A visit to World class Medicine & Service.

Thaistocks.com had a discussion recently with the Investor Relations Officer of BH, Ms. Jutatip Adulbhan. The executive offices are located on the top floor at the hospital, centrally located in Bangkok just off Sukumvit road. Walking into the hospital lobby was like entering a 4 or 5 star hotel complete with valet parking.

BH is a privately ran for-profit" hospital, and is the market leader in Thailand with a world-wide reputation as a top-tier health care provider. It recently resumed trading after a 40 month suspension due to defaulting on some US$ loans during the Asian economic crisis. The company successfully finished restructuring in the 4th quarter of 2000, and is in a very healthy financial position now.

Bangkok Bank recently had a private offering to reduce its ownership stake in BH, the offering price was at 35 baht. Then the stock was listed again for trading in late October. The stock opened in the mid fifties and as many members well know, BH"s share price quickly jumped into the high 80 Baht range on high volume. BH has since settled side ways down into the high sixties. Hence at current levels, PR rates the stock an "accumulate buy on any further weakness".

When BH stock war running much higher in November we alerted members to stay clear -even while some members indicated in the lounge that we "did not understand the business" and went on to make very bullish observations as the stock was spiking higher. Thaistocks.com was more guarded on BH on the way-up and warming up on BH as it sold off.

Several points were discussed with Ms. Adulbhan:

In terms of capacity the hospital has room to admit more patients. The hospital is licensed to use 540 beds for inpatients, at present there are 390 beds and 320 of those beds are currently being used (82% capacity). For outpatients, BH has the capacity for 3500 patients and at present they are currently at 2500 patients (71% capacity). Hence in the outpatient sector there is much room for growth as explained below.

The company is currently expanding by adding a third building in the hospital complex (there is a separate building acting as a hotel/dorm for families and patients). The new building will have 10 floors for a car park and another 10 floors for outpatients, increasing capacity to 6000 outpatients. STECON is building this building for BH. When finished in 18-20 months it will allow more room for inpatients in the original building. Although inpatients are much more lucrative than outpatients, BH needs to target outpatients in order to eventually turn some into inpatients. Ms. Adulbhan stated that parking is a major problem at the hospital right now and that the new car park will solve this headache. The new building is scheduled to open in September 2005.

The hospital recently received JCIA accreditation in April 2002. This is an accrediting association that has only accredited 11 hospitals outside of the United States. BH was the first of out of 54,000 hospitals in Asia to receive this accreditation. BH is also ISO9001 compliant, the first hospital in Thailand to do so.

BH has not raised its prices in the past 3 years. The reason for this is that the purchasing power of Thai people has not increased enough to warrant price increases. This is now changing as the domestic economic upsurge will create more and more new BH patients from within Thailand as well. Future revenues from hospital management fee may contribute to earnings as well.

Approximately 60% of BH"s patients are of Thai nationality. The foreign patient market has increased dramatically, doubling from 20% to 40% of total patients in the past 5 years.

BH has referral offices in Bangladesh, Vietnam, Myanmar, Sri Lanka, Nepal, Cambodia, Maldives, United Kingdom, Vietnam and the Netherlands. The hospital also tries to keep in contact with as many foreign doctors as possible so that they may refer patients to BH. Health Tourism is a growing market for this hospital, and this trend is expected to continue in the future as more people around the world realize the potential cost savings besides high quality health care, that BH offers.

Ms. Adulbhan estimated that BH"s prices are one-third of Singapore"s prices, one-half of Hong Kong"s, one-quarter of Europe"s and one-fifth of the United States" prices for medical services.

BH has over 2000 employees and over 600 doctors. The hospital prides itself on an experienced international management team with no doctors in top management. The hospital is ran more like a business compared to other hospitals where doctors typically hold the top management positions.

One concerning point we have is with the fact that Bangkok Bank is forced to reduce its shareholding of BH to under 10% by February 2005. BBL presently owns 33.6% of BH with the controlling family (Songpanovich) of BBL owning another 9%. BBL presently has a restriction on its current holdings until October 2004. This means that in a period of less than 5 months starting in October 2004, BBL will have to dispose 23.6% of the total common shares of BH. It may also be in the best interest of the Songpanovich family to unload some of their shares before or during that period? These facts create a some future uncertainty concerning BH"s share price due to perhaps of an oversupply of new shares flooding the market. Hopefully BBL can distribute its shares in private placements at reasonable prices, but it would not be healthy to start dumping shares in the open market.

This last point is one major concern and why we did not feel BH stock was worth chasing when it was first listed. On the current correction it has attracted our attention again and hence our long term view of "accumulate buy on any further weakness ". We so hedge our otherwise favorable view of BH stock as a good long term investment only with the fact that many new shares will hit the market over the next couple of years.

It is very difficult to come-up with an earnings estimate per share for next year. A company that successfully comes out of restructuring makes such an estimate even more daring. PR here tempts to estimate 4 Baht earnings per share for year 2004 and 4.6 Baht for year 2005. On this rough estimate BH (68) stock is trading at 17 times year 2004 which is still reasonable for a leader in a very desirable and stable industry which Thailand long proven excels at. We also believe a dividend of 1.50 -1.70 Baht is probable for the period covering year 2004. Always diversify your stock holdings.

Best Regards to all Members,

Paul A. Renaud