Opinion of Independent Financial Advisor
On Connected Transaction of
Bumrungrad Hospital Public Company Limited
(Translation)
No. AP. 031 /2549
April 25, 2006
Subject Opinion of Independent Financial Advisor on connected
transaction of Bumrungrad Hospital Plc.
To The Board of Directors and Shareholders
Bumrungrad Hospital Plc.
The Board of Directors meeting no. 3/2549 of Bumrungrad Hospital Plc.
("the Company" or "BH") on March 30, 2006 approved for the Company to
waive its right to new ordinary shares issued for the capital increase
of Bumrungrad International Co., Ltd. ("BIL") in the amount of
5,764,701 shares each of Bt. 153.52 to allow 1) V-Sciences Investment
Pte. Ltd. ("V-Sciences"), 2) Istithmar PJSC ("Istithmar") and 3)
Bangkok Bank Plc. ("BBL") to take up the shares. The share offering
to BBL is regarded as a connected transaction with a related party, i.
e. BBL, which will acquire a total of 1,176,469 new ordinary shares,
representing 10.00% of the total issued and paid-up BIL shares at a
per share price of Bt. 153.52, totaling Bt. 180,611,520.88.
In accordance with the Stock Exchange of Thailand ("SET")'s
notification, the above connected transaction as calculated from its
size is subject to the approval of the shareholders' meeting. The
letter of invitation to the shareholders' meeting must be accompanied
by a report on the Independent Financial Advisor's opinion regarding
(1) the reasonableness and benefits of the transaction to the listed
company, (2) the fairness of price and conditions of the transaction,
and (3) recommendation as to whether the shareholders should vote in
favor of the transaction, together with reasons. Therefore, BH has
appointed Advisory Plus Company Limited as the Independent Financial
Advisor ("the IFA") to provide such opinion to the shareholders.
As the IFA, we would like to give our opinion on the transaction to
support the consideration of
the Board of Directors and the shareholders as follows:
1. Characteristics and details of the connected transaction
1.1 Type and size of the transaction
BH has an intention to have the capital of BIL, which is its wholly
owned subsidiary company, increased from 6,000,000 shares to
19,764,701 shares by issuance and offering of 13,764,701 new
ordinary shares each of Bt. 100 par value.
The capital increase will be made in two stages. Firstly, BIL will
issue 5,764,701 new shares at Bt. 153.52 per share, totaling Bt.
884,996,897.52 to its strategic partner, and secondly, it will issue
and offer 8,000,000 new shares pari-passu to all its shareholders at
Bt. 100 per share, bringing in an additional amount of Bt. 800
million.
In the first stage of capital increase, BH's Board resolved for the
Company to waive its subscription right to the 5,764,701 new ordinary
shares of BIL (which is its 99.99% owned subsidiary company),
representing 49% of BIL's total ordinary shares after the new share
offering. The shares will be offered as a private placement to three
parties, namely V-Sciences, Istithmar, and BBL, which will take up
2,294,116 shares, 2,294,116 shares and 1,176,469 shares respectively,
at Bt. 153.52 per share. The share offering is considered a
connected transaction in case of making with BBL, BH's related
party, as BBL is a major shareholder together with another one,
Sinnsuptawee Asset Management Co., Ltd., a wholly owned subsidiary of
BBL. BBL and Sinnsuptawee hold an aggregate of 136,158,279
shares or 18.65% of the Company's total issued and paid-up capital as
of January 20, 2006.
The offering of 1,176,469 shares to BBL will represent 10% of BIL's
total issued and paid-up shares. At subscription price of Bt. 153.52
per share, the transaction size will amount to Bt. 180,611,520.88,
representing 9.07% of the value of net tangible asset of the Company.
The said transaction, classified by size, is regarded as a connected
transaction in accordance with the SET's notification concerning
disclosure of information and action by listed companies pertaining to
connected transactions, B.E. 2546 dated November 19, 2003, and the
amendment. The transaction is categorized as a transaction involving
an asset or service worth over 3% of the value of net tangible
assets of the Company, whereby the Company is obliged to prepare and
disclose a report on the said transaction to the SET and to seek
approval for the transaction from the shareholders' meeting.
Approval must be given by a vote of not less than three-fourths of the
total number of votes of the shareholders who attend the meeting and
have the right to vote, excluding the shareholders with a conflict of
interest.
1.2 Value and consideration
In the offering of shares to BBL, BIL will receive payment for the
1,176,469 shares totaling Bt. 180,611,520.88 or Bt. 153.52 per share.
The price has been agreed upon by the Company and the buyers, i.e.
BBL, V-Sciences and Istithmar. (BIL's book value as per the financial
statement ended December 31, 2005 was Bt. 120.18 per share.)
1.3 Connected parties and their related persons
Buyer : Bangkok Bank Plc.
Seller : Bumrungrad International Hospital (a subsidiary of BH
which holds 99.99% of issued and paid-up capital)
As BBL group has 18.65% stake in BH, the purchase of new shares of BIL
which is 99.99% owned subsidiary of BH is a transaction with the
following connected parties:
1. BBL is a major shareholder of BH as in the following
structure:
Name Shareholding in BH (%)
1. Bangkok Bank Plc. 6.56
2 Sinnsuptawee Asset Management Co., Ltd.(A) 12.09
(A) A company in BBL group, with BBL holding 99.99%
2. Directors of BH who are related persons of BBL are as follows:
Name Position in BH Position in BBL (Buyer)
1. Mr.Chartri Sophonpanich Director Chairman
2. Mrs. Kultida Sivayathon Director Executive Vice President
3. Mr. Chong Toh Director Executive Vice President
1.4 Description of the securities
Bumrungrad International Hospital Co., Ltd. ("BIL"), formerly named B.
H. Avenue Co., Ltd., was incorporated on January 11, 1990 and renamed
on November 2, 2004. It has BH as the major shareholder holding
99.99% of its issued and paid-up capital. BIL operates as a holding
company, with investments in overseas private hospital establishments
through joint investments with local hospitals and also providing
management service for hospitals overseas. At present, BIL has
investment in one hospital in the Philippines.
BH's 2/2548 Board meeting on February 28, 2005 also resolved for BIL
to make 49% equity investment in a newly established company in Dubai,
United Arab Emirates, to run a hospital business. The project cost is
estimated at around Bt. 388 million. The hospital is scheduled to be
open to business in 2008.
Investment in AHI which operates Asian Hospital and Medical Center in
the Philippines Asian Hospital, Inc. ("AHI") was established in 1999
and commenced operations in March 2002. Located at 2205 Civic Drive,
Filinvest Corporate City, Alabang, Muntinlupa of the Philippines, it
is a 258-bed hospital on an area of 17,250 sq.m., being the first
large scale hospital in Greater Manila. AHI is well known for its
modern medical equipment and experienced physicians, particularly in
such specialized field as cardiac program. It also has 145 mini-
clinics located in the Medical Office Building to give services to
patients. Currently, it has over 1,000 physicians.
Besides the high quality and modern medical equipment, and the
expertise and experience of the physicians and medical staff, AHI has
advantage over its rivals in term of location. Muntilupa, which is
AHI hospital site, is in the south of Metro Manila being only 13 km.
away from Makati, a main business zone, and is adjacent to South Luzon
expressway, hence easy transit with several principal areas,
including Makati and provinces where new industrial estates are
located such as Cavite, Laguna, Rizal and Calabarzon. Thus,
transportation to the AHI is fast and convenient. Moreover, the
southern area of Manila is a fast-growing area in term of population,
so its target customers will increase in the future. AHI has
segmented its customers into two groups, i.e. general patients and
specialty patients.
1) General patients
AHI targets general patients in such zones as Muntinlupa, Las Pinas,
Paranaque, Sucat, the northern area of Cavite and northern area of
Laguna. As general patients need no special treatment as in
the case of specialty patients, they have no need to travel far away
to get specific medical treatment. This group of customers is thus
people in the areas surrounding the hospital. AHI's major competitor
is merely Perpetual Help Medical Center. Although Perpetual Help
Medical Center has higher occupancy rate than AHI, its facilities
cannot be compared to those of AHI in respect of quality and standard
level.
2) Specialty patients
AHI's target specialty customers are the people residing in all the
areas of Greater Manila Its rivals are St. Luke's Hospital, Makati
Medical Center, Medical City General Hospital, Chinese General
Hospital, and Manila Doctor's Hospital. These hospitals have over 80%
occupancy rate and most have patient waiting lists. However, despite
customer acceptability of their medical treatment, their facilities
have long been in use being in poor conditions without good
maintenance. For AHI, first priority is given to the perfection of
its facilities and their regular maintenance. Moreover, AHI has just
been in operations for four years, its medical equipment and
facilities are modern and still in good condition. This is used as
its strength to competing with its competitors and drawing more
customers to use its services.
1.5 Industry condition and outlook
Profile on the Philippines
Basic information
The Republic of the Philippines is a country composed of over 7,000
islands covering an area of around 298,170 sq.km. (about three-fifths
of Thailand). It population is about 84.24 million (2005).
Manila is the capital of the country situated in Luzon island.
Metro Manila refers to Manila and its surrounding cities covering
anarea of 636 sq.km. Its population is around 10 million. The zones
that make up Metro Manila are Quezon City, Manila, Caloocan City,
Pasig City, Valenzuela City, Taguig City, Las Pinas City, Makati City,
Marikima City, Muntipula City, Pasay City, Malabon City, Mandaluyong
City, Novats, Sun Juan and Pateros.
Map of Manila and Greater Manila
Greater Manila refers to Metro Manila and four surrounding provinces
as below:
1 Balacan province is in the southwest of Manila covering around
790 sq.km. and with about 1.9 million in population.
2 Rizal province is in the west of Manila covering around 600 sq.
km. and with about 1.7 million in population.
3 Laguna province is in the northwest of Manila covering around
360 sq.km and with about 1.3 million in population
4 Cavite province is in the north of Manila covering around 610
sq.km. and with about 1.9 million in population.
Economic information
Agriculture is the Philippines' traditional occupation and most of its
population at present are still engaged in this sector. Its cash
crops are rice, corn, sugarcane, banana, coconut, mangoes, pineapples,
eggs, pork and beef. Classified by the GDP, most of the country's
revenues come from service sector, followed by manufacturing
principally comprising petroleum refining, chemicals, pharmaceuticals,
electronics, furniture, textile, food processing, etc.
GDP and GDP breakdown of the Philippines
(Unit : Peso 000's million) 2003 2004 2005
Value % Value % Value %
Agriculture 631 14.70 734 15.21 777 14.45
Manufacturing 1,373 31.98 1,538 31.87 1,754 32.61
Service 2,289 53.32 2,554 52.82 2,848 52.95
GDP 4,293 100.00 4,826 100.00 5,379 100.00
Source :National Statistical Coordination Board (www.nscb.gov.ph)
Hospital business condition in the Philippines
The Philippine hospitals comprise both public and private hospitals.
Most private hospitals have higher standard than the public ones.
Among the private hospitals, different medical treatment standard
can also be seen especially between those in Metro Manila and those
outside Manila. Several hospitals in Metro Manila have the quality
and standard comparable to those in Western countries.
However, even with high standard medical treatment in certain
hospitals, a study reveals that the number of patient beds to the size
of population is only 1.16 beds to 1,000 persons. This proportion,
when compared with countries in Southeast Asia like Thailand,
Singapore and Malaysia, is much lower than those of these countries.
Thus, it can be implied that hospitals in the Philippines has
insufficient patient beds to meet the size of population.
Number of patients to the size of population in the Philippines
compared with other ASEAN
countries
The Philippines Thailand Singapore Malaysia
Number of patient
beds to 1,000 persons
of population 1.16 2.24 3.65 1.98
Number of population
(million persons) 76 60 3 23
Source : Utrecht University, the Netherlands (www.library.uu.nl)
BIL's investment in hospital business in Dubai, United Arab Emirates
BIL has invested in healthcare business in Dubai in the United Arab
Emirates. It is a hospital with 125-150 patient beds, located on
Sheikh Zayed Road. Target customers are top income earning people
residing in the areas from Satwa/Trade Center Road to Ali Village,
which are considered the highest growth areas in Dubai. They are both
foreign residents and those of Emirates nationality earning more than
AED 8,000 per month. The hospital is expected to commence operation
in 2008.
Competition
The most potential competitors of BIL's Dubai hospital are Welcare
Hospital and American Hospital. American Hospital is a leading
hospital of Dubai, having 120 beds and being reputed for
supreme services and facilities. It is the first hospital in the
Middle East with standard certification from Joint Commission
International Accreditation (JCIA). Welcare Hospital is a 100-bed
hospital catering for Indian expatriates working in Dubai. Moreover,
there are a number of small hospitals that can also be BIL's rivals.
However, their target customers are mainly middle-class patients,
hence not the same market segment as that of BIL.
Industry condition
Profile on United Arab Emirates and Dubai
Basic information
United Arab Emirates ("UAE") is composed of seven Arabian states,
namely Abu Dhabi, Dubai, Sharjah, Ras-Al-Khamiah, Umm Al-Qaiwain,
Ajman and Fujairah. UAE became independent from England on December
2, 1978. It has a total area of about 82,880 sq.km., accommodating a
population of about 2.5 million. Approximately 75-80% of the people
in UAE are working expatriates. Abu Dhabi is the capital, situated in
the state of Abu Dhabi, which is the largest state having the highest
number of population and being the most influential politically and
economically as UAE's core production base of oil. Dubai ranks the
second following Abu Dhabi in term of economic significance, being a
state of major port facilities. It covers an area of around 3,885 sq.
km. with a population of about 1.2 million.
UAE's main source of revenues is from oil and natural gas resources.
However, for the past years, its national development with rapid
growth recorded has relied on income earning from other economic
sectors as well, such as tourism, manufacturing, construction, and
finance and banking, with Dubai as the growth center. Dubai's revenue
structure is different from that of other states. As a free
trade area and major port state, linking the Middle East with Africa
and Europe, Dubai enjoys earnings mainly from re-export and tourism
industry, with only little reliance on oil business.
Hospital business condition in Dubai, United Arab Emirates
Public hospitals in Dubai provide healthcare services free of charge
to people of Emirates nationality and charge minimum rates on
foreigners. Meantime, private hospitals charge service fees
directly on patients, and on insurance companies in case of insured
patients, for both native and foreign patients.
As the Dubai state government has been faced with rising cost of
healthcare services of public hospitals while good quality services
have to be maintained, it has a policy to have the private sector
involved in the healthcare sector. All foreign people have been
required to take out health insurance, which is a policy taking effect
at 2004 year-end. Dubai Health Care City ("DHCC") has been set up as
the medical service center, located near the airport and about 35-40
minutes drive from BIL's hospital. However, DHCC has yet to be
popular among entrepreneurs, as only a number of small healthcare
establishments are set up there by some well known hospitals aiming to
make referral of patients to their parent hospitals which come mostly
from the USA, such as Mayo Clinic, John Hopkins and Harvard Medical,
etc.
Shareholding structure
Before this transaction, BH has a 99.99% shareholding in BIL. After
the capital increase with share offering on a private placement to the
three parties, the Company's shareholding in BIL will level
down to 51.00%. BBL, V-Sciences and Istithmar are not related to one
another. V-Sciences is a subsidiary of a company in the Temasek
Holding while Istithmar is a subsidiary and holding company of Nakeel
Corporation, in which the Dubai state government has a major stake.
Shareholding structure (before the transaction)
BBL Group Vsciences Istithmar BH
18.65% (BH) 5.94%(BH) 5.94%(BH)
99.99%(BIL)
Note the said 5.94% holding together with holding through NDVR are
shareholding by a connected party of VSciences
Shareholding structure (after the transaction)
BBL Group VSciences Tstithmar BH
18.65% (BH) 5.94 (BH) 5.94%(BH)
10.00% (BIL) 19.50 (BIL) 19.50%(BIL) 51.00%(BIL)
Note the said 5.94% holding together with holding through NDVR are
shareholding by a connected party of Vsciences
Registered capital and shareholding structure of BIL
As of September 29, 2005, BIL had paid-up registered capital of Bt.
600.00 million, divided into 6.00 million ordinary shares each of Bt.
100 par value. List of major shareholders is as shown here:
Name Number of shares %
1.Bumrungrad Hospital Plc. 5,999,994 99.99
2.Mr. Chai Sophonpanich 1 0.00
3.Mr. Dhanit Dheandhanoo 1 0.00
4.Mr. Chanvit Tanphiphat 1 0.00
5.Mrs. Linda Lisahapanya 1 0.00
6.Miss Amphai Phisitphan 1 0.00
7.Miss Suthinee Tewit 1 0.00
Total 6,000,000 100.00
BIL Board of Directors
The Board of Directors comprise six members as follows:
Name Position
1.Mrs. Linda Lisahapanya Director
2.Mr. Chanvit Tanphiphat Director
3.Mr. Dhanit Dheandhanoo Director
4.Dr. Karoon Makanontachai Director
5.Mr. Curtis John Schroeder Director
6.Mr. Carl Vincent Stanifer Director
Financial status of BIL
BIL's financial status for 2003-2005 after the audit and review by the
auditor is as exhibited below:
(Unit : Bt. 000's)
Company-only Consolidated
2003 2004 2005 2005
Current assets
Cash and deposits at
financial institutions 757 778 95,678 109,119
Accounts receivable-net - - 171 22,944
Other current assets - - 20,817 10,822
Total current assets 757 778 116,666 142,885
Non-current assets
Investments by the
equity method - - 238,395 506,202
Long-term loans
and accrued interest
- related business - - 204,214 -
Equipment -net - - 539 539
Intangible assets-net - - 121,487 121,487
Total non current assets - - 564,636 628,228
Total assets 757 778 681,302 771,114
Liabilities and shareholders' equity
Current liabilities
Short-term advance
from corporates - - 5 5
Accrued expenses 20 20 6,182 11,764
Deferred income - - 33,607 33,607
Other current liabilities - - 956 4,632
Total current liabilities 20 20 40,751 50,009
Non-current liabilities
Long-term advance
from corporates 407 734 - -
Total liabilities 427 754 40,751 50,009
Shareholders' equity
Share capital
Issued and paid-up capital
6,000,000 ordinary shares
each of Bt. 100 par value 1,000 600,000 600,000 600,000
Share payment receivable - (599,000) - -
Deviation from translation
of financial statement - - 29,394 29,394
Retained earnings (loss) (671) (976) 11,157 11,157
Total shareholders' equity 329 24 640,551 640,551
Total minority interest
of subsidiaries - - - 80,553
Total liabilities and
shareholders' equity 757 778 681,302 771,114
Revenues
Service income - - 25,006 48,264
Interest receivable - - 3,742 1,874
Gains on foreign exchange - - 760 744
Other income - - 767 767
Sharing of gains on
investments by the
equity method - - 28,597 887
Total revenues - - 58,872 52,538
Expenses
Depreciation and amortization - - 4,426 4,426
Administrative expenses 20 272 30,118 41,320
Sharing on loss by
the equity method - - 12,191 -
Total expenses 20 272 46,735 45,747
Earnings (Loss) before
interest and tax (20) (272) 12,137 6,791
Interest payment (27) (33) (3) (33)
Corporate income tax - - - (297)
Earnings before
minority interest (47) (306) 12,134 6,462
Minority interest - - - 5,671
Net profit (loss)
during the year (47) (306) 12,134 12,134
Financial ratio 2003 2004 2005
Current ratio (times) 37.85 38.90 2.86
Return on assets (%) (6.21) (39.33) 1.57
Debt to equity ratio (times) 1.30 31.42 0.07
Return on equity (%) (14.29) (1,275) 1.68
Financial status and operational performance
Total assets
Total assets according to the 2003-2005 financial statements
were Bt. 0.76 million, Bt. 0.78 million and Bt. 721 million
respectively. In 2003 and 2004, BIL did not make any investment. Its
cash and deposits at banks were thus in small amounts. The increase
in total assets in 2005 was attributed to BIL's investment in
four subsidiary companies, i.e. Bumrungrad International Philippines
Inc. ("BIPI"), Neptune Stroika Holding Inc. ("Neptune"), Bumrungrad
International Holdings (Hong Kong) Ltd. ("BIH") and Bumrungrad
International Management (Hong Kong) Ltd. ("BIM"). BIPI and Neptune
made investment in AHI in March 2005, while BIH and BIM have not yet
invested in any business. BIL's cash and deposits at financial
institutions in 2005 accordingly surged to Bt. 109 million and
investment recorded by the equity method was Bt. 506 million.
Total liabilities and shareholders' equity
Total liabilities under the financial statements for 2003-2005 were
Bt. 0.43 million, Bt. 0.75 million and Bt. 50.01 million respectively.
The increase in 2005 resulted from deferred income the fee on the
patent on the computer program BIL sold to AHI, which was gradually
recognized as patent right income over the agreement term and
accounted for Bt. 32.6 million as of December 31, 2005.
Shareholders' equity under the consolidated financial statements for
2003-2005 amounted to Bt. 0.33 million, Bt. 0.024 million and Bt.
640.55 million respectively. The sharp increase in 2005 came from
the shareholders' payment for new shares amounting to Bt. 599 million,
resulting in BIL's paid-up capital of Bt. 600 million.
Operational performance
During 2003-2004, no income was recorded by BIL as no investment had
been made yet. In 2005, nearly all of its income came from service
income amounting to Bt. 48.26 million. Of this total, Bt. 23.26
million was from hospital management service for AHMC, Bt. 2.27
million from management of Square International Hospital in
Bangladesh, and Bt. 10.14 million from management of Pun Hlaing
International Hospital in Myanmar. The management agreements for the
latter two hospital were later terminated. The remaining income of Bt.
12.59 million came from the sale of patent right over and installation
of the computer program for AHI.
BIL's expenses in 2003-2004 only came from selling and administrative
expense as there had been no investment yet. For 2005, it recorded
administrative expense of Bt. 41.32 million. The increase in
expense was attributable to its investment in AHI, from which expense
on procurement of computer program was incurred for use in the
hospital operations overseas.
Net profit (loss) under the 2003-2005 financial statements amounted to
Bt. (0.048) million, Bt. (0.31) million and Bt. 12.13 million
respectively. The loss incurred in 2003-2004 was because BIL had not
yet generated income from operations but already borne selling and
administrative expense. For 2005, it brought in some service income
and shared earnings on investment, resulting in profit generation.
Financial ratios
In 2003 and 2004, BIL recorded current ratio of 37.85 and 38.90, which
were very high, as it had not made any investment yet, hence no so
large amount of current liabilities. In 2005, BIL invested in AHI,
pulling down its current ratio to the normal level as in other
businesses. BIL's current ratio of 2.86 in 2005 reflected its
increase in current assets to a greater extent than that in current
liabilities. Most of the increase in current assets came from the
increase in cash and cash equivalents, and accounts receivable, in
line with the rising service income in 2005.
Return on assets during 2003-2005 was (6.21)%, (39.33)% and 1.57%
respectively. The negative return in 2003-2004 was due to BIL's
operating loss. The return went up in 2005 as resulted from the
rise in profit following its investment in AHI which brought in
service income and income from sharing of earnings by the equity
method.
Debt to equity ratio was 1.30 in 2003, 31.42% in 2004 and 0.07% in
2005. The drop in 2005 was attributed to BIL's capital increase of
Bt. 599 million, which considerably pushed up its shareholders'equity.
During 2003-2005, return on equity was posted at (14.29)%, (1,275)%
and 1.68 % respectively. The negative return in 2003-2004 came from
the loss incurred as BIL had not yet invested in any business,
hence only expenses were registered. In 2005, the return on equity
surged following profit generated from operation in that year.
2. Reasonableness of the transaction
2.1 Objective and necessity of the transaction
BIL is a holding company, engaging mainly in investments in hospital
operations overseas in collaboration with local investors in those
countries. It also provides advisory and management services
on hospital business. So far, BIL has invested in four subsidiary
companies, i.e. BIPI, Neptune, BIH and BIM. BIPI and Neptune in March
2005 made investment in AHI, which runs private hospital business in
the Philippines, while BIH and BIM have not yet invested in any
business. Nonetheless, BIL has planned to continue expanding its
private hospital business network to other countries.
To achieve the above objective, BIL requires additional capital funds.
Initially, it plans to raise approximately Bt. 885,000,000 for
investment. Of this total, around Bt. 226 million is expected for AHI
extension project, Bt. 338 million for investment in the hospital
project in Dubai of the United Arab Emirates which is scheduled for
operations in 2008, and the remaining funds for investment in private
hospitals in other countries in Asia. Considering its own finances
as of December 31, 2005, BIL had inadequate cash available as it had
just made investment in AHI in March 2005.
However, if BIL requires additional capital funds, it may seek
financial support through BH, which is its parent company with 99.99%
shareholding. However, such debt incurrence would only lead
to the Company's higher debt to equity ratio, from 1.12 to 1.45,
forcing it into more debt settlement risk. Most of all, the Company
has no plan for additional debt incurrence as it has tried to maintain
the credit rating by TRIS for the Company's debentures at A.
BH has to waive its right to the new share offering of BIL as taking
up such share portion will cost it Bt. 885,000,000, which its own
finances are inadequate to support. If the Company would take
up such share portion, it has to seek funds via the following
channels:
1) BH has to raise its capital to have funds available for the
subscription of the new BIL shares. However, such capital increase
will affect the earnings per share and the market price of the shares.
2) BH may seek financial support from financial institutions for
the subscription of the new BIL shares. However, this will affect the
Company's debt to equity ratio and the credit rating on its debenture
as earlier referred to.
Therefore, BIL plans to raise funds through new share offering on a
private placement to three parties, namely Istithmar, V-Science and
BBL, in a total amount of Bt. 884,996,897.52. The share offering will
involve one connected transaction, i.e. BBL, which is a connected
party of the Company. The sale to BBL will account for 1,176,469
shares or 10% of BIL's paid-up registered capital at Bt.153.52 per
share, totaling Bt. 180.61 million. BBL is currently a
majorshareholder of the Company with 18.65% holding.
The share offering to BBL, a connected party of BH, will enhance BIL's
prospects in investments, financial management and access to
information related to investments overseas, since BBL is a strong
financial institution with extensive networks overseas and has strong
financial and investment expertise. BBL's expertise, knowledge and
network in the region will facilitate BIL's international expansion
strategy. For example, if BIL would seek a joint venture partners for
any of its overseas hospital investments, BBL may give support by
introducing its customers that have high potential and meet the
requirements of BIL. In addition, the transaction will further cement
the relationship between BH and BBL and, as its shareholder and having
representative directors on its Board of Directors, BBL is already
highly familiar with BIL's operational policy and direction.
2.2 Pros and cons between making and not making the transaction
2.2.1 Pros
a) Reduction of investment risk in BIL which is a subsidiary
company BIL is a subsidiary company of BH, established as a holding
company to make investments in private hospital operations and
provision of management services to hospitals overseas. Investment in
hospitals overseas bears risk since BIL is not a native investor,
being unfamiliar with the environment in those locations despite
investment made in collaboration with local investors. Moreover,
investment in a hospital overseas requires a huge investment amount.
Having a 99.99% stake in BIL may be worthwhile for the Company if
BIL's operations come out successful. On the contrary, if its
investments turn bad, the Company will have to solely recognize the
loss. The gains or loss on investments by BIL will have direct
impacts on the Company's overall financial health.
Therefore, the share offering to BBL, which is a connected party, and
another two parties will reduce the Company's shareholding in BIL
from 99.99% to 51% of BIL's paid-up registered capital. This will
relieve the Company's investment risk in BIL, which is just in its
business start-up period and is still uncertain in its operations.
Instead of being singly responsible for the profit or loss from the
operations of BIL in the capacity of the only major shareholder,
which will affect the Company's overall financial status, the profit
or loss recognition after this share offering to BBL and another two
parties will be shared pari-passu. Nevertheless, despite the
reduction of the investment proportion in BIL, the Company will remain
as a major shareholder in BIL. The Company will have 51% shareholding
in BIL, hence having controlling and managing power in the subsidiary
company.
b) Increase of business alliance for BIL
The share offering to BBL will add another business alliance for BIL,
i.e. BBL. The transaction will benefit BIL's operations that focus on
investment in hospital establishments overseas, as BBL is a strong
financial institution with large networks domestically and overseas
and has strong financial and investment expertise. BBL's equity
investment will be an asset to BIL in terms of investment and
financial management, as well as sharing of know-how and information
on healthcare business. Moreover, the share offering to BBL will
allow for BBL's involvement in the determination of BIL's operational
and managerial policy and direction, especially as BBL has already
been familiar and worked with the Company in the capacity of a major
shareholder for many years. This will enhance relevant operational
policy and planning among the companies in the same group.
c) Strengthening of BIL's financial status
The share offering to BBL, which is a connected party, and another two
parties will enable BIL to raise new funds from the capital increase
and share premium in a total amount of approximately Bt. 885 million.
Its shareholders' equity will go up from Bt. 721 million to Bt.
1,606 million, and its debt to equity ratio will reduce from 0.07 to
0.03. Thus, the share offering helps improve BIL's financial status,
having adequate capital funds to support its business expansion
overseas.
2.2.2 Cons
a) Possible conflict of interest from shareholding structure
after the transaction After the offering of 1,176, 469 new BIL shares
or 10.0% of its paid-up registered capital to BBL, a major shareholder
of the Company holding 18.65% aggregately with Sinsuptawee
Asset Management Co., Ltd., the new shareholding structure may cause
the conflict of interest as BBL is a major shareholder of the Comapany
and a shareholder in BIL which is the Company's subsidiary. However,
the new Company structure is not deem to post any conflict with the
SEC notification no. KorJor. 12/2543 regarding the application for
and approval of new share offering, clause 14
BBL Group Holding 18.65% of BH
Holding 10.00% Of BIL
BH Holding 51.00% of BIL
In this connection, the Company has revealed in its disclosure to the
SET on 31 March 2006 that it does not wish to invest in the shares of
BIL in lieu of BBL because:
1. The Company is seeking strategic partners to support its
international expansion strategy, and
2. The Company does not want further capital increase at the
listed company level which will cause dilution to its shareholders
since it is able to maintain control of BIL via only 51% shareholding.
In addition, there are various control mechanisms in place to prevent
a potential conflict of interest arising in the future:
1. BIL business does not directly compete with that of the
Company. BIL only invests in and manages hospital operations outside
Thailand, while BH operates hospital operations in Thailand. Although
around 53% of the Company's customers are foreigners, comprising
1) expatriates working in Thailand, and 2) foreign visitors with the
purpose of getting medical treatment in Thailand, the Company has
planned to continue BIL's hospital business expansion overseas, where
there are good prospects of healthcare business.
However, upon the opening of the hospital business in Dubai of
the UAE, which is financed by the proceeds from this capital increase,
the Company's current customers from the UAE may switch to use BIL
services in Dubai. This may affect the Company's revenues, but not in
a significant amount, as UAE outpatients and inpatients represent only
3.95% and 3.02% of the Company's total customers respectively.
2. Directors who represent BBL are not authorized directors to
act on behalf of BIL or the Company.
3. As a commercial bank, BBL is governed by the Bank of Thailand
("BoT")'s rules and regulations.
4. BBL has to gradually reduce its shareholding in the Company
to no more than 10%. Pursuant to the Commercial Banking Act, B.E.
2505, a commercial bank is prohibited from holding shares in any non-
bank business over 10% of the total offered shares of such
business. Moreover, a Bank of Thailand circulation letter no.
ThorPorThor. SorNorSor. (21) Wor. 188/2547 set the deadline for
financial institutions that had acquired or held shares in other
businesses in excess of the regulatory maximum limit as a result of
debt restructuring for debtors before January 1, 2003 to reduce the
shareholding to not over 10% by December 31, 2005. We understand from
the Company's financial advisor that BBL has received a permission by
the Bank of Thailand to extend the time in which it has to reduce its
shareholding in other companies to no more than 10%. Therefore, once
BBL reduces its shareholdings in BH to no more than 10%, it will no
longer be a major shareholder of BH and the conflict of interest will
be removed.
b) Right and power dilution and profit/loss sharing
Before the share offering to BBL and another two parties, the Company
holds 99.99% of BIL's paid-up registered capital. After the share
offering, its shareholding in BIL will become 51%. Thus, its
controlling power and voting right will be diluted to 51%, the same as
its profit/loss sharing in BIL. However, still a major shareholder,
the Company will continue to have the power in controlling and
determining BIL's operational policy and framework.
2.3 The transaction made with a connected party Vs. the
transaction made with an outsider BIL intends to raise funds for
investment in and expansion to private hospital business overseas
by new share offering on a private placement to three interested
parties, i.e. Istithmar amounting to 2,294,116 shares or 19.50%, V-
Science 2,294,116 shares or 19.50%, and BBL 1,176,469 shares or
10.0% of BIL's paid-up registered capital, at the price of Bt. 153.52
per share. Although BBL is a connected party, the connected
transaction being made with the bank will not be different from that
made with the other two parties, which are outsiders, as the share
price is set equally at Bt. 153.52 per share.
In our opinion, moreover, the share offering to such a connected party
as BBL will benefit the Company and BIL in that both the Company and
the connected party have been working in collaboration
with each other before. They will thus contribute to and generate
mutual operational policy and direction for BIL, which will result in
long-term benefits for the Company and BIL.
However, the share offering to BBL which is a connected party may
create a post-transaction shareholding structure that could cause
conflict of interest as mentioned in 2.2.2 (a).
If BIL offers the new shares to an outside party other than to the
interested party, it may be time-taking as regards the selection and
negotiation processes especially in the acquisition of a party that
has potential and readiness in terms of financial sources and
knowledge on hospital business. If no such outside party is acquired,
there may be policy-related conflicts between BIL and the new party as
a result of inadequate hospital business knowledge and lacking
acquaintance between both parties. However, such transaction with an
outside party, if occurred, will not pose any conflict of interest as
mentioned in 2.2.2 (a).
For the above reasons, we view that this transaction made with a
connected party will allow BIL to achieve its objective of fund
raising for hospital business expansion overseas rather than making
with an outside party. Moreover, in the approval of the transaction,
the connected party or the party with conflict of interest will not be
entitled to voting on the transaction. We thus consider that the
transaction is reasonable and beneficial to the Company and BIL in the
long run.
3. Fairness of price and conditions of the transaction
3.1 Appropriateness of price and other consideration
BH has agreed to sell 1,176,469 BIL shares to BBL for a total of Bt.
180,611,520.88, or Bt. 153.52 per share. We have made share price
valuation by various approaches to figure out the most appropriate
price and give the opinion on the fairness of the price. Details are
as follows:
3.1.1 Book value (BV) approach
By this approach, the share valuation is made based on the book value
derived from BIL's audited consolidated financial statements ended
December 31, 2005. The outcome is as follows:
Amount
Shareholders' equity (Bt. 000's) 721,103
No. of paid-up shares (000's shares) 6,000
Book value per share (Bt.) 120.18
The share price using this method does not take into account the
business profitability in the future and may not reflect the present
market value of the assets. It instead reflects the book value at a
certain point of time. Based on BIL's financial statements as of
December 31, 2005, its book value is Bt. 120.18 per share, which is
Bt. 33.34 lower than the offering price of Bt. 153.52 per share.
3.1.2 Adjusted book value (ABV) approach
The share price by this method is worked out by deducting BIL's total
liabilities out of its total assets, and adjusted by an increase or
decrease in value of some fixed assets appraised by an
independent appraiser and also by the factors taking place after
thedate of the financial statements as of December 31, 2005, such as
BIL's capital increase and dividend payment, etc.
As BIL is a holding company, not a manufacturing company or property
business, most of its assets are in form of investments in subsidiary
companies, and cash and short-term investment. From the book figures,
BIL's assets are in form of equipment, not land which can enjoy higher
price in the future. Thus, no revaluation of the fixed assets has
been made.
Amount (Unit : Bt. 000's)
Total assets 771,114
Less Total liabilities 50,009
Increase (Decrease) in asset valuation -
Proceeds from capital increase -
Dividend payment -
Commitments and contingent liabilities 5,600
Net asset value 715,504
Total number of shares (000's shares) 6,000
Net asset value per share (Bt.) 119.25
BIL's share price by this method is Bt. 119.25 per share, which is Bt.
34.27 lower than the offering price. The share price so derived can
better reflect BIL's real value than that by the book value
approach shown in 3.1.1, as it takes into account the factors taking
place after the closing date of the financial statements for 2005, and
commitments and contingent liabilities.
However, the ABV approach does not take into consideration the
operating result and the competitiveness of the business in the
future, as well as the overall economic and industry conditions.
3.1.3 Price to book value (P/BV) approach
By this method, the share price is derived by multiplying the book
value of BIL in the consolidated financial statements ended December
31, 2005, duly audited by the auditor which is Bt. 120.18 per share,
by the average P/BV ratio of 14 peer companies listed on the stock
exchanges of Singapore, Malaysia (Kuala Lumpur), and Thailand (SET),
as listed here:
Company Stock symbol Stock exchanges
1.Bangkok Dusit Medical
Services Plc. BGH SET
2.Krungdhon Hospital Plc. KDH SET
3.Bangkok Chain Hospital Plc. KH SET
4. Nonthavej Hospital Plc. NTV SET
5. Ramkhamhaeng Hospital Plc. RAM SET
6. Sikarin Plc. SKR SET
7. Samitivej Plc. SVH SET
8. Vibhavadi Hospital Plc. VIBHA SET
9. Pantai Holdings BrHD HPA Kuala Lumpur Stock Exchange
10. KPJ Healthcare BrHD KPJ Kuala Lumpur Stock Exchange
11.Health Management
International Limited HMI Singapore Stock Exchange
12.Parkway Holdings Limited PWAY Singapore Stock Exchange
13.Raffles Medical Group Limited RFMD Singapore Stock Exchange
14.Thomson Medical Center Limited THOM Singapore Stock Exchange
The average P/BV ratios of the 14 peer companies over the retroactive
3 months, 6 months, 9 months and 12 months counting from March 29,
2006 are as below:
Average
of Domestic hospital Overseas Hospital Avg
Retroactive (Times) (Times) (Times)
BGH KDH KH NTV RAM SKR SVH VIBHA
HPA KPJ HMI PWAY RFMD THOM
3 months 3.70 0.69 1.40 1.72 2.65 1.79 0.49 1.15
1 1.62 0.89 1.56 4.14 2.5 1.05 1.81
6 months 3.50 0.69 1.29 1.66 2.50 1.74 0.46 1.17
1.56 0.87 1.57 3.90 2.39 0.95 1.73
9 months 3.10 0.69 1.24 1.65 2.45 1.67 0.44 1.21
1.33 0.87 1.44 3.84 2.26 0.73 1.64
12 months 2.96 0.68 1.25 1.63 2.41 1.65 0.45 1.25
1.19 0.86 1.25 3.61 2.17 0.56 1.57
The calculation formula under this share valuation method:
Share price = (P/BV RATIO) X Book value (Bt.120.18 per share)
As BIL is not a listed company in any stock exchanges as in the case
of its rival companies, we thus have the average price to book value
ratio of the listed companies referred to above discounted by
about 10-15%. The share price so derived will come out as follows:
Avg. P/BV (times) Share price (Bt./per share)
of peer companies* Discount 10% Discount 15%
Average of retroactive
3 months 1.81 196.11 185.21
Average of retroactive
6 months 1.73 187.28 176.87
Average of retroactive
9 months 1.64 176.96 167.13
Average of retroactive
12 months 1.57 169.45 160.04
Note: * Data available from www.setsmart.com and Bloomberg
By this approach, the share price of BIL will be Bt. 160.04 -196.11per
share, which is Bt. 6.52- 42.59 higher than the offering price of Bt.
153.52 per share.
This approach mainly uses the book value and the average P/BV of
listed companies as the basis in figuring out the share price, relying
on the share value on any single day of the business and reflecting
only the asset value in the past. The share price so derived may thus
fail to reflect the real market value of the assets at present and the
business profitability in the future. Moreover, the P/BV approach, is
not suitable for the share valuation of hospital business as it does
not reflect the future profitability and operating cash flow. This
method therefore is not applied as a key approach in the share
valuation
3.1.4 Market value approach
By this method, the market trading price of the shares retroactively
from March 29, 2006 should be adopted. However, BIL is not a listed
company on any stock exchanges, there is no market price to
be used as reference. This approach is thus not applicable to BIL.
3.1.5 Price to earning ratio (P/E) approach The share price by this
method is derived by multiplying the projected net earnings per share
of BIL in 2006 by the average P/E ratio of the 14 peer companies
listed on the stock exchanges of Singapore, Malaysia (Kuala Lumpur),
and Thailand (SET). These companies are the same group as
those referred to in the share valuation by the P/BV approach in
3.1.3. Their average P/E ratios over the retroactive 3 months, 6
months, 9 months, and 12 months counting from March 29, 2006 are shown
below:
Average Domestic hospital Oversea hospital Avgs
of
retroactive (Times) (Times) (Times)
BGH KDH KH NTV RAM SKR SVH VIBHA
HPA KPJ HMI PWAY RFMD THOM
3 months 38.56 15.30 13.66 11.58 12.33 12.56 6.11 23.36
16.60 7.96 15.00 27.43 21.39 12.63 16.75
6 months 36.95 14.68 12.34 10.99 11.90 11.53 4.81 23.04
15.39 8.84 15.00 26.74 21.94 11.46 16.12
9 months 33.35 13.66 11.25 10.64 11.61 10.09 4.36 23.43
13.97 9.12 15.00 26.93 21.21 10.74 15.38
12 months 32.53 13.29 10.87 10.59 11.34 9.36 4.30 24.24
13.27 9.20 15.50 26.21 20.69 10.35 15.12
The calculation formula under this share valuation method:
Share price = (P/E ratio) x Projected Net earning in2006(Bt.5.02
per share )
* Source: Based on the financial projection described in 3.1.6, net
profit in 2006 will be Bt. 30.14 million. With the total of 6 million
shares taken into account, projected net earnings per share will be
Bt. 5.02 in 2006.
As BIL is not a listed company on any stock exchanges as in the case
of its rival companies, we use the average P/E ratio of those
companies discounted by about 10-15% and multiplied by projected
net earnings per share in 2006 (Bt. 5.02). The share price will come
out as follows:
Avg. P/E (times) of Share price (Bt./share)
peer companies* Discount 10% Discount 15%
Average of retroactive
3 months 16.75 75.67 71.47
Average of retroactive
6 months 16.12 72.81 68.76
Average of retroactive
9 months 15.38 69.50 65.64
Average of retroactive
12 months 15.12 68.33 64.54
Note: * Data available from www.setsmart.com and Bloomberg
By this approach, the share price of BIL will be Bt. 64.54-75.67 per
share, which is Bt. 77.85-88.98 lower than the agreed price of Bt.
153.52 per share.
This approach reflects BIL's profitability for only 1-year period
without taking into account its future profitability. Moreover, the
average price to earning ratio of healthcare establishments listed on
the stock exchanges in Singapore and Kuala Lumpur and the SET is used
to figure out the share price of BIL which is non-listed. Thus, this
valuation approach may not fully capture the fundamental value of
BIL.
3.1.6 Discounted cash flow approach
This approach takes into account the future profitability prospect of
BIL (company only) and AHI by figuring out the present value of
discounted free cash flow expected for both BIL (company
only) and AHI (in proportion to BIL's shareholding in AHI) in each
year from the financial projection for 2006-2014, assuming both
companies' operations on a going concern basis without any material
changes and under the current economic and business circumstances.
The financial projection has been prepared by the Company and the
Company's financial advisor. We have examined and made adjustments to
be relevant to and with due consideration of the factual information
we have received under the current economic circumstances and as
allowed by the information available at present. Any material changes
in the future may have impacts on the share valuation. Thus, the
share price derived from the discounted cash flow approach may change
if there are any material changes in the external factors that will
have impacts on the business operations.
The discount rate used is calculated based on the weighted average
cost of capital (WACC) of BIL and AHI. The calculation of WACC is as
below:
- Average cost of debt (Kd) is projected at zero for BIL as it bears
no borrowing, and 7.90 - 10.57% interest rates borne by AHI during
2006-2012 and zero from 2013 onward as AHI will have settled all the
debts and hence no more debt burden. Cost of capital (Ke) is
calculated from capital asset pricing model (CAPM) with the following
variable factors:
Ke = Rf + b(Rm - Rf)
Whereas:
BIL AHI
(Thailand) (The Philippines)
Rf Risk free rate 5.56% 8.00 %
Source: 10-year Source Bloomberd
government bond yield
Rm Rate of return
on investment in
the stock exchange 12.04% 12.35%
Source: 15-year average Souce Bloombed
rate of return on investment
in the SET
B The volatility between 0.89 0.58
(Beta) the rate of return Source based on Source as
on investment business value health care
in the stock exchange as BIl is establishments
and the share price of non listed company in The
the business Phillipines
are not listed on the stock
exchange, the IFA thus refers to average b of
healthcare establishments that are listed on
stock exchanges in Hongkong, Thailand,
Singapore and Malaysia.
Ke Cost of capital 12.46%1/ 11.58%1/
Note : 1/ Both BIL and AHI are not listed on the stock exchange, the
IFA thus adjusts upward the cost of capital (Ke) by 10% on the
figure derived from the above calculation to compensate for such non-
listing risk.
From the above data and assumptions, the present value of the
discounted free cash flows of BIL will be Bt. 116.88 per share.
We have also carried out a sensitivity analysis by having the discount
rate increase/decrease by 10%. BIL's share price comes out in a range
of Bt. 93.40 - 147.79 per share.
Opinion of the IFA on the share price
The table below exhibits the comparison of share prices from various
approaches:
Valuation method Agreed Valution agreed price Premium
(Unit : Bt. per share) price price higher(lower) (discount)
(1) (2) than valuation of offering
price price to
(1)-(2) Fair value
1.Book value 153.52 120.18 33.34 27.74%
2.Adjusted book
value 153.52 119.25 34.27 28.74%
3.Price to book
value 153.52 160.04-196.11 (6.52)-(42.59) (4.07)-(21.72)%
4.Market value 153.52 N.A N.A. N.A.
5.Price to
earning ratio 153.52 64.54-75.67 77.85-88.98 102.88-137.86%
6.Discounted
cash flows 153.52 93.40-147.79 5.73-60.12 3.88 -64.37%
The above table shows that the share prices derived from the book
value, the adjusted book value and the price to book value approaches
reflect the share value on any single day of the business and only the
asset value in the past, without taking into account the economic and
competition conditions in the future. These approaches do not reflect
the real value of BIL as they do not capture the capability of BIL to
generate future earnings and cash flows.
The price to earning ratio approach reflects BIL's profitability for
only 1-year period without taking into account its future
profitability. Moreover, the average price to earning ratio of
hospital establishments listed on the stock exchanges in Singapore and
Kuala Lumpur and the SET is used to figure out the share price of BIL
which is non-listed. Thus, this approach is also considered
inappropriate, failing to reflect the real value of BIL as it does not
capture the long-term capability of BIL to generate future earnings
and cash flows.
Viewing the above limitations, we consider the discounted cash flow
approach the most appropriate for BIL share valuation, as it reflects
the real share value taking into account its future cash flows under
the assumption that encompasses future business prospects.
By the discounted cash flow approach, BIL's share price will be Bt.
116.88 per share, which is 31.35% lower than the agreed price of Bt.
153.52 per share. We thus consider the offering price to
BBL, which is a connected party, an appropriate price.
3.2 Transaction appropriateness and conditions
BH offers the new ordinary shares of BIL to BBL, which is its
connected party, and another two parties. The share offering to the
three parties is on an equitable basis, at Bt. 153.52 per share. They
are not related to one another and their decisions are made in an
independent manner. The transaction making is under the following
conditions:
1. BBL's making of the transaction is subject to the approval of
its Board of Directors meeting.
2. BBL, Istithmar and V-Sciences must get all regulatory
approvals or permission relating to the transaction.
3. The transaction between the Company and BBL, which is a
connected transaction, is subject to the approval of the shareholders'
meeting of the Company with a mandate of not less than three-
fourths of the total number of votes of the shareholders who attend
the meeting and have the right to vote, excluding the shareholders
with a conflict of interest.
4. BBL, Istithmar and V-Sciences must sign all the agreements
relevant to the transaction.
Therefore, we consider the conditions pertaining to this transaction
are appropriate.
4. Conclusion of the IFA's opinion
For the above reasons, we consider that the BIL share offering to BBL,
which is a connected party, at Bt. 153.52 per share is appropriate.
The share offering to increase capital will help diversify risk of BH
as the only major shareholder of BIL and hence it has to fully
recognize either profit or loss from its stake in BIL, which is
just in its business start-up period and still uncertain in
operations. The proceeds from the share offering will strengthen
BIL's financial status and equip it with adequate capital funds to
accommodate investments in healthcare operations overseas in
collaboration with local investors. This will benefit the Company and
BIL, as well as their respective shareholders, in the long run.
The share offering to BBL, a connected party of BH, will enhance BIL's
prospects in investments, financial management and access to
information related to investments overseas, since BBL is a strong
financial institution with large networks overseas and reputation for
its financial and investment expertise. BBL's expertise and good
relationship with several countries in the region will facilitate
BIL's investments in those countries. In addition, with the
relationship with BH being its shareholder and having representative
director on its Board of Directors, BBL has already got involved
in and been well informed of BIL's operational policy and direction.
For the reasons described above, we recommend that the shareholders of
the Company approve the making of this connected transaction on
grounds that it is an appropriate transaction with fair price
and conditions.
As the IFA, we have given our opinion based on the study and analysis
of the information obtained from the Company's management, comprising
the resolution of the 3/2549 Board meeting on
March 30, 2006, information memorandum submitted to the SET on March
31, 2006, BIL's and AHI's financial statements, other relevant
information and documents from the Company, and interviews with
the executives, as well as the publicly disclosed information.
Our opinion is based on the assumption that the information and
documents obtained from the Company and the interviews with its
executives are true and correct and with the current economic
conditions taken into account. Any material change in the said
information or economic conditions may affect the Company and the
making of this transaction.
Yours sincerely,
Advisory Plus Co., Ltd.
(Signed by) Prasert Patradhilok
(Prasert Patradhilok)
President
Asian Hospital, Inc. (AHI)
Key assumptions used for the financial projection are as follows:
1. Foreign exchange rate
It is set at Peso 1 for Bt. 0.73, based on the average rate in 2005.
2. Number of daily inpatients
In 2005, AHI recorded around 15,140 inpatients, or a 50% growth from
2004. The high growth percentage was due to the small base of
customers in the past. Thus, the growth rate of 50% is too high and
unrealistic to be used for future projection.
To be more realistic and conservative, the number of inpatients is set
at 17,365 in 2006, growing about 15% from 2005. The number of
inpatients is projected to grow 11% in 2007 and 10% in 2008, and to
remain constant from 2009-2014 due to the highest occupancy rate of
80% during such period.
3. Occupancy rate
The average occupancy rate of each patient is 3.6 days/person during
2006-2014, the same as in 2005.
4. Daily inpatient service income
Daily inpatient service income will amount to Peso 22,397 in 2006,
with an average growth of 6.00% in 2007 and 7.00% per year during
2008-2014.
5. Other income
Other income comes mainly from shop rental in the hospital premises.
It is set constant at Peso 43.3 million per year.
6. Cost of medical care service
Cost of medical care service is projected against medical service
revenues at 54% and 51% in 2006 and 2007 respectively, and 50% during
2008-2014.
7. Administrative expenses
They are set in a range of 19%-23% of medical service revenues over
2006-2014.
8. Cost of investment in land, buildings and equipment
The Company projects cost of investment in medical equipment at an
average of Peso 50 - 100 million per year during 2006-2007.
9. Working capital
Average accounts receivable 60 days
Average inventories 45 days
Average accounts payable 90 -15 days
10. Terminal value growth
It is set to grow at 3.00% per year.
Bumrungrad International Hospital Co., Ltd. (BIL)
Key assumptions used for the financial projection are as follows:
1. Medical service revenues
They are divided into two portions, i.e. portion 1 set constant at USD
120,000 per year, and portion 2 which depends on AHI's performance,
projected at Bt. 38 million in 2006, rising at an average of about
22% per year, to Bt. 58 million in 2009.
2. Software patent fee income
It is set at Bt. 6.71 million in 2006, being constant at Bt. 2.51
million per year from 2007 through 2014.
3. Administrative expenses
They are set at Bt. 25 million in 2006, Bt. 18.79 million in 2007, Bt.
14.58 million in 2008 and between Bt. 15 -18 million during 2009-2014.
4. Working capital
Average accounts receivable 90 days
