20140129-Maybank_KERPL-Thai_Healthcare_Sector_54页_1mb

Thai Healthcare Sector Summary

Core Content

The Thai healthcare sector is analyzed with a focus on private hospitals, their growth potential, and the impact of political and economic factors. The sector is expected to grow at a moderate pace, driven by an aging population, rising middle-class income, and increasing demand for quality healthcare services. Despite short-term challenges from political instability and high household debt, the long-term outlook remains positive.

Main Viewpoints

• Growth Potential: Private hospitals in Thailand are expected to see strong growth due to changing attitudes towards healthcare, rising patient traffic, cost efficiency, margin expansion, and complementary business growth.
• Earnings Forecast: The sector EBITDA and net profit are forecasted to grow at 12.6% and 16.3% CAGR respectively from 2013F to 2016F, supported by 12.5% revenue growth.
• Valuation: The sector is considered reasonably valued with a PER of 23.2x in 2014F, which is in-line with the five-year average. It is relatively cheap compared to regional peers.
• Investment Recommendation: The analyst recommends an OVERWEIGHT rating for the sector, with BUY for Bumrungrad Hospital and Bangkok Chain Hospital, and HOLD for Bangkok Dusit Medical Services and Chularat Hospital Group.
• Political Impact: Political turmoil in 2014 may negatively impact the sector in the short term, but this is expected to be temporary.
• Market Structure: The market is dominated by the top 24 private hospitals, which hold 75% of the market share. Bangkok Dusit Medical Services is the only private hospital chain with a nationwide footprint.
• AEC Impact: The ASEAN Economic Community (AEC) is expected to provide growth opportunities, though challenges like strict land ownership laws and competition may limit foreign investment.

Key Information

Sector Overview

• The healthcare sector in Thailand is expected to grow at a slower mid-teens rate due to expansion and political instability.
• Private hospitals are forecasted to increase capacity by 25.9% over the next four years, from 8,543 beds equivalent.
• The total number of private hospitals in Thailand is over 327, with a combined market share of 24% of total hospitals.

Healthcare Expenditure

• Total healthcare expenditure in Thailand was THB425bn in 2012, contributing to approximately 4.1% of GDP.
• Healthcare expenditure to GDP is expected to rise, which could drive further growth in the sector.
• The sector's high valuation is justified by high ROE (20%), visible earnings growth (15%), and low average cost of capital (9%).

Competitive Landscape

• The market is highly competitive, with over 300 private hospitals.
• The Herfindahl-Hirschman Index (HHI) has declined slightly from 70 to 64, but the market remains concentrated among the top 24 hospitals.
• Public hospitals are also expanding, but private hospitals are expected to maintain higher occupancy rates (70%–80%) due to their focus on specialized services and better infrastructure.

Medical Tourism

• Thailand is a key medical tourism destination in Asia, attracting patients from East Europe and the Middle East.
• Private hospitals such as Bumrungrad, Bangkok Hospital, and Vejthani are the main beneficiaries of international patient traffic.
• Thailand is cost-competitive, with treatment costs 19% lower than in Singapore and 8% higher than in Malaysia.

Workforce and Supply Chain

• Doctor and nurse shortages are a major challenge, with Thailand having only 3 doctors per 10,000 population, lower than regional peers.
• The shortage of doctors is expected to ease slightly post-AEC.
• The pharmaceutical industry in Thailand is competitive, with over 100 local manufacturers and a high import growth rate of 15% per year.

Investment Outlook

• The analyst is bullish on the sector due to its strong growth profile, high ROE, and reasonable valuations.
• The sector is expected to benefit from the AEC, despite potential challenges in foreign investment and market entry.
• The growth in private hospital beds is expected to outpace public hospital growth, supporting higher demand.

Downside Risks

• Political instability could affect earnings and patient traffic.
• High household debt may limit the ability of patients to access healthcare services.
• Doctor and nurse shortages could impact service quality.
• Intensified competition may reduce margins.

Summary of Key Growth Drivers

• Aging Population: Expected to increase to 10% of the population by 2020.
• Rising Middle-Class Income: Increasing affluence is driving more patients to private hospitals.
• Lack of Public Hospital Facilities: Private hospitals are filling the gap in infrastructure and services.
• Higher Insurance Coverage: Private health insurance is growing rapidly, increasing patient access to services.
• Medical Tourism Growth: Thailand is a key player in the regional medical tourism market.

Stock Performance Highlights

Conclusion

The Thai healthcare sector, particularly private hospitals, is poised for growth despite short-term political challenges. The long-term outlook is positive due to demographic changes, economic development, and the expansion of medical tourism. The sector's valuation is supported by high ROE and earnings growth, making it an attractive investment opportunity.