 17% 8% 5% 5% 4% 3% 16% 2Q2012 21% 21% 15% 10% 6% 5% 4% 4% 14% 3Q2012 22% 20% 17% 7% 5% 5% 4% 4% 17% 3Q2012 22% 22% 15% 8% 6% 5% 4% 4% 14% Comments Maintain importance Flat Flat Volatile, stable on avg Flat Flat Flat Flat Flat Comments Maintain importance Increasing contribution Declining Volatile, stable on avg Increasing contribution Declining Flat Flat
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
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January 9, 2013
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 Dusits 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.
Bangkok Dusit % growth (y-y) Total Visits per day Average Daily Census % growth (y-y) Revenue per visit Revenue per patient day Hospital cost Admin cost
FY12F 2.4% 10.7%
FY13F 4.0% 7.0%
FY14F 4.0% 7.0%
FY15F 4.0% 7.0%
4.3% 1.3% 24% 26%
7.0% 6.0% 11% 12%
7.0% 6.0% 11% 12%
7.0% 6.0% 11% 12%
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
Change in ppt growth rate Total Visit per day Average Daily Census Revenue per visit Revenue per patient day Hospital cost Admin cost
+1% 0.5% 0.6% 0.4% 0.6% -2.8% -0.9%
-1% -0.5% -0.6% -0.4% -0.6% 2.8% 0.9%
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January 9, 2013
Valuations
Bangkok 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 BGHs 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
TargetMultiple(x) TargetValuation(THB'mn) LessDebt,AddCash AddstakeinBumrungrad AddstakeinRAM Targetvaluation(THB'mn) #ofshares('000) TargetPrice

16.3 198,411 (13,061) 15,332 7,243 207,924 1,545,459 134.50
Comments FY13 FY13 24% 38%
134.5
Fig. 83: Valuation range
P/E (peers basis)
132.00
DCF
138.75
EV/EBITDA (SOTP)
134.50
Takeout
137.00
0.00
20.00
40.00
60.00
80.00
100.00
120.00
140.00
160.00
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January 9, 2013
Fig. 84: Bangkok Dusits forward P/E band (5yr)

(THB) 180 160 140 120 100 80 60 40 20 0
Fig. 85: Bangkok Dusits forward EV/EBITDA band (5yr)

EV/ EBITDA (x) 19
32x 28x 24x
17
15
13
20x 16x 12x

11
5 Jul-07
J an-08
Jul-08
Jan-09
Jul -09
J an-10
J ul-10
Jan-11
Jul-11
Jan-12
J ul-12
Jan-08
Jan-09
Jan-10
Jan-11
Jan-12
Jan-13
Jul-07
Jul-08
Jul-09
Jul-10
Jul-11
Jul-12
EV/EBITDA
Average
SD -
SD +
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January 9, 2013
Key catalysts
We have not assumed a high level of foreign patient growth. Foreign patient growth is 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 assuming those 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 a greater 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 rerate further. We wouldnt 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 relieved

Favourable 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.
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January 9, 2013
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. 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 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 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 BGHs premium hospitals.

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.

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 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 BGHs 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.
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January 9, 2013
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.
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January 9, 2013
Appendix: Operational Statistics

Fig. 86: Inpatients
3,000 24,004 2,500 23,676 2,665 24,500 24,000 23,500 2,000 22,867 1,500 1,367 1,391 1,499 22,205 1,000 22,000 500 21,500 21,000 FY 08 Average Daily Census FY09 FY10 FY11 23,000 22,500
Fig. 87: Outpatients

25,000 20,322 2,700
Inpatient revenues /patient day (THB)
15,000
2,584 2,572 9,650 9,950 10,317
2,600
10,000
2,550 2,516
5,000
2,500
0 FY 08 Out Patient Visits per day FY09 FY10 FY11
2,450
In Patient Department Revenues per patient day (baht)
Out Patient Department Revenues per visit (baht)
Fig. 88: Patients by Nationality

100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% FY 08 Local Patient (%) FY09 International Patient (%) FY10 FY11 64% 64% 64% 74% 36% 36% 36% 26%
Fig. 89: Patient types

100% 90% 80% 43% 70% 60% 50% 40% 30% 20% 10% 0% FY 08 In Patient Out Patient Others FY09 FY10 FY11 54% 56% 54% 54% 43% 45% 46% 3% 1% 1% 0%
Fig. 90: International patient volume

2,500 2,205 2,000 1,930 1,987 2,047
Fig. 91: Payment types

100% 90% 80% 70% 2% 12% 8% 2% 13% 8% 2% 14% 8% 7%
3% 16%
1,500
60% 50%
1,000
40% 30%
78%
77%
77%
71%
500
352
342
346
372
20% 10%
0 FY 08 Average Daily Census (Int'l) FY09 FY10 FY11
0% FY 08 Self pay Contract Insurance FY09 Others FY10 Social Security Scheme FY11
Out Patient Department Visits per day (Int'l)
Outpatient revenues/vist (THB)
20,000
2,644
2,650
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January 9, 2013
Fig. 92: Q-Q revenue growth international v local

50% 39%
Fig. 93: Top international patient revenues
Asa%ofrevenues Japan UK
16% 12% 12%
4Q12 3.10% 2.10%
1Q12 2.80% 2.10%
2Q12 2.70% 2.00% 1.70%
2Q12 2.70% 1.80% 1.70% 1.70% 1.60%
40%
30%
20%
UAE
10% 3% 0% 3Q11 -10% 4Q11 -2% -7% -15% Growth - local patient (q-q) Growth - Int'l patient (q-q) 1Q12 2Q12 3Q12 -1% 3%
Australia USA Germany France Myanmar
1.90% 1.90% 1.60% 1.90% 1.80% 1.60%
1.60%
-20%
1.50%
Source: Company data, Nomura
68
Bumrungrad
BH.BK BH TB
Like the company, not the price
January 9, 2013 Rating Starts at Target price Starts at Closing price January 7, 2013 Potential upside
Hold on to it
Neutral
THB 80.50 THB 76.25 +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. By focusing 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 highend of both its 2-year & 5-year historical P/E bands. Despite the growth profile, we struggle to justify further significant multiple expansion on the basis of fundamentals to warrant a Buy call. Catalyst: Higher than expected foreign patient load Foreign 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 in 2013F. With foreign patients making up 50% of its patient load, the group is heavily exposed to the international patient segment. Valuations/Risks Bumrungrad 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 year ranges 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 of higher growth profile compared to regional peers. We cross-check our valuations against various methodologies. Key risks: 1) lower than expected international patient load; 2) lower than expected repricing ability; 3) staff shortages and higher wage bills.
31 Dec Currency (THB) FY11 Actual Old FY12F New Old FY13F New Old FY14F New
Anchor themes Continued growth in medical tourism, coupled with structurally stronger domestic demand coming from the rising middle class, will underpin growth in Thailand's healthcare sector. Nomura vs consensus For FY13F earnings, we are 1% below consensus.
Revenue (mn) Reported net profit (mn) Normalised net profit (mn) FD normalised EPS FD norm. EPS growth (%) FD normalised P/E (x) EV/EBITDA (x) Price/book (x) Dividend yield (%) ROE (%) Net debt/equity (%)
11,276 1,588 1,588 2.18 26.2 35.0 20.4 8.2 1.4 24.8 54.9 N/A N/A N/A N/A
12,979 2,722 2,083 2.86 31.1 26.7 16.4 6.4 2.5 35.5 7.8 N/A N/A N/A N/A
14,568 2,360 2,360 3.24 13.3 23.5 15.2 5.8 2.1 25.9 24.6 N/A N/A N/A N/A
16,357 2,667 2,667 3.66 13.0 20.8 13.2 5.0 2.4 25.9 19.6
Key company data: See page 2 for company data and detailed price/index chart.
Nomura | Bumrungrad
January 9, 2013
Key data on Bumrungrad

Incomestatement(THBmn)
Year-end 31 Dec Revenue Cost of goods sold Gross profit SG&A Employee share expense Operating profit EBITDA Depreciation Amortisation EBIT Net interest expense Associates & JCEs Other income Earnings before tax Income tax Net profit after tax Minority interests Other items Preferred dividends Normalised NPAT Extraordinary items Reported NPAT Dividends Transfer to reserves Valuation and ratio analysis Reported P/E (x) Normalised P/E (x) FD normalised P/E (x) FD normalised P/E at price target (x) Dividend yield (%) Price/cashflow (x) Price/book (x) EV/EBITDA (x) EV/EBIT (x) Gross margin (%) EBITDA margin (%) EBIT margin (%) Net margin (%) Effective tax rate (%) Dividend payout (%) Capex to sales (%) Capex to depreciation (x) ROE (%) ROA (pretax %) Growth (%) Revenue EBITDA EBIT Normalised EPS Normalised FDEPS Per share Reported EPS (THB) Norm EPS (THB) Fully diluted norm EPS (THB) Book value per share (THB) DPS (THB)
Relative performance chart (one year)

FY10 10,069 -5,944 4,125 -2,256 1,869 2,465 -596 1,869 -68 -35 1,766 -507 1,258 0 FY11 11,276 -6,599 4,678 -2,506 2,171 2,819 -648 2,171 -160 83 2,094 -506 1,588 0 FY12F 12,979 -7,560 5,419 -2,807 2,612 3,319 -707 2,612 -185 117 2,544 -461 2,083 0 FY13F 14,568 -8,433 6,135 -3,120 3,016 3,803 -788 3,016 -80 11 2,947 -587 2,360 0 FY14F 16,357 -9,407 6,950 -3,492 3,457 4,349 -891 3,457 -139 12 3,331 -664 2,667 0
Source: ThomsonReuters, Nomura research

(%) Absolute (THB) Absolute (USD) Relative to index Market cap (USDmn) Estimated free float (%) 52-week range (THB) 3-mth avg daily turnover (USDmn) Major shareholders (%) Bangkok Dusit Bangkok Insurance Source: Thomson Reuters, Nomura research 85.5/43.5 1.67 1M 3.0 3.7 1,824.0 3M 12M -5.3 58.9 -5.0 65.4
-2.9 -12.3 29.9
24.0
1,258 1,258 -657 601
1,588 1,588 -802 786
2,083 640 2,722 -1,361 1,361
2,360 2,360 -1,180 1,180
2,667 2,667 -1,334 1,334
Notes
Margin expansion to drive growth

44.1 44.1 44.1 46.6 1.2 33.7 9.2 23.2 30.8 41.0 24.5 18.6 12.5 28.7 52.2 6.9 1.2 na na 35.0 35.0 35.0 36.9 1.4 29.6 8.2 20.4 26.3 41.5 25.0 19.3 14.1 24.2 50.5 9.7 1.7 24.8 21.7 20.4 26.7 26.7 28.2 2.5 22.6 6.4 16.4 20.6 41.8 25.6 20.1 21.0 18.1 50.0 24.2 4.4 35.5 23.2 23.5 23.5 23.5 24.8 2.1 19.0 5.8 15.2 19.1 42.1 26.1 20.7 16.2 19.9 50.0 23.0 4.3 25.9 23.9 20.8 20.8 20.8 22.0 2.4 16.5 5.0 13.2 16.6 42.5 26.6 21.1 16.3 19.9 50.0 12.6 2.3 25.9 23.5
12.0 14.4 16.2 26.2 26.2
15.1 17.8 20.3 31.1 31.1
12.2 14.6 15.4 13.3 13.3
12.3 14.3 14.7 13.0 13.0
1.73 1.73 1.73 8.33 0.90
2.18 2.18 2.18 9.24 1.10
3.74 2.86 2.86 11.84 1.87
3.24 3.24 3.24 13.16 1.62
3.66 3.66 3.66 15.16 1.83
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Nomura | Bumrungrad
January 9, 2013
Cashflow(THBmn)
Year-end 31 Dec EBITDA Change in working capital Other operating cashflow Cashflow from operations Capital expenditure Free cashflow Reduction in investments Net acquisitions Reduction in other LT assets Addition in other LT liabilities Adjustments Cashflow after investing acts Cash dividends Equity issue Debt issue Convertible debt issue Others Cashflow from financial acts Net cashflow Beginning cash Ending cash Ending net debt
FY10 2,465 -289 -527 1,649 -694 955 0 FY11 2,819 -262 -678 1,879 -1,090 789 -3,041 -2,948 0 278 2,855 -2,066 -693 -1,530 4,922 2,700 633 627 1,261 3,694 FY12F 3,319 -18 -841 2,461 -3,135 -674 3,577 0 0 0 951 3,854 -801 0 -33 -834 3,020 1,261 4,281 674 FY13F 3,803 -68 -817 2,919 -3,357 -438 -11 0 0 0 161 -288 -1,361 0 -33 -1,394 -1,682 4,281 2,599 2,356 FY14F 4,349 -83 -893 3,372 -2,064 1,308 -12 0 0 0 103 1,399 -1,180 0 -33 -1,212 187 2,599 2,786 2,169
Notes
Cashflow will be used to fund expansion of facilities
28 983 -620 -90 -32 -742 241 387 627 903
Balancesheet(THBmn)
As at 31 Dec Cash & equivalents Marketable securities Accounts receivable Inventories Other current assets Total current assets LT investments Fixed assets Goodwill Other intangible assets Other LT assets Total assets Short-term debt Accounts payable Other current liabilities Total current liabilities Long-term debt Convertible debt Other LT liabilities Total liabilities Minority interest Preferred stock Common stock Retained earnings Proposed dividends Other equity and reserves Total shareholders' equity Total equity & liabilities Liquidity (x) Current ratio Interest cover Leverage Net debt/EBITDA (x) Net debt/equity (%) Activity (days) Days receivable Days inventory Days payable Cash cycle
FY10 627 958 218 51 1,855 1,212 5,785 282 18 9,152 100 556 996 1,652 1,430 0 3,082 0 2 1,266 4,528 273 6,069 9,152
FY11 1,261 1,126 266 52 2,704 4,253 6,242 256 17 13,473 0 603 903 1,506 4,955 278 6,739 2 2 1,014 5,115 601 6,732 13,473
FY12F 4,281 1,284 311 52 5,927 677 8,726 200 17 15,546 0 738 953 1,691 4,955 278 6,924 2 2 1,014 6,811 794 8,620 15,546
FY13F 2,599 1,445 347 52 4,442 688 11,360 134 17 16,641 0 817 1,003 1,820 4,955 278 7,053 2 2 1,014 7,777 794 9,586 16,641
FY14F 2,786 1,626 387 52 4,850 700 12,609 58 17 18,234 0 905 1,053 1,958 4,955 278 7,191 2 2 1,014 9,232 794 11,041 18,234
Notes
Strong balance sheet to help support expansion
1.12 27.4
1.80 13.6
3.51 14.1
2.44 37.8
2.48 24.9
0.37 14.9
1.31 54.9
0.20 7.8
0.62 24.6
0.50 19.6
0.0
33.7 13.4 32.0 15.1
34.0 14.0 32.4 15.5
34.2 14.2 33.6 14.8
34.3 14.2 33.4 15.1
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Nomura | Bumrungrad
January 9, 2013
About Bumrungrad
Bumrungrad 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. BHs management is focused on driving revenue intensity, rather than aggressive capacity expansion. As such, BHs volume growth is slower relative to BGH, though this is compensated by higher growth in revenue intensity. BHs adjusted FY12F EBITDA margins (31.6%) are also one of the highest in the region and higher than BGHs (29.6%), due to its focus on driving higher asset intensity and efficiency from its standalone hospital. BH obtains more than 50% of its revenues from foreign patients, higher than BGHs 26%, and is the most leveraged to the flow of international patients amongst all the listed healthcare players in Thailand.
72
Nomura | Bumrungrad
January 9, 2013
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
400 350 300 188,203 250 156,487 200 150 100 50 0 FY08 Total Admissions per day FY09 FY10 Average Daily Census FY11 Revenue per adm ission 0 80 78 78 80 50,000 100,000 171,587 150,000 335 317 310 206,353 350 200,000 250,000

Growth in revenue/visit a significant driver
2,820 2,800 2,780 6,000 5,992 2,801 7,000
Revenue/adm ission (THB)
2,760 2,740 2,720 2,700 2,680 2,660 2,640 2,620 2,600 FY08 Total Visits per day FY09 Revenue per visit 2,677 5,174 4,794 2,707
5,440
5,000
4,000
2,680
3,000
2,000
1,000 0 FY10 FY11
Fig. 96: Revenue and volume by nationality

International patient contribution increasing in volumes and revenues
100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% FY08 Local (of revenue) Local (of volume) - RHS FY09 FY10 FY11 I nt ernational (of revenue) I nt ernational (of volume) - RHS 0. 00% 45.0% 45.0% 43.5% 41.0% 10.00% 41. 00% 40. 00% 42. 25% 55.0% 55.0% 56.5% 59.0% 50.00% 59. 00% 60. 00% 57. 75% 70.00%

Middle East patients almost 20% of international patient revenues
As % of Revenues UAE US
9M11 12% 5% 5% 4%
FY11 11% 5% 5% 4%
1Q12 8% 6% 5% 5% 4%
1H12 9% 6% 5% 5% 4%
9M12 9% 5% 6% 5% 4%
56. 00%
60.00%
44. 00%
40.00%
Myanmar
30.00%
Oman
20.00%
Kuwait Bangladesh 3% 3%
Revenue/visit (THB)
73
Nomura | Bumrungrad
January 9, 2013
But not the price

However, 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
TargetMultiple(x) TargetEV(THB'mn) LessDebt,AddCash Targetvaluation #ofshares('000) TargetPrice

15.6 59,334 (674) 58,660 728,337 80.50
Comments FY13 FY13
80.5
Fig. 99: Valuation range
P/E (peers basis)
83.75
DCF
88.00
EV/EBITDA (peer basis)
80.50
Takeout
93.75
0.00
10.00
20.00
30.00
40.00
50.00
60.00
70.00
80.00
90.00
100.00
74
Nomura | Bumrungrad
January 9, 2013
Fig. 100: Bumrungrads forward P/E band (5yr)

(THB) 100 90 80 70 60 50 40 30 27x 24x
Fig. 101: Bumrungrad forward EV/EBITDA band (5yr)
25 23 21 19
21x
17
18x
15
15x
13
12x
11 9
20 10 0
7 EV/ EBITDA (x) 5
Jan-06
Jan-07
Jan-08
Jan-09
Jan-10
Jan-11
Jan-12
Oct-06
Oct-07
Oct-08
Oct-09
Oct-10
Oct-11
Jan-08
Jan-09
Jan-10
Jan-11
Jan-12
Jan-13
Jul-07
Jul-08
Jul-09
Jul-10
Jul-11
Jul-12
EV/EBITDA
Averag e
SD -
SD +
Fig. 102: BHs P/E premium/discount to BGH

60% 50% 40% 30% 20% 10% 0% 3-Jan-06 -10% -20% -30% -40% -50% -60% -70% -80%
Fig. 103: BHs EV/EBITDA premium/discount to BGH

80% 70% 60% 50% 40%
3-Jan-07
3-Jan-08
3-Jan-09
3-Jan-10
3-Jan-11
3-Jan-12
30% 20% 10% 0%
Jul-06
Jul-09
Jul-07
Jul-10
Jul-08
Jul-11
Oct-06
Oct-09
Oct-07
Oct-10
Oct-08
Oct-11
Jul-12
Jan-06
Jan-07
Jan-10
Jan-08
Jan-11
-10% -20%
Jan-09
Jan-12
Oct-12
Apr-09
Apr-06
Apr-07
Apr-10
Apr-08
Apr-11
Apr-12
Oct-12
Apr-06
Apr-07
Apr-08
Apr-09
Apr-10
Apr-11
Apr-12
Jul-06
Jul-07
Jul-08
Jul-09
Jul-10
Jul-11
Jul-12
75
Nomura | Bumrungrad
January 9, 2013
Fortifying in Bangkok
Bumrungrads strategy juxtaposes that of Bangkok Dusits, 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 its 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. 2 campus The womens 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 the preferred 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 BHs existing client base to reduce the ramp up period.
nd
76
Nomura | Bumrungrad
January 9, 2013
Fig. 104: Bumrungrad expansion plans

Current Bumrungrad International Clinic Details Only OPD, 22F - 12F opened + 5F opening + 5F carpark; 212 clinics currently IPD focused - 12F Activity 5F 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
Bumrungrad International Hospital
New Bumrungrad International - 2nd Campus 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) To be constructed (18 - 24mth construction) 6,178 sqm of land on Sukhumvit Soi 1, Est construction start: early 2013 25 - 50m from BH Residences & existing campus Est completion: late 2014/early 2015 8,000 sqm of land on Petchburi Road To construct a 150 - 200 bed hospital, with women's & children centre as cornerstone
Campus expansion
Expansion Capex Capex ('mn THB)

FY12F 2,585
FY13F 2,807
FY14F 1,514
FY15F 487
FY16F 2,239
FY17F 114
Fig. 105: Market positioning
77
Nomura | Bumrungrad
January 9, 2013

We 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 tourist locations

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 Bumrungrads revenue/patient day with IHHs 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 Bumrungrads revenues/patient day with IHHs 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
Rev ppd, S$ Parkway - SG Parkway - M'sia BGH - Thailand BH - Thailand Discount to SG Parkway - M'sia BGH - Thailand BH - Thailand M'sia discount to.. BGH - Thailand BH - Thailand -75% -49% -15% 2009 -51% -70% -73% -52% -17% 2010 -44% -68% -75% -65% -22% 2011 -31% -69% 2009 1,962 497 1,009 1,663 2010 2,091 555 997 1,738 2011 2,275 558 806 1,776
Source: Company data, Nomura research; N.B. 2010 is the best year for comparison across hospitals as BGHs 2011 number is distorted by acquisitions of mid-market hospitals; BH is the best comparison with SG hospitals as it is a standalone hospitals operating at the top end of the premium market
78
Nomura | Bumrungrad
January 9, 2013
Ability to scale the value chain will allow more revenue per patient
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 cardiacrelated 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, Bumrungrads Heart Centre alone has more doctors than all IHHs Singapore hospitals combined (68 v.s. 51 cardiology specialists).
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. 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 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. 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
Country Bangladesh* Cambodia LaoPDR Myanmar Vietnam Total/Average Indonesia

Source: CEIC, World Bank, UN, *Growth rate based on 2010
Population 150.5 14.3 6.3 48.3 87.8 307.2 242.3
GDPpercapita 735 900 1320 380 1411 949 3495
2011grwthrate 6.66 6.93 8.04 N.A 5.89 6.88 6.46
Expat population continues to grow

International patients also include the expat population in Thailand and the surrounding countries. Although we dont 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 surprise on the upside and lead to outperformance in the results. Conversely, the same 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.
79
Nomura | Bumrungrad
January 9, 2013
Key Earning Drivers

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 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(adjustedforgainsonsaleofassociate) Revenuehospitalops
Revenue - group COGS Gross profit - hospital ops Gross profit - group Profit from operations EBITDA Finance expense (net) PBT PAT PAT attributable to shareholders
EPS
%growth Revenuehospitalops Revenuegroup COGSgroup Grossprofithospitalops Grossprofitgroup Profitfromoperations EBITDA Financeexpense PBT PAT PATattributabletoshareholders EPS
FY09 9,068.93 9,337.86 5,553.19 3,515.74 3,784.66 1,733.74 2,271.39 89.32 1,690.05 1,245.65 1,245.65 1.71
FY10 9,805.68 10,068.96 5,943.55 3,862.14 4,125.41 1,868.96 2,464.80 68.20 1,765.83 1,258.49 1,258.49 1.73
FY11 11,014.83 11,306.10 6,598.75 4,416.08 4,707.35 2,200.92 2,818.90 159.59 2,094.18 1,588.03 1,588.03 2.18
FY12F 12,663.41 13,023.35 7,559.99 5,103.42 5,463.36 2,656.34 3,319.48 185.44 2,543.78 2,082.69 2,082.69 2.86
FY13F 14,252.47 14,718.12 8,433.05 5,819.42 6,285.07 3,165.33 3,803.49 79.73 2,946.77 2,359.62 2,359.62 3.24
FY14F 16,040.99 16,447.76 9,406.97 6,634.02 7,040.79 3,548.31 4,348.80 138.60 3,330.85 2,667.10 2,667.10 3.66
FY15F 18,054.03 18,467.34 10,493.41 7,560.62 7,973.93 4,061.67 4,974.99 132.06 3,845.42 3,079.00 3,079.00 4.23
5.1% 5.1% 4.3% 6.4% 6.4% 1.9% 5.4% 17.4% 3.6% 4.6% 4.6% 4.3%
8.1% 7.8% 7.0% 9.9% 9.0% 7.8% 8.5% 23.6% 4.5% 1.0% 1.0% 1.2%
12.3% 12.3% 11.0% 14.3% 14.1% 17.8% 14.4% 134.0% 18.6% 26.2% 26.2% 25.9%
15.0% 15.2% 14.6% 15.6% 16.1% 20.7% 17.8% 16.2% 21.5% 31.1% 31.1% 31.2%
12.5% 13.0% 11.5% 14.0% 15.0% 19.2% 14.6% 57.0% 15.8% 13.3% 13.3% 13.3%
12.5% 11.8% 11.5% 14.0% 12.0% 12.1% 14.3% 73.8% 13.0% 13.0% 13.0% 13.0%
12.5% 12.3% 11.5% 14.0% 13.3% 14.5% 14.4% 4.7% 15.4% 15.4% 15.4% 15.4%
Margins Grossprofitmarginshospitalops Grossprofitmarginsgroup Operatingprofitmargins Operatingprofitmargins(ongroup) EBITDAmargins EBITDAmargins(ongroup) PBTmargins PBTmargins(ongroup) PATmargins PATmargins(ongroup) PATattributabletoshareholdersmargins PATattributabletoshareholdersmargins(ongroup)
38.8% 40.5% 19.1% 18.6% 25.0% 24.3% 18.6% 18.1% 13.7% 13.3% 13.7% 13.3%
39.4% 41.0% 19.1% 18.6% 25.1% 24.5% 18.0% 17.5% 12.8% 12.5% 12.8% 12.5%
40.1% 41.6% 20.0% 19.5% 25.6% 24.9% 19.0% 18.5% 14.4% 14.0% 14.4% 14.0%
40.3% 42.0% 21.0% 20.4% 26.2% 25.5% 20.1% 19.5% 16.4% 16.0% 16.4% 16.0%
40.8% 42.7% 22.2% 21.5% 26.7% 25.8% 20.7% 20.0% 16.6% 16.0% 16.6% 16.0%
41.4% 42.8% 22.1% 21.6% 27.1% 26.4% 20.8% 20.3% 16.6% 16.2% 16.6% 16.2%
41.9% 43.2% 22.5% 22.0% 27.6% 26.9% 21.3% 20.8% 17.1% 16.7% 17.1% 16.7%
80
Nomura | Bumrungrad
January 9, 2013
FY12F % growth (y-y) Total Visits per day Total Admissions per day Average Daily Census % growth (y-y) Revenue per visit Revenue per admission Revenue per patient day Hospital cost Admin cost
FY13F 4.0% 3.0% 5.5%
FY14F 4.0% 3.0% 5.5%
FY15F 4.0% 3.0% 5.5%
5.0% 3.5% 8.0%
10.5% 10.0% 3.5% 14.6% 14.6%
8.0% 9.5% 6.9% 11.5% 11.5%
8.0% 9.5% 6.9% 11.5% 11.5%
8.0% 9.5% 6.9% 11.5% 11.5%
Revenue drivers
The key revenue drivers for Bumrungrad will be higher patient acuity (higher revenue/admission), driven by increasing specialization and longer average length of stay. 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 line 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 Bumrungrads 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.
81
Nomura | Bumrungrad
January 9, 2013
Fig. 111: Sensitivity analysis
Impact on FY13 Earnings Total Visit per day Average Daily Census Revenue per visit Revenue per patient day Hospital cost Admin cost
+1% 0.6% 0.5% 0.5% 0.5% -2.6% -0.7%
-1% -0.6% -0.5% -0.5% -0.5% 2.6% 0.7%
82
Nomura | Bumrungrad
January 9, 2013
Key catalysts
Stronger than expected foreign patient load
We have not assumed a high level of foreign patient growth. Foreign patient growth is 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 assuming those 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. Greater operating leverage 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 supercharge earnings growth in the immediate period, especially since management has a strong track record in managing hospitals.
83
Nomura | Bumrungrad
January 9, 2013
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. 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 operating performance of hospital operators have 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 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 can successfully 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 inability 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 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 BHs growth plans.
84
Nomura | Bumrungrad
January 9, 2013
Operational Statistics
Fig. 112: Inpatients
Increasing revenue/admissions shows increasing acuity
400 350 300 188,203 250 156,487 200 150 100 50 0 FY08 Total Admissions per day FY09 FY10 Average Daily Census FY11 Revenue per admission 0 80 78 78 80 50,000 100,000 171,587 150,000 335 317 310 206,353 350 200,000
Revenue/admission (THB)

Growth in revenue/visit a significant driver
250,000 2,820 2,800 2,780 2,760 2,740 2,720 2,700 2,680 2,660 2,640 2,620 2,600 FY08 Total Visits per day FY09 Revenue per visit FY10 FY11 0 2,677 5,174 4,794 2,707 2,680 4,000 5,440 6,000 5,992 5,000 2,801 7,000
3,000
2,000
1,000
Fig. 114: Revenue and volume by nationality

International patient contribution increasing in volumes and revenues
100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% FY08 Local (of revenue) Local (of volume) - RHS FY09 FY10 FY11 I nt ernational (of revenue) I nt ernational (of volume) - RHS 0. 00% 45.0% 45.0% 43.5% 41.0% 10.00% 41. 00% 40. 00% 42. 25% 55.0% 55.0% 56.5% 59.0% 50.00% 59. 00% 60. 00% 57. 75% 70.00%
Fig. 115: Revenue by patient types

Stable 50/50 mix
100% 90% 80% 70% 60% 50%
30.00%
56. 00%
60.00%
51.0%
51.0%
49.6%
50.0%
44. 00%
40.00%
40%
20.00%
30% 20% 10% 0% FY08 Inpatient % of Revenue FY09 Outpatient % of Revenue FY10 FY11 49.0% 49.0% 50.4% 50.0%

Middle East patients almost 20% of international patient revenues
Fig. 117: Revenue by payment types

1H12 9% 6% 5% 5% 4% 9M12 9% 5% 6% 5% 4%
100% 90% 80% 70% 15.3% 12.3% 15.8% 12.8% 15.5% 13.0% 16.5%
As % of Revenues UAE US Myanmar Oman Kuwait Bangladesh
9M11 12% 5% 5% 4%
FY11 11% 5% 5% 4%
1Q12 8% 6% 5% 5% 4%
13.0%
60% 50% 40% 30% 20% 10% 72.5% 71.5% 71.5%
70.5%
3%
3%
0% FY08 FY09 Corporate contracts FY10 FY11
Self pay
Insurance
Revenue/visit (THB)
85
January 9, 2013
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 Bangkok Dusit Bumrungrad Ticker BGH TB BH TB Price THB 114.00 THB 76.25 Price date Stock rating Sector rating Disclosures 07-Jan-2013 Buy Not rated 07-Jan-2013 Neutral Not rated
Bangkok Dusit (BGH TB)

Chart Not Available
THB 114.00 (07-Jan-2013) Buy (Sector rating: Not rated)
Valuation Methodology We have applied a 16.3x EV/EBTIDA multiple to FY13F EBITDA, a 10% premium to peers average forward 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 to lower patient load growth.
Bumrungrad (BH TB)
Chart Not Available
THB 76.25 (07-Jan-2013) Neutral (Sector rating: Not rated)
Valuation Methodology We apply a 15.6x EV/EBITDA to FY13F EBITDA, a 5% premium to regional peers, on the basis of a higher 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 Bumrungrad
BGH TB BH TB
Not rated Not rated
Buy Neutral
N/A N/A
THB 134.50 THB 80.50
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January 9, 2013
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STOCKS Stock recommendations are based on absolute valuation upside (downside), which is defined as (Target Price - Current Price) / Current Price, subject to limited management discretion. In most cases, the Target Price will equal the analyst's 12-month intrinsic valuation of the stock, based on an appropriate valuation methodology such as discounted cash flow, multiple analysis, etc. A 'Buy' recommendation indicates that potential upside is 15% or more. A 'Neutral' recommendation indicates that potential upside is less than 15% or downside is less than 5%. A 'Reduce' recommendation indicates that potential downside is 5% or more. A rating of 'Suspended' indicates that the rating and target price have been suspended temporarily to comply with applicable regulations and/or firm policies in certain circumstances including when Nomura is acting in an advisory capacity in a merger or strategic transaction involving the subject company. Securities and/or companies that are labelled as 'Not rated' or shown as 'No rating' are not in regular research coverage of the Nomura entity identified in the top banner. Investors should not expect continuing or additional information from Nomura relating to such securities and/or companies. SECTORS A 'Bullish' rating means most stocks in the sector have (or the weighted average recommendation of the stocks under coverage is) a positive absolute recommendation. A 'Neutral' rating means most stocks in the sector have (or the weighted average recommendation of the stocks under coverage is) a neutral absolute recommendation. A 'Bearish' rating means most stocks in the sector have (or the weighted average recommendation of the stocks under coverage is) a negative absolute recommendation.
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January 9, 2013
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Thai Healthcare Initiation Report

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Thailand healthcare

HEALTH CARE & PHARMACEUTICALS

Go for the king of thrones

Nomura | Thailand healthcare

Thailand healthcare: A game of thrones

Positive on sector, Bangkok Dusit our preferred choice

Limited supply of qualified healthcare professional a key growth constraint Valuations

Positive on sector, Bangkok Dusit our preferred choice

Bangkok Dusit is our preferred pick

Five major themes

Continued growth in international patient revenues

Sweet spot #2: Upcountry

A tale of consolidation and segmentation

Role of the government

Public sector competition

Industry outlook: A case for private healthcare in Thailand

Private healthcare demand is growing

Nomura | Thailand healthcare

but supply is not

Strategy Outgrow, out-last, out-manoeuvre

Key earnings drivers Key sector catalysts

Stronger-than-expected foreign patient load

Greater operating leverage

More M&A action

Staffing constraints relieved

Stronger-than-expected economic growth

Key sector risks

Political instability/natural disasters

Inability to scale the value chain

Substitution from the public sector

Staff shortage and higher wage bill

Slower income growth

Appendix: Public healthcare schemes

Civil Servant Medical Benefit Scheme

Social Security Scheme & Worker Compensation Scheme

Nomura | Thailand healthcare

Universal Coverage Scheme

Bangkok Dusit Bumrungrad Appendix A-1

Nomura | Thailand healthcare

Thailand healthcare: A game of thrones

Nomura | Thailand healthcare

Limited supply of qualified healthcare professional a key growth constraint

Nomura | Thailand healthcare

Nomura | Thailand healthcare

Positive on sector, Bangkok Dusit our preferred choice

Price 2.8 3.43 5.7 9 114 76.25

5,890 2,139 14,147 4,843 2,943 1,993 3,632

27.76 4.05 31.94 50 32.27 40.38 34.11

19.0 14.4 9.1 12.2 8.9 13.6 18.2 13.6

16.5 13.4 9.0 11.0 8.4 12.0 11.7 11.7

3.6 0.8 n.a. 1.8 1.1 0.9 2.7 1.8

3.3 0.7 -2.1 1.5 1.0 0.8 2.2 1.1

10.3 8.4 6.6 7.3 6.6 6.8 7.1 7.6

9.2 8.0 6.4 6.8 6.3 6.3 6.2 7.0

18.4 4.6 n.a 15.5 12.6 7.3 15.5 12.3

2.5 3.5 0.0 0.0 0.0 0.0 0.0 0.8

2.9 3.7 0.0 0.4 0.0 0.0 0.0 1.0

14.2 9.0 -8.2 7.2 15.3 4.1 N.M. 6.9

Nomura | Thailand healthcare

Fig. 2: Bangkok Dusit YTD price chart

Fig. 3: Bumrungrad YTD price chart

Source: Bloomberg, Nomura research

Source: Bloomberg, Nomura research