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Edited Transcript of BH.BK earnings conference call or presentation 13-Nov-19 3:00am GMT

Q3 2019 Bumrungrad Hospital PCL Earnings Presentation

Bangkok Nov 24, 2019 (Thomson StreetEvents) -- Edited Transcript of Bumrungrad Hospital PCL earnings conference call or presentation Wednesday, November 13, 2019 at 3:00:00am GMT

TEXT version of Transcript

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Corporate Participants

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* Aniello M. Sorrentino

Bumrungrad Hospital Public Company Limited - Chief Global Strategist

* Artirat Charukitpipat

Bumrungrad Hospital Public Company Limited - CEO of Bumrungrad Hospital

* Daniel Kastner

Bumrungrad Hospital Public Company Limited - Senior IR Manager

* Nan Chen;Senior Director

* Oraphan Buamuang

Bumrungrad Hospital Public Company Limited - Hospital CFO

* Suthon Chutiniyomkarn;Bumrungrad Health Network;CEO

* Wisut Ua-anant;Chief Digital Marketing

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Presentation

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Aniello M. Sorrentino, Bumrungrad Hospital Public Company Limited - Chief Global Strategist [1]

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(foreign language) Thank you for coming. Welcome to Bumrungrad Hospital Public Company Limited Quarter 3 Presentation. And thank you for coming, as well as those who are -- called in on the recorded listen-only line. If you have questions thereafter this presentation, please direct them to Daniel and [Jan,] and we'll be happy to answer them.

Before we begin with the actual informational disclosure, I'm going to ask Khun Artirat, who's the CEO of the Medical Center, to introduce 2 new executives on her staff. You may recall that we're spending more and more of human resources populating the strength of the medical center's organization as opposed to corporate staff and things like that.

So I will turn it over to Khun Artirat.

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Artirat Charukitpipat, Bumrungrad Hospital Public Company Limited - CEO of Bumrungrad Hospital [2]

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Thank you, Khun Neil. Good morning to everyone. I will introduce in Thai.

(foreign language)

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Wisut Ua-anant;Chief Digital Marketing, [3]

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(foreign language)

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Artirat Charukitpipat, Bumrungrad Hospital Public Company Limited - CEO of Bumrungrad Hospital [4]

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(foreign language)

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Aniello M. Sorrentino, Bumrungrad Hospital Public Company Limited - Chief Global Strategist [5]

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We are the first health-care organization in all of Thailand to have acquired Salesforce, which is a sophisticated advanced consumer relationship management piece of software, and Khun Wisut is going to lead the way in using that to completely digitalize our marketing efforts, driving more revenue into the hospital than we've really ever done before because we haven't been that skilled at it. So we wanted to get a seasoned, experienced executive from another industry, not the healthcare industry, because they don't do this in healthcare.

He was a difficult recruit, but we and -- [Khun Ling] and I, were successful in having him join Bumrungrad. Thanks to David over here, who first met him and who also brought Salesforce to us. So we're looking forward to him making some major contributions as we go forward. We've already reorganized several people inside the organization to now be reporting to him in the marketing side, and I'm sure he will look at that and make changes as he sees necessary.

Dr. Suthon, on the other hand, has been with us before. He was the CEO of Vitallife at one time here and then did a number of business development activities. Previous to this, he was the COO at Praram 9, and now joins us back amongst the good guys here at Bumrungrad. We welcome you back, Dr. Suthon.

So for the quarter, let's talk about it for a moment. We, in general, were fairly pleased with the quarter. In fact, we beat several analyst expectations about EPS for the quarter. It was much better than Q2 for us, much, much better. Although year-over-year, the revenue intensity was slightly down. The length of stay for Thai business and expat was slightly down, but the utilization for expats on an inpatient basis were up for Thai and for expats, and I'll give you some detailed statistics in a moment.

The 2 areas in our market that held us back from really growing the business year-over-year was Oman and Myanmar. Myanmar was down about 10%, and that's a -- on admissions. That's a function of their poor economy there and our very, very strong Thai baht here.

As you well know, the Thai economy is quite weak still, even though the Bank of Thailand reduced interest rates down another 25 bps. There's much, much more that has to be done to move the Thai economy forward, with 70% of the GDP of all of Thailand subject to foreign exports. You take that in combination with tourism, which for the third quarter was up, by the way, Suvarnabhumi arrivals, versus second quarter. It was terrible in the second quarter, better by 7-plus percent in Q3, and that helped a lot of businesses, including us.

Oman, I told you in Q2, had rotated a number of their lower per capita income patients to India for lower healthcare costs. Their admissions were down about 1/3. Their revenue was down about 45%. And they rotated to cheaper healthcare options in India. Very, very significant price sensitivity out of that Omani market.

However, what offset almost all of those declines was our international business, and in particular, our strongest piece of the business was Middle Eastern business. For the first time in 5 years, our Middle Eastern revenue -- now mind you, this is with Oman down, what I just told you -- our Middle Eastern revenue hit a record 25% of total revenue for our overall business for the company.

And what drove that? UAE. We had a 50% increase in business from Kuwait, some businesses that were being referred these patients to local competitors, rotated to Bumrungrad during the quarter. That, in combination with very strong support from the UAE, drove the Middle East business up on revenue 8%. And drove it up by 5% on admits. Very strong quarter for us for Middle East. And this is what helped us buffet the Myanmar and Oman offset.

Cambodia was strong -- and I'll give you these numbers in just a moment. Cambodia was strong. Vietnam was strong. Laos maintained its positioning. China was also very strong for us in the quarter. It at BH rose 35% in the quarter. Overall 27%, because we had some slight declines over at Vitallife, but the difference in revenue contribution at BH versus Vitallife, you can see that difference. It doesn't impact it that much on the overall total. Total 27% growth China; 35% growth at BH.

Our referral office business was very strong in the quarter. Khun Tanee's strategy and tactics repricing -- targeted repricing is working at our referral offices. It was up 13.7% in the quarter. And even with -- when you analyze what we're doing in the RO area, when you analyze it, the marginal contribution of revenue and profitability remains rather strong even with the increased repricing or discounting, whatever you want to call it, which has time parameters to it. We'll do it as long as we need to do one thing, and that's maintain our market share.

We opened a new market in Q2. Khun Tanee opened a new market in Q2 in Saudi Arabia. We have been trying to get into that market for years. You just don't go into Saudi Arabia. You have to be invited. That's a very, very different market than any other Middle Eastern market. And during the quarter, it grew 27% for us, for a brand-new market. Now while the base is small, it's an immature but brand-new market for us, and it will grow. We're looking for it to grow substantially over the upcoming quarters.

So let me give you some stats, because Khun Tanee loves to write down the stats, so I brought them for him. So Thai revenue intensity was down minus 1.6%. The LOS was down 7%. This is year-over-year. But remember what I said to you, relative to Q2, it was up dramatically. So these numbers reflect, while year-over-year down, if I were to compare quarter-over-quarter, it was dramatically different on the upside.

Inpatient admissions were down 1.2%; outpatient, down 0.4%. This is all Thai now. Middle East revenue was up 5.1% for the quarter, driven by what I just summarized for you. Length of stay was up 11% for Middle East. And Middle East revenue, as I mentioned earlier, was up 8%. UAE was up 47%; Qatar, up 23%; Kuwait, up 18%. And as I mentioned, Oman was down about 40%. This is on revenue. On volume, it was down about 1/3.

We had a very strong quarter. And it's also -- this is being recorded and on our investor site if you want all that detail so you can put it in your model. Remember, you're the one who asked about this last time.

A very strong quarter at Songdo, our Mongolia hospital. It was up 13% for the quarter, and it drove about 10% of our stats. But in the last 2 years, now that the economy has swung back up, Mongolia, it's having a banner year this year as it did last year -- better than last year.

Indochina, Vietnam was up 0.6%. This is again on volume. Cambodia up 6.2%, strong market for Khun Tanee, who's been working very hard to develop that market further.

Myanmar was down on volume 4.1%. Thai about flat, expat -- this is on OPD now, expat down 2.9%.

On admissions -- inpatient admissions, Thai up -- Thai down 1.2%; Songdo up, as I said, 13%; Indochina down 5.3% principally due to Myanmar; expat up 4.6%, a dramatic increase from Q2 to Q3; Cambodia up almost 11%; Bangladesh up almost 2%. So revenue overall for the quarter -- and when I say revenue overall, I speak of gross revenue. What you see up here is net, I speak of gross revenue -- was up significantly 2.4% on the gross line. And we'll talk about guidance in a moment with respect to top line revenue growth, which I call gross revenue.

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Unidentified Participant, [6]

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What is net growth?

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Aniello M. Sorrentino, Bumrungrad Hospital Public Company Limited - Chief Global Strategist [7]

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Well, that's gross minus discounting, et cetera. So that's what we report to the SET, which is net revenue. What I just gave you is 2.4%, which is gross revenue growth year-over-year for Q3.

The top 5 hospitals by revenue -- the top 5 markets by revenue was Thai at 34%. It has been running 34%, 35%. This quarter it was 34%, which means that 66% was our international piece, driven by the Middle East. The second-strongest market for us was the UAE at 8.8%. Myanmar remains our third-strongest market at 8.5%. Kuwait 6.2%, U.S.A. 4.9%. Most of that is expat. And #6 was Cambodia, 4.2%.

That in summary are the metrics for the quarter. Q4, as I mentioned to you during the Q2 analyst presentation, had started Q3 fairly well. Q4 at the revenue line -- I'm not talking about anything else -- but at the revenue line, has shown additional strength for Q4 beginning the first month of Q4.

So with regard to Q3, I'm going to change the guidance for the company to 2%, plus or minus 1%. That's different than our probably last 5-quarter guidance of flat, plus or minus 2%.

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Daniel Kastner, Bumrungrad Hospital Public Company Limited - Senior IR Manager [8]

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We mentioned earlier that net revenue and gross revenue and what were the differences between that. So I'd like to highlight a little bit about that. In terms of gross revenue, this quarter discounts were 10.1% to net revenue compared to 8.5%. So there is a significant increase from year-on-year terms, mainly due to the intensification of our discounted and promotional targeting programs. These, as you can see from the numbers, especially for Middle East, has really driven the kind of market share that we want and the target patients that we want and have also offset some of the weaknesses in certain other markets, especially, to some extent, in Myanmar, where there's particular price sensitivity as well.

But not only has it been RO, we have also been intensifying our engagement with insurance, for example, and also with the health network, where we also saw a significant increase. Albeit, it's still a relatively small proportion of our revenue driver, it is a key and growing part. And we do have a new executive who will be helping to drive revenues there.

In terms of discounting, it is interesting, though, to note that these have largely been led by the hospital. So corresponding decreases in doctors' fees did not go proportionally with the discounts. So these have affected somewhat our gross margins and, in return also, further down the profitability line. DF as a percentage of total revenue did increase somewhat in the third quarter. But in a way, it also highlights upside for us in the future as well that, through our ongoing collaboration with our doctors, we could potentially see some upside on that side as well, helping our patients and also helping to drive further revenue there.

In terms of our RO, it contributed around 13.7% of our revenue, and it grew 5.3% year-on-year. And we actually increased the number of ROs in the third quarter. If you may remember, in the second quarter, it was around 51 ROs -- physical ROs. It's approximately 66 as of the third quarter. So it is growing significantly, and we're looking -- we have good expectations in terms of growth in the future on that.

In terms of the expenses side for EBITDA. So you can see that EBITDA decreased 4.8% in the third quarter, in part due to the doctors' fees, as I mentioned earlier, which affected the margins there. But also, we saw increases in selling expenses for the reasons largely similar to what we saw in the second quarter. So due to our engagement with our RO channel, for example.

And then for administrative expenses, we continue to invest heavily in IT and digitalization and consulting fees. We did see an increase from that. So ongoing improvements to the hospital that we've highlighted in the previous quarter. And these digitalization programs, you start to see potentially bringing benefit in the future as we now have a new Digital Marketing Officer, who now has the equipment and the wherewithal to help drive revenue there.

So the previous questions: What is the benefit? What's the ROI on these investments? This is exactly what we've been investing long term for, and we believe there's good potential in the future for that.

In terms of the Thai market, if you look, as Neil mentioned, Q-on-Q, Thai revenue did increase at a higher rate than in the previous quarter, some of that due to our engagement in insurance business and also more packaged pricing promotional programs, which we believe we've seen some effectiveness. Again, as we mentioned, we monitor that. We monitor the efficacy of these programs, whether they will be continued or discontinued, whether incremental revenue is being achieved.

The discount rate, as I mentioned, 10.1% to gross revenue actually deducted from the net revenue line around $94 million. So that is a significant impact. However, we did see incremental revenue as a result from that as well, pretty much on the net profit line, largely due to the EBITDA level impacts that I mentioned earlier. In terms of interest costs, decreased largely due to retiring of debentures in December last year, reducing our finance costs. And of course, tax expenses correspondingly lower due to the lower profitability in the quarter.

And that pretty much wraps up the third quarter. There are more details, and I'll hand it over then to Khun Oraphan for the financial section of the presentation.

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Aniello M. Sorrentino, Bumrungrad Hospital Public Company Limited - Chief Global Strategist [9]

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And I'd like to make a few additional comments to Daniel's comments. The repricing and the promotional strategy is being done specifically in response to the poor Thai economy. But we believe we are positioning ourselves for future growth when the economy turns around in Q1, Q2, assuming the government does the proper things to stimulate the economy. So we'll be prepared in this area.

The promotional repricing has worked very, very well internationally, both in Middle East and our RO markets. We look at the marginal contribution. And as I've said to you several times, I'm fine with drops in margin. No one can sustain 35% margin. But the point is, is targeting the right kind of market share, which we continue to target and are successful at.

Dr. Suthon is going to make a presentation later. He's hit the ground running, whereby, we're announcing today an agreement in principle with Principal Healthcare, a company founded by Dr. Pongsak, a close colleague of [Khun Ling] and a mentor to Khun Ling when she worked with Dr. Pongsak. And this will be the development of joint and spine centers in secondary markets. Using our technology, using our knowledge transfer, this will be a revenue sharing proof of principle approach that Dr. Suthon will present in more detail to you in just a little bit.

But we're hopeful that, that will plant additional seeds for Bumrungrad to continue the Bumrungrad healthcare network throughout Thailand because we -- Thailand is still 50% of our volume but 34%, 35% of our revenue, and we don't want to forget that, because Thai people come to Bumrungrad. And you can show the next couple slides, ones that we paid nothing for, next slide, [Jan.] No. The other slides, where is the -- these are independent surveys done by third parties having nothing to do with Bumrungrad over the years that select this institution as one of the top 5 or top 10 in the world. And this is not solely simply because of medical tourism, which we are internationally famous for but also for our sophisticated high-level tertiary outcomes.

So for us, when we hit these little trough points, Q2, Q3, THB 155 million in Thai severance mandated by the government, for us, we take the long view. We see it as a rebasing of the business. THB 155 million is not going to reproduce again in 2020, so we see it as being properly positioned for the long term, 2020, 2021, especially with the arrival of Khun Wisut. There's a lot of revenue mining that can be done through digital marketing where he's expert at. And I said to him when he came, "You have one KPI, Khun Wisut, just one. Build revenue." He can write it on one line.

So then, Khun Oraphan?

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Oraphan Buamuang, Bumrungrad Hospital Public Company Limited - Hospital CFO [10]

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(foreign language) Good morning, everyone. So mostly Khun Neil and Daniel already cover in the overall. But I will go through the detail for you. So a better understanding. For third quarter in the overall revenue, slightly up by 0.8%.

This is mainly came from the Thai business go up by 2.5% plus together with the international, go up by 2.4%. For 2.4% is a combination of the Middle East. Overall revenue is go up by 8%. So I will say that include OPD and IPD not separately, so very clear for you.

So Middle East overall is going up by 8% in this quarter and mainly came from the Kuwait, about 17%. UAE, slightly very significant increase, about 47%. And Bahrain is going up by 55% and Qatar 22.6%, Yemen 42.7%. There is only one significant now is Oman as Khun Neil already mentioned.

For the Indochina, it's about flat, about 0.1% slightly increase. But the measure, like Cambodia also increased about 8%. Vietnamese is the rising star for us, is about 19% increase. And also the Bangladesh also up by 3.1%, offset with Myanmar slightly down about 5.3%. For the other areas, like Mongolia also increased about 19%, U.S. about 2.1% and China 26%, all right?

For the 9 months, the revenue also slightly up about 0.9%. This is a combination of Thai business also go up slightly about 0.3%, together with the international about 3.4%. For other international, Middle East also the one that increased about 7% in the overall. And the significant one is the UAE also slightly up -- is up about 44%. Kuwait about 0.3%. It's not that much because Kuwait, last year, we have a big increase about 70%. So this year, about 0.3%. For the Qatar, it's going up about 34.6%, Yemen about 8.8%, Bahrain at about 10.9%. So it's only significant now is Oman, down by 25%.

For the Indochina, also going up by 3.4%, mainly came from the Cambodia, 12.4%; Vietnamese is the rising star, go up by 26.1%. Myanmar, even though this quarter is going down, but in terms of the overall 9 months, still slightly up about 0.4%, offset with the Bangladesh down 0.9%.

For the other market area like Mongolia also up by 13.2%, U.S. up by 14.8%. And last one, China, up by 14%. So this is the overall revenue.

In terms of revenue contribution by nationality, you can see that for the Thai and international, Thai is about 34%, and international is 66% in both of third quarter of 2018 and third quarter of 2019 because those markets growing in almost the same rate in this quarter. For 9 years (sic) [9 months], the international slightly up from 65% to 66% because of Middle East market go up and Indochina go up in this year.

For the revenue contribution by service, you can see that outpatient service is about 53%, slightly up to 54% in both quarter -- third quarter and also 9 months, because of the outpatient revenue in this did go up in this year.

For the revenue by payer. You can see the third-party payer, both of insurance and government, is going up in this year. The insurance is going from 15% to 16%, and the government also go up from 12% to 13%. You can see that the self-pay is slightly down, 2%, but still the big portion of the hospital cash [basis].

Okay. For the EBITDA in third quarter, down by 4.8%. This is because of we have operation expense up in this quarter. So we already mentioned that we have a bit more on discount, that we try to stimulate the market and also pay to the third-party payer, and the percent of revenue in this quarter is up from 8.5% to 10.1% for the discount. And also we have the IT maintenance that we have in this year. Last year, we implemented a system, and so we already include it in the purchase cost, so we don't pay the service in last year. But this year, we have to pay the service support and also other IT support that we pay in this year, too, because we would like to enhance our IT service.

And the other thing is the consulting mandate, where we have to add operation improvement for IT for the contact center. So we add the consulting fee in this year. And the other thing is marketing expense that we try to stimulate the economy and also the volume, as we know that the economy very down in this year. And the last one in this quarter, we have prior year adjustment on the medicine cost due to the implementation system last year.

In third quarter of 2018, we do the physical inventory count and we find out that medicine cost is overstated. So we adjust out in third quarter of 2018, so -- but this year, we do not have these adjust out. So that's why the last year is basis low.

For the 9 months, the EBITDA down 8.8%. If we -- once we exclude the onetime adjustment, you can see the EBITDA slightly improved but still down 5.7%. This is mainly the reason -- same reason of the third quarter down: additional discount, additional IT support service, marketing expense and also the consulting fee. And the other thing that we have is the -- we have more expense on the cloud service that we try to enhance our digital.

For the next one, EBITDA margin for the third quarter is 33.1% and year-to-date is 31.7%. Once we exclude onetime adjustment, it's slightly up to 32.7%.

For the net profit also down in this quarter, 6.5%, mainly because of the same reason of the EBITDA down, except for 2 things, that we have less financial cost because debenture already retire in December 2018, so we have less interest cost. And the other thing, we have additional tax benefit from training expense. So the effective tax rate in this year declined from 17.8% to 17.2%.

Okay. For the net profit margin, 2019 third quarter is 22% and year-to-date 20.6%. When we exclude onetime adjustment, it's become to 21.5%, still down from last year 23.1%.

For the net debt-to-EBITDA it's almost flat but slightly a little bit up if compared to last year due to we have less debt because we use the cash to invest more in long-term investment like debenture to optimize the interest yield in this year. And the net debt-to-EBITDA, and equity as well, the same story. So we invest more in long-term investment to have a better yield in interest rate.

And for the interest coverage ratio, in this year, it's going up from last year a lot because we have the retirement on debenture in December 2018. So that's why the ratio is going up in this year. For the TRIS Rating, in the end of September, we have the TRIS Rating and the TRIS announced us to be the same ratio at A-plus. So the debenture is still based on the A+ rating. Thank you.

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Aniello M. Sorrentino, Bumrungrad Hospital Public Company Limited - Chief Global Strategist [11]

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In the quarter also, the cash position increased to THB 9.092 billion, which is cash plus near-term investments, it grew. Even though we spent THB 930 million on a very strategic piece of property, which we will show you in just a moment, and I'll explain in a little bit the strategy behind the acquisition of that property. I want to apologize to our new CEO for Bangkrajao, please come up. And [Khun Ling] (sic) [Khun Artirat] will introduce him properly, sorry.

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Artirat Charukitpipat, Bumrungrad Hospital Public Company Limited - CEO of Bumrungrad Hospital [12]

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Unidentified Company Representative, [13]

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(foreign language)

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Artirat Charukitpipat, Bumrungrad Hospital Public Company Limited - CEO of Bumrungrad Hospital [14]

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(foreign language)

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Aniello M. Sorrentino, Bumrungrad Hospital Public Company Limited - Chief Global Strategist [15]

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[Khun Ling] has been the CEO of the Medical Center for only 9 months. She's amassing quite a powerful team. This gentleman is very experienced not only in executive management but also skilled as a physician. We're very hopeful and confident he will make Bangkrajao a success for us.

Next item, please. Daniel?

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Daniel Kastner, Bumrungrad Hospital Public Company Limited - Senior IR Manager [16]

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So your question always, how will we grow in the future? We'd like to highlight a little bit. Neil touched upon our guidance increase for this year. Just to be clear, that's for the full year. So for the fourth quarter, it would contribute -- we expect it to grow more than in the third quarter. That's, hence, why we increased the guidance by 2% plus or minus 1%, just as a clarification.

In terms of growth strategy going forward, so in 2020, actually, we do have a number of planned new services and procedures and centers, which we are excited to announce when it's time to. Just to highlight a few things in more detail, we will be looking at launching "Blue Ocean" kind of services, so things that aren't easily replicable for many other hospitals due to a shortage of highly-trained physicians in these procedures, very advanced procedures requiring a lot of training and experience and also a very strong medical staff to support them. These will be launched in the heart center and also in digestive diseases. There will be more detail later on when we begin to market these, but these are just areas where we believe there's good opportunity for us there.

In terms of more personalized and integrated medicine, we've been talking about this for a while now but really have started to ramp up this year and the previous year. The combination of conventional screening with genetic screening due to leveraging our in-house genetic sequencing capability and genotyping, these allow us to offer products that aren't actually -- aren't really available elsewhere. And it has a lot more room to grow, not only in terms of the amount of screening and panels that we can add on, which in turn, actually have lower marginal costs, so they can actually be value-additive and margin-additive to our existing services. These will be rolled out gradually.

We do have in the business update an announcement in terms of cancer, indicative screening and, Nan, he will be presenting this later on. In terms of digital marketing -- we talked about this already, even though we come out with new procedures, we offer new services, it does not work if we don't market it properly. And so therefore, we believe there's very big untapped potential in terms of digital marketing, which we haven't been doing much of in the history. We will be seeing more of that going forward.

In terms of inorganic growth, ROs, we mentioned earlier, we will be continuing to step on that pedal. ROs are a very successful channel for us. We do believe there is more potential there, and we will be adding additional offices and strengthening services in the future.

In terms of the health network. I will let Dr. Suthon speak in more detail, but this is essentially deepening the relationship with the health network that we have currently. It is an exciting CapEx-light way of scaling our business there, and it can be very scalable in the future once proof-of-concept obviously is achieved, and we are happy with it.

In terms of engagement with government sponsors. As you know, we have very strong relationships with Middle Eastern governments, in particular. And this quarter is indicative of that. Despite the strong Thai baht, we have managed to cement relationships with key markets, Kuwait, in particular for this quarter. And UAE, obviously, one of our first markets where we entered, and we have very, very strong relationships with sponsors there.

In terms of domestic and international insurance and medical assistance networks. We mentioned that we intensified engagement with that, and we expect that to continue. In fact, in the third quarter of this year, it really only has started to ramp up. So we do expect to see additional incremental revenue from that compared to in the previous year, where we only really started in the third quarter and really started to see some effect in the fourth quarter.

That pretty much is the broad growth strategy going forward for us. In terms of the next slide...

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Aniello M. Sorrentino, Bumrungrad Hospital Public Company Limited - Chief Global Strategist [17]

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One of the other things I would also mention is that we have very, very strong oncologists on our medical staff. And they have asked management to expand their Horizon Center, for which, in the third quarter, we approved the expansion of our rather successful cancer program, which we're going to expand on behalf of our doctors.

For the campus master plan update. I do this every other quarter because no point in being redundant about it. But there's the data. Let me just give you the high points.

Soi 1, which we talked about starting construction. We've had a little bit of a delay through BMA. Here's one for you. When we applied for the construction permit and they started looking at the land surveys, they said, "Oh, Soi 1 is land." We said, "No, no. It's a road. It's a public road." They said, "Oh well, we'll have to get the land department to square that away with the BMA." Anyway, we have worked through that bureaucracy. So that groundbreaking -- contracts are signed. That groundbreaking will begin January 31, February 1.

The Vitallife building, which we call BI Small, will also begin around that same time. So we'll have 2 construction projects underway at the same time. I talked earlier about the acquisition of the piece of land -- [Jan,] can you go to that, please? If you come down Nana, there's a piece of land here, about 2.1 rai, 2.2 rai. The strategic aspect and benefit of this property is that we can build a building going up 40 floors, because it's on a wide road on Nana.

In addition to that, as you're looking at it to the front, if you go around this way, where the (inaudible) is, you can get to the hospital in 3 minutes. So we have -- Khun Linda has been trying to buy this property for about 15 years. It's been under litigation. It finally got resolved. So she bought it, THB 930 million.

Phase 1 of the use of the property is going to be moving surface parking from where Soi 1 is going to start construction. We're going to move half of that surface parking to here. So the employees will have a place to park while Soi 1 is under construction, meaning half of it, and then we'll move the rest of it -- or we may not. Once we build a parking garage, we will start that first. Remember, there's 3 buildings on that property. One is the parking garage. One is the diagnostic center. One are offices and clinics. So Phase 1 for this brand-new property will be surface parking. We are in the process now, without disclosing to you what we're thinking about doing here and doing some preliminary planning internally with [Khun Ling's] staff and myself and Khun Linda, about the future use of this property, but it's very strategic because of our ability to go up 40 floors. And it's a 3-minute walk from the campus.

So while we spent THB 930 million in the quarter, we still ended up with net cash of THB 9.092 billion of cash and near-term investments. So very healthy balance sheet from that standpoint. And typically, we expect that in the fourth quarter, as Khun Tanee and his team work toward collecting Middle East AR, which is always a challenge for everybody in the business, we expect that to grow, because we don't see any major cash-out positions in the quarter coming up. Okay. Daniel?

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Daniel Kastner, Bumrungrad Hospital Public Company Limited - Senior IR Manager [18]

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You may have noticed when you were arriving at the hospital, that the lobby floor of the main building is under renovation. It's been closed off. And actually, we have shifted most of the retail over to the temporary mezzanine on the southern side of the building. That will accommodate temporarily while construction is underway to fully renovate the whole lobby area.

As you know, it is relatively dated already. We haven't done major renovations for a while, and we're very excited to be able to unveil what it would look like in the future. But currently, it's too early to say -- it's too early for us to disclose right now, but there will be more details on that. And we expect it to be complete in February next year. So in just a couple of months' time, we will be able to show you that in more detail. And future upside to that would be that we have additional space for retail outlets, F&B outlets. So that will improve patient experience, also generate additional rental income for the hospital itself. So that's a major renovation on the campus master plan that you can see right now.

Next slide, please.

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Aniello M. Sorrentino, Bumrungrad Hospital Public Company Limited - Chief Global Strategist [19]

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It will be the nicest lobby you have ever seen when it's completed. I can assure you of that. Dr. Suthon?

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Suthon Chutiniyomkarn;Bumrungrad Health Network;CEO, [20]

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(foreign language) Okay. From now, I would like to take for 5 to 10 minutes that are to present you for the new strategy initiative for -- to support our growth strategy in the future.

I think these are maybe like a key move for the Bumrungrad Hospital. Because as you know, that are in the market is now quite really competitive, both for the existing players and also the new entrants because, from the market research for the next 2 years, you have the capacity for the beds of the hospital, maybe allowed increase about 10% for the new entrants and also not include for the existing player in the market that they try to expand capacity. For us, we quite have some limited for expanded capacity because now we in the key location in the very strategic location in the big city. It's very difficult to acquire the big land or to expand our campus.

And also that we have some background or evidence or reasons to support it why we have to come up with a new strategy to grow our business. The first one, it will be, as you know that, now we are go into the aging society. Now we have the 60 years old or up of the aging operation, around 13%. This is maybe the definition that we are on process of going to the aging society. But even we if we come up to 20%, it's maybe a completed aging society in the next few years, either you can see that we can see that large or huge opportunity for the healthcare demand in the market that are for this segment. And also the -- for Thailand, absolutely now we have like a developing country, and we have more and more for the middle class people that are -- we have the increasing trend of the percentage portion of the middle class people that increased for the last 14 years.

And also that, for this group, definitely, they have more purchasing power to see for the healthcare service and also that they have a high awareness for the -- how to keep their health status to keep them healthy, so they have a longevity for the health status. And also that -- and for the key reason that I have mentioned is we come up with a new strategy that, okay, we have to -- a new strategy how to grow our business to support our existing campus.

We don't say in a way that we will move to another segment. It's mean that it will be additional, we have additional market to support our growth in our business. I think we came up with the key concept for the partnership center of excellence. I think for in the market or in the -- among the healthcare community, we can get some like reputation, high reputation that we have really high competency in some specific area. Center for the high technology, surgery procedure, spine, joint or the robotic surgery. That's why we get the acceptance for our community that we can provide the best service to our patients.

And also that, okay, it's really in the same -- at the opposite side, we have the perception that we're very high or luxury care, sometimes we limit the accessibility for the middle class people or the Thai domestic market, that I cannot access to our service. That's why we come up with a new strategy that, okay, we would like to provide these types of it to another new segment for the middle class people.

We will do like we call the joint operation. It's not a joint venture. Joint venture is made up of 2 companies, set up a new company to develop a new business or new service. But this one is like we have the contract with our partner. And then we share the equity with the partner to develop the new service at our partner hospital.

This one, as Daniel mentioned earlier, is a light CapEx or don't have that big investment for this project because we have -- we will use their facility, their support to provide a service that will be a corporate collaboration with them to provide the service to their patients.

And for this point, Bumrungrad will have the (inaudible) and responsibility to share the technology, knowledge and methods with our partner hospital. I think this -- we now, in the [Thai market] we have to grow together with our partner. We would like to develop like a empower strategy with our partner that we grow together. If they get stronger and stronger, they can catch up more patient. We have the high possibility to get more referral cases from them. This maybe support our growing strategy in the future.

And the target group -- the new target is the Thai middle class group, international middle class group. As I mentioned that, okay, we can catch up for the high-end people or the high purchasing customer. But for the middle class, sometime they have a limitation for their affordability to access our service. That's why we come up with this strategy that, okay, we can support for this market. And also that, okay, we will still focus on how to grow our existing market for the high-end people.

And absolutely, we will focus on the third-party payer. This is going to be the background now in the Thai health insurance market premium. They have allowed THB 80 billion of the premium is a very big healthcare fund that, in the market for the private sector to catch up or can acquire for these market segments that are to grow the business for the private hospital.

Some opportunity from this project that, okay, we can provide affordable price and good quality care and tapping the new market segment. As I mentioned, for the middle class people and the group of customers that really sensitive for the price, something like this. And also that we will focus on the high-intensity procedure, because this is maybe support for the viability of the project. Because if we focus on the very low-intensity [center] for the outpatient [bureau] or something like this, that there may be like a very low intensity. Sometimes it's quite difficult to make profit or make the project for viable. And we will focus on the aging society, opportunity for the domestic market, driving the healthcare demand. And also that we will deepening for the relationship with our network hospital.

I would like to give you some background for this, our Bumrungrad Health Network project. The last 2 years ago, Bumrungrad have signed MOU with the hospital in Thailand all over the country, around 60 hospitals. Now we have some experience for 2 years. We can learn from this project that, okay, we have a good process and good relationship with the hospital. And also that we found that all -- most of the hospital, they need some support from the big hospital like us that are to make them to more competitive in the market. They have to compete with the BDMS group in the local area. And also, they need some support from us as to how to compete with the market. This is maybe support, a really strong support for this project that we would like to do something new that are to collaborate with our partner and strengthen them and grow with them for local market. And also that, as I mentioned, that is a very CapEx-light expansion model because we're not starting from the greenfield hospital. We no need to build up the hospital or build up the facility. We can use our partner facility, maybe like a little or refresh the renovation and adjust some infrastructure, not a big deal then we can start really early, if we can set up all the final conclusion for the term agreement of the contract. This may be quite really easy to open and no need for the big investment.

And we will have a tentative to open the new site for this concept for the center of excellence with the Princ Hospitals Suvarnabhumi under the managed by the Principal Capital. This Principal Capital group is a public company and also a holding company, has like asset management and also have the hospital management. They have 10 hospitals in their group. The founder of this group is Dr. Pongsak Viddayakorn, is a founder of the BDMS group that has separated from the BDMS group and he set up his own group by focus on the second-tier hospital or the secondary hospital.

I think this one may be a match with our requirement that, okay, not have a high possibility to cannibalization between our segment or their segment, and we can grow in another segment for the middle class people. And we will start with the Princ Suvarnabhumi Hospital. I think that this hospital is located in Bangna area that's very close to Megabangna. This also is the old name is Piyamin Hospital. And this group acquired this hospital and then turned from the 30 baht hospital and Social Security hospital to be a private hospital. And they just started at the -- like a soft launch or soft opening on October. And then they have a big ceremony for open ceremony in 2nd of December.

We will start this project with them with the joint and spine center and have joint replacement center and spine surgery center.

I think this one may be the brief information of this new strategy for the partnership center of excellence, COE, that we will focus on our key competency that we can provide support to our network of our partners. (foreign language)

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Nan Chen;Senior Director, [21]

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(foreign language) I will use 2 minutes to update you our cancer DNA sequencing. Seven months ago, we reported to you that we started our cancer liquid biopsy DNA sequencing. Well, in liquid biopsy, we just take a sample of the blood, and we can detect any cancer DNA mutations.

Today, I announce our cancer tissue biopsy DNA sequencing. In cancer tissue biopsy sequencing, we just take a small amount of tissue directly from a tumor. We can then detect cancer DNA mutations in them. With this in-house capability, we expect much faster turnaround, higher quality, simply because we've cut out unnecessary sample handling. We don't need to ship the specimen to outside labs. Many of the labs are located abroad. Also, we return raw data. Raw data are very important for both our oncology and patients.

For the previous years, we used outside labs and spent tens of million baht for DNA sequencing. Today, I'm very proud that Bumrungrad International Hospital can carry out all this cancer DNA sequencing in-house. Please allow me to repeat. Now the Bumrungrad International Hospital is the only private hospital here in Thailand that can do this in-house. Thank you very much.

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Daniel Kastner, Bumrungrad Hospital Public Company Limited - Senior IR Manager [22]

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Thank you, Nan.

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Aniello M. Sorrentino, Bumrungrad Hospital Public Company Limited - Chief Global Strategist [23]

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We have made a major investment in this technology. And for our Soi 1 project, we will be adding, in that project, the scope of services, we'll be adding 2 additional floors to expand our next-generation sequencing laboratory, which will be even beyond this state of the art in the way that we diagnose and treat cancer patients.

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Daniel Kastner, Bumrungrad Hospital Public Company Limited - Senior IR Manager [24]

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And then in terms of the cancer indicative screening, don't forget, we do have very strong reputation in oncological intervention in the Middle East. So this kind of screening, which offers very high quality and by high quality, meaning lower DNA degradation, this is exactly the kind of precision medicine that we're looking for that can help to generate more positive cancer outcomes for our patients. So this is very value-additive to our cancer treatment, where we have a very strong reputation in.