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LOLC SEC Valuation12M Tgt Price (excl.dividend)
Share PriceUpside/(Downside)Risk Level(refer page 26 for recommendation)
Share DetailsBloomberg Ticker ASIR SL
CSE Sector Health Care
GICS Sector Health Care
Market Cap (LKR Mn) 33,750
Issued Quantity (Mn) 1,138
30-day avg T/O (LKR Mn) 2.76
Beta (6 months) 0.95
Investment FundamentalsLKR Bn 12MTrail. 2017(F) 2018(F) 2019(F)
Revenue 10.0 11.7 13.9 19.0
Net Profit 1.5 1.6 2.1 3.2
S/H's Equity 7.0 7.9 9.4 11.8
Total Assets 16.7 18.1 19.9 22.5
ROA (%) 10 9 10 14
ROE (%) 32 23 25 29
Price MultiplesPE (X) 21.71
PBV (X) 5.77
Price to Sales (X) 3.27
Dividend Yield (%) 1.57
Price Behavior
Per Share Details as at 30.06.2016 (LKR)
Earnings per share (trailing 12m) 1.32
Net Asset Value per share 4.97Sales per share (trailing 12m) 8.77
Dividend Per Share (trailing 12m) 0.45
Shareholder Details
Softlogic Holdings Plc 50%
Fenner Merrill Lynch 29%
CF Ruffer Pacific Fund 3%
Shareholders below 5% 24%
Source:CSE, Bloomberg, LOSEC Research
Analyst (s)
Hiruni Perera
26 September 16
Recommendation Guidance, Important Disclosures and Analyst Certification: Page 26
+94 115 880809
Business NatureAsiri Hospital Holdings PLC is the leading private sector
health care provider in Sri Lanka. It mainly owns and
operates four hospitals situated in Colombo and Southern
province while also being the market leader in the diagnostic
segment with a market share of 60%.
Salient Sections of the Report
Positive Outlook for private health industry in Sri Lanka (pg.2)|Higher margins over peers led by diagnostic operations
and group synergies (pg.7)|ASIR leads the pack with wider services (pg.9)|Top line to grow at a CAGR of 27% FY17-19
with increased market share (pg.11)| |Flexibility in raising funds despite the high leverage (pg.13)|Leading brand in the
private healthcare in Sri Lanka (pg.14)Valuation (pg.15)|Sensitivity and Earnings risk comment(pg.16)| Appendices
(pg.17 )
Valuations
ASIR is priced by the secondary market as a growth counter with high multiples of PE
(21.71X) and PBV (5.77X), at a premium to both market and the sector. We have valued the
counter using DCF model using a hurdle rate of 16.62%, a 5% premium to 3-year risk free
rate. Accordingly, we have valued the counter at LKR 33.10, which is at a premium to the
share price, reflecting market is yet to fully account for growth potential of the company. We
give a BUY recommendation to ASIR.
LKR 28.70 LKR 34.20
Medium15%
LKR 33.10
Growth counter in a growing industry
Sri Lanka's per capita health spend is relatively low compared to the average per capita
health spend of upper middle income countries despite the fact that it has better indicators in
the region. In the two tier health system public sector is providing free medication while
private sector is servicing more affordable patients. Accordingly, private health expenditure
is likely to see a CAGR of 11% ahead mainly considering the increasing spending potential
along with the rising per capita income and along with the favorable demographic structure
of the country. ASIR as the market leader in the private health sphere is best positioned to tap
into this opportunity while continuing its bottom line growth.
BUY
Investment Considerations
Positive outlook for private health industry in Sri Lanka: We estimate Sri Lanka's private
health industry to poise for a strong growth driven by expected rise in per capita income.
Accordingly, in our view per capita health spend is estimated to increase at a CAGR of 11% FY
16-FY19 in line with the rising spending potential on GDP forecasts. Price resilient demand,
growth in medical insurance, expanding ageing population and rise in NCDs (Non
Communicable diseases) are expected to further continue to drive the demand for private
health services.
Higher margins over peers led by diagnostic operations and group synergies: ASIR has
been able to maintain an average higher EBITDA margin of 32% compared with the industry
average of 22% while we attribute higher margins mainly on its market leadership in the high
yielding diagnostic segment and due to group synergies.
ASIR leads the pack with wider services: One of the key strength of the group is to provide
patients with a broad spectrum of services utilizing the most advanced medical technology.
As a total healthcare provider the group is specialized in providing integrated medical,
surgical care and diagnostic facilities. Furthermore, continuous investment on the cutting
edge technology can be considered as a key competitive advantage compared with its peers.
Top line to grow at a CAGR of 27% FY17-19 with increased market share: ASIR's
revenue has grown at a CAGR of 15% FY11-FY16 and we expect revenue to grow at a CAGR of
27% FY17-FY19 led by new hospital to be built in Kandy which is expected to contribute to
topline in FY19. Kandy Hospital is expected to be a key strategic driver for the group as it
opens up large market in the country for high quality private health care. Furthermore it will
continue to leverage on its strategic advantages over peers midst of growing industry
prospects.
Flexibility in raising funds despite the high leverage: Despite high debt levels ASIR is in a
better position to access for more funding options to support its expansion plans with its
strategic foreign partnerships.
Leading brand in the private healthcare in Sri Lanka: We believe that strong brand name
in the clinical services that has been built over last 30 years as an one of the key strength to
build its market leadership in the private health industry.
Asiri Hospitals Holdings PLC
Initiation Coverage
Equity Research
15
20
25
30
LK
R
ASIR Share Price ASI movement (adjusted to ASIR base price)
Initiation Coverage: Asiri Hospitals Holdings PLC | 26 September 16
Rise in per capita income to result in more demand for private health providers
Source:CSE, Bloomberg, LOSEC Research
2 | LOLC Securities Limited
Graph 01: Sri Lanka's health spend per capita is above the South
Asian region counterparts (2014)
Graph 02: However SL is positioned at a sweet spot of the S curve
and it actually lags below the health spend
Source: World BankSource: World Bank
Source: World Bank, CBSL, LOLC SEC Estimates
Per capita health spend
to increase at a CAGR of
11% FY16-FY19.
Strong correlation
between per capita GDP
and health spend
Sri Lanka's health spend per capita has seen a rapid growth of 11% CAGR during the last decade and also it remains
above South Asian counterparts (graph 01). However, it lags behind world peers in its income category suggesting
that health spending is poised for a strong growth potential.
Furthermore, stat reveals that there is a strong correlation between income levels and health outlays of the country.
This is due to the fact that demand for health rises as households become richer, in order to extend and improve their
quality of life. With Sri Lanka is expected to steer through the upper middle income stage surpassing the GDP per
capita of USD 4000, we could expect to see a sharp rise in per capita health spend due to its strong correlation.
Accordingly, we project per capita health spend to be increase at a CAGR of 11% FY16-FY19 midst of the rising GDP
giving a strong impetus to the country's health care industry.
Graph 03: We forecast health spend growth to exceed the GDP growth while continuing the past trend
Positive outlook for private health industry in Sri Lanka
Malaysia
Turkey
ChinaThailand
Sri LankaPhilippines
Vietnam
India
0
100
200
300
400
500
600
700
800
900
1,000
1,100
1,200
1,300
-1,000 1,000 3,000 5,000 7,000 9,000 11,000 13,000 15,000 17,000
Per
Cap
ita
Hea
lth
Sp
end
(U
SD)
GDP Per Capita (USD)
127
75
3136
57
40
89
0
20
40
60
80
100
120
140
Per
Cap
ita
hea
lth
sp
end
(U
SD)
25 26 27 32 31 33 32 35 3946 51
58 6170 71
8496 93
120127
139154
171
190
211
0
50
100
150
200
250
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015E 2016F 2017F 2018F 2019F
718 758 813 841 822 855 838 904 985 1063 1242 1424 1614 2011 2057 2744 3129 3351 3610 3853 3924 4008 4298 4704 5181
Per
Cap
ita
hea
lth
sp
end
(U
SD)
GDP Per Capita (USD)
7% CAGR
Initiation Coverage: Asiri Hospitals Holdings PLC | 26 September 16
Positive outlook for private health industry in Sri Lanka (contd…)
Graph 05: Despite Public sector dominance private sector beds has increased at a rapid phase
Price resilient demand
Graph 06: Health expense as a % GDP has increased to 3.54% from 3.07% irrespective of health price increases
Source: World Bank, CBSL
2 | LOLC Securities Limited 3 | LOLC Securities Limited
Despite the fact that state hospitals dominate the country's health industry with 76,781 beds, number of private
sector hospitals keeps on increasing with increased affordability of patients and due to state sector's failure to meet
the increased demand. Despite rapid increase of private hospital room portfolio, we still see a significant demand
potential in private healthcare.
Despite State sector's
dominance private sector
hospitals keeps on
increasing
* Health Index includes the movement in the health price levels
Private health providers
to benefit from being in a
defensive industry
Source: World Bank
Per Capita health spend
of USD 127 is
significantly less than
per capita health spend
of 516 of upper middle
income countries
indicating the future
growth potential.
Source: Central Bank of Sri Lanka
Graph 04: Per Capita health spend is expected to increase with Sri Lanka steering through the Upper middle income band
Considering the recent trend in the price levels and per capita health expenditure, per capita health spending has
remained and slightly risen irrespective of changes in prices remarking a "price inelastic demand" (less sensitive to
price changes). Health care being a basic need in human life, price inelasticity provides a positive sign for the service
providers indicating that demand will not be adversely affected due to price increases.
37 90127
516
1061
0
200
400
600
800
1000
1200
Low income Countries lower middle incomeCountries
Sri Lanka Upper middle incomeCountries
World
Per
Cap
ita
hea
lth
sp
end
(U
SD)
4784 5596
69,73176781
0
20000
40000
60000
80000
100000
2011 2015
Nu
mb
er o
f b
eds
Private Hospitals Public Hospitals
3.07%
3.54%
200
220
240
260
280
300
320
2000
2500
3000
3500
4000
4500
2010 2011 2012 2013 2014 2015
Per
Cap
ita
Hea
lth
Exp
end
itu
re
GD
P P
er C
apit
a
Per capita non health expenditure (USD) Per capita health expenditure (USD) Health Index
Initiation Coverage: Asiri Hospitals Holdings PLC | 26 September 16
Positive outlook for private health industry in Sri Lanka (contd…)
Expected growth in medical insurance
.
Source: World Bank, CBSL
3 | LOLC Securities Limited 4 | LOLC Securities Limited
Graph 08: Out of pocket expenditure vs. private
prepaid plans
Graph 9: Insurance penetration levels in Asia (2015)
One of the key limitations to the growth in the private-sector hospitals has been the lack of affordability of people due
to low penetration in health insurance policies. Major part of the private spending is spent by households while
employers contribute 7% where as private insurance contributes about 5% of total private financing. Further when
compared with the upper middle income countries Sri Lanka's health spending financed by private pre- paid plans
remains significantly low.
Graph 07: Low private health spending funded by
insurers (2013)
Source: World Health Statistics,2015
But we expect with increased competition in the insurance industry, the penetration levels to improve, especially in
the case of medical insurance schemes, increasing the affordability of patients, thus supporting the upside of the
health industry.
Source: Swiss Re (http://www.sigma-explorer.com/map/WOR/index.php?lob=total&year=2015)
Low health spending
funded through private
prepaid plans compared
to upper middle income
countries.
Sri Lanka remains
underpenetrated
compared to other South
Asian countries.
Growth in medical
insurance to result in
more demand for paid
health services.
Source: Institute for Health Policy
87%
7%5%2%
Households Employers
Insurance Non-profit institutions
74
17
83
4
87
4
0
10
20
30
40
50
60
70
80
90
100
Out-of-pocketexpenditure as % of
private expenditure onhealth
Private prepaidplans as % of private
expenditure on health
%Upper middle income countries Sri Lanka
Lower middle income countries
0.00%
0.50%
1.00%
1.50%
2.00%
2.50%
3.00%
3.50%
4.00%
China India Malaysia Thailand Indonesia Philippines Sri Lanka Vietnam
Life Insurance penetration (premium % of GDP) Non life Insurancepenetration(premium % of GDP)
Initiation Coverage: Asiri Hospitals Holdings PLC | 26 September 16
Positive outlook for private health industry in Sri Lanka (contd…)
Expanding ageing Population
Graph 10: Rapid growth in SL population 65+ years
Graph 12: Population Pyramid
Source: Economic and Social statistics of Sri Lanka 2015
4 | LOLC Securities Limited 5 | LOLC Securities Limited
Source: Sri Lanka Paradigm shifts in population, W.Indralal De Silva Source: World Bank, 2015
Sri Lanka's population is one of the oldest in South Asia and is also one of the fastest ageing populations in the world
being demographically on par with developed countries. The demographic transition of Sri Lanka, is a result of a
sharp decline in the fertility rate, and an increase in life expectancy driven by several decades of investments made
on welfare, education and health. If elderly is defined as age 65 year and above, Sri Lanka has 9.30% of the total
population at the age of 65 and above, while this figure surpasses most of the South Asian regional peers. Further 65+
year portion was only 4.3% in 1981 and by 2012 it has increased to 7.9%. Interestingly by 2041 it is expected to
increase up to 17.1% of the total population.
Sri Lanka's population is
one of the oldest and
fastest ageing population
while being
demographically on par
with developed countries.
Graph 11: Population ages 65 and above (% )
Consequent to the changes in demographic components, the shape of the population pyramid of Sri Lanka is
estimated to change significantly. As indicated by above graphs, in 2015 out of population of 20.9 Mn, 8% was
estimated to be over 65 years and above and this figure is anticipated to increase up to 18% by 2041.
Ageing population is required to be more health conscious and are engaged in more on health check-ups on a regular
basis as a preventive action, implying a growing demand for health care. Accordingly, private health providers in the
country are expected to benefit from this demographic trend as a result of expected increase in demand for inpatient
and outpatient care services as well as laboratory and other support services.
Source: A population projection of Sri Lanka by W. Indralal De Silva
0-4
5-9
10-14
15-19
20-24
25-29
30-34
34-39
40-44
45-49
50-54
55-59
60-64
65- 69
70-74
75 and above
Percent
2015
Female (%) Male (%)
0-4
5-9
10-14
15-19
20-24
25-29
30-34
35-39
40-44
45-49
50-54
55-59
60-64
65- 69
70-74
75 and above
Percent
Female (%) Male (%)
2041
4.97
9.3
5.62 5.895.17 5.55
4.49
10.479.55
26.34
0
5
10
15
20
25
30
4.3
6.3
7.9
10.9
14.5
17.1
0
2
4
6
8
10
12
14
16
18
1981 2001 2012 2021 2031 (F) 2041 (F)
%
Initiation Coverage: Asiri Hospitals Holdings PLC | 26 September 16
Positive outlook for private health industry in Sri Lanka(contd…)
Rise in Non Communicable Diseases (NCDs)
Graph 13: Increasing trend in deaths due to NCDs in line with GDP Graph 14: Cause of deaths by NCDs as a % of total (2012)
Facility/ ASIR NHL CHL LHCL
5 | LOLC Securities Limited 6 | LOLC Securities Limited
Source: World Bank
Deaths due to NCDs have
shown an increasing
trend
NCDs have shown an increasing trend while it was found that 71% of all annual deaths are attributed to chronic NCDs
led by Cardiovascular diseases (heart), diabetes, cancer and chronic respiratory diseases. Rise in NCDs can be
attributed to two reasons; particularly due to the ageing population of the country and the dietary and lifestyle
changes in line with the increase in income of people. (At lower income levels, health spending is dominated by
communicable disease and as living standards improve, NCDs account for a larger share of health expenditures)
This is expected to poise an opportunity for health providers since treatment of NCDs involve long hospital stay and
advance medical treatments with higher prices and better margins. For instance, ASIR is the only hospital to have the
PET CT scaner in the country.
Source:Health Ministry and the World Bank
0
500
1,000
1,500
2,000
2,500
3,000
3,500
4,000
4,500
0
2,000
4,000
6,000
8,000
10,000
GD
P P
er c
apit
a (U
SD)
Nu
mb
er o
f d
eath
s
Cancer Heart diseases
Diabetes GDP per capita
30
40
50
60
70
80
90
%
Initiation Coverage: Asiri Hospitals Holdings PLC | 26 September 16
Graph 15: 5 year Average Capital Expenditure to sales
Table 01 : Comparison of prices (LKR) of common lab tests with industry peers
Type of the ASIR LHCL CHL NHL
510 820 460 500 573
300 310 290 280 295
1430 1170 1250 1200 1263
310 310 310 300 308
1560 1570 1260 1290 1420
6 | LOLC Securities Limited 7 | LOLC Securities Limited
Fasting Blood Sugar
Thyroid Test (TSH)
Complete Blood Count test
Urine Full report
*APHS is the Apollo Hospital India
In this context ASIR has secured its market leadership in diagnostic segment due to lower involvement in overheads
and thereby to offset the downward pressure on margins.
Further in our view ASIR and LHCL has been able to charge slightly higher prices while we attribute slightly higher
prices of ASIR over industry average for its high quality associated with lab reports.
Higher Capex
requirements
The private sector hospitals industry adopts the most advanced medical technology in the world and therefore it is
considered as a capital expenditure intensive industry with an average annual capex stands around 14% of the total
revenue of major private health care providers due to its extensive requirement to upgrade the quality of the
technology and the service. ASIR incurs approximately 500 Mn recurring capex every year to upgrade its facilities.
When average capex to sales figures are compared to Apollo Hospital a leading Hospital in India the figure is slightly
higher than the average Sri Lankan value (15%). This indicates that private health care providers need to incur
extensive capex to maintain sophisticated healthcare facilities which may lead to significant pressure on margins due
to higher overheads.
Industry
avg.
Source: Bloomberg
Source: LOLC SEC Research
Higher margins over peers led by diagnostic operations and group synergies
Diagnostic to be a
captivating option
Cholesterol Test (Lipid profile)
10.00 10.25
27.52
8.25
14.00 14.54
-
5.00
10.00
15.00
20.00
25.00
30.00
ASIR CHL NHL LHCL Industry Avarage APHS
%
Initiation Coverage: Asiri Hospitals Holdings PLC | 26 September 16
Table 02: Comparison of laboratory network with listed peers
ASIR LHCL CHL NHLMain Labs 4 1 1 11
466 620 39 118
8 No 9 No
Graph 16:Lab business generates higher EBITDA Margins for ASIR compared to core business
Graph 17: ASIR stands out on higher EBITDA margins compared to its listed peers
7 | LOLC Securities Limited 8 | LOLC Securities Limited
Source: Bloomberg and LOLC SEC Research
ASIR as the leading private medical laboratory operates a network of 8 satellite labs and sample collection centres
throughout the country. Construction of a 11,000 sq.ft new laboratory building in Narahenpita is also expected to
further enhance strengthen its laboratory facilities and the market leadership.
Source: Company websites and annual reports and LOLC SEC Research
Collection Centres
Satellite Labs
Having the largest laboratory network, we expect hospital to spearhead in terms of the operation margins due to its
leadership in the high yielding diagnostics segment. As per graph 17 it has been able to maintain an average 6 year
EBITDA margins of 32% surpassing the industry average (private listed hospitals) of 22% while availability of
laboratory network across the country will enable ASIR to capture the higher demand for diagnostic services leading
to higher volumes performed in the future.
We also believe that group synergies arising from the cost efficiencies within the group to further contribute
positively on the higher margins.
Accordingly, ASIR's EBITDA margins are expected to improve and maintain at 33% level FY 17E-FY18E due to its to
leadership in high profitability diagnostic segment and group synergies while negating the negative impact of higher
capex.
Higher margins over peers led by diagnostic operations and group synergies (contd…)
Diagnostic segment
generate higher returns
compared with core
services.
Source: LOLC SEC Research
Higher EBITDA margins
surpassing the industry
average of 22%.
23%
53%
0%
10%
20%
30%
40%
50%
60%
Core Business Lab business
31.72 30.81
35.6233.51
31.67
27.22
31.1032.82 33.03
29.99
0.00
5.00
10.00
15.00
20.00
25.00
30.00
35.00
40.00
2010 2011 2012 2013 2014 2015 2016 2017F 2018F 2019F
%
ASIR CHLN NHL LHCL Industry Avarage
Initiation Coverage: Asiri Hospitals Holdings PLC | 26 September 16
Table 03: ASIR provides a full range of services utilizing its four state of the art hospitals
Strategic partnership with TPG Growth
Table 04: TPG's some of the investments into global health care sectorInvestment Specialization Country
EnvisionRx Pharmaceutical Services U.S.AEvolent Health Consulting services to health providers U.S.AHealthscope Private health provider AustraliaIMS Health Information and technology for health services U.S.APar Pharmaceuticals Pharmaceutical U.S.AQuintiles Bio Pharmaceutical U.S.ASurgical Care Affiliates Ambulatory surgical care U.S.ASutures India Surgical sutures manufacturer India
8 | LOLC Securities Limited 9| LOLC Securities Limited
Specialized in integrated
medical, surgical and
diagnostic facilities.
Expanding the number of services accompanied by the investment in to state of art technology can be viewed as a key
competitive strategy used by private health providers for increasing their market share. Adopting the same, ASIR
hospitals have now operations spanning the full spectrum of core medical, surgical and diagnostics services based on
the cutting edge technology, creating a competitive advantage over the others.
Central HospitalKey Specialization * Provides a host of
medical and surgical
services with key
strengths lies in medical
investigations,
diagnostics,
gynecological medicine
and pediatrics.
* Positioned as the
leading surgical provider
among private hospitals.
*Currently AMSL has the
only PET scan in the
private sector.
*This features the most advanced
technology and tertiary care.
Cutting edge technology
Source: Company Websites
AMSL
Source: Websites
In order to provide the modern treatments for patients and cater to the growing demand for health care needs, ASIR
on a regular basis upgrades its high tech medical equipment whereas the continues expansion on cutting edge
technology can be considered as one of the top most strength of ASIR.
ASIR leads the pack with wider services accompanied by the State of the art technology
"TPG Growth ", 2nd largest shareholder of ASIR is a US based private equity firm focused on investments in middle
markets. TPG Growth's current and past investments include a mix of iconic and innovative companies ranging tech,
retail and entertainment including Uber, Airbnb, e.l.f. Cosmetics, Angie's Artisan Treats, Fender and SurveyMonkey.
With $8 Bn invested since 2007, TPG's investments in the health ranges from pharmaceutical companies to
technology data providers that are aligning with secular growth trends or building innovative solutions to emerging
challenges.
Accordingly, partnership with TPG will bring the group with global health care know-how which could be leveraged
to capture the greater demand for health services while TPG's representation in ASIR' s board is expected to bring
new and diverse experience to the group.
Asiri Medical
Strategic partnership
with TPG to enhance
health care know how.
Initiation Coverage: Asiri Hospitals Holdings PLC | 26 September 16
Hospital
ASIR
NHL
LHCL
CHL
Source: Company Annual reports and websites, IPS, Investopedia and LOLC SEC Research
*Note- Total Consultants include the number of Government doctors working part time in private hospitals.
Hospital No of beds No of beds Mkt Share2007 2016 2016
ASIR 320 600 88% 11% 740 11
LHCL 350 350 0% 6% 350 6
NHL 325 400 23% 7% 400 7
CHL 155 260 68% 5% 250 5
Other 3986 71%
Total 5596 100% 5939
HHI (Herfindahl-Hirschman Index) value 227
Four Hospital Concentration ratio 29%
9| LOLC Securities Limited 10 | LOLC Securities Limited
Top line to grow at a CAGR of 27% FY17-FY19 with increased market share
Source: Company Annual reports, CBSL and websites, Investopedia
In the private health industry top four listed players namely ASIR, NHL, LCHL and CHL combinely account for a higher
portion of market share in terms of consultants while among the top four ASIR accounts for the highest number of
visiting consultants.
In terms of the inpatient segment of the private hospitals concentration of the top four private hospitals is limited to
29%. However, as a single largest hospital ASIR has a 11% market share in terms of the collective beds and this is
expected to increase up to 12% by 2018 due to a fully- fledged 140 bed hospital in Kandy which is estimated to
commence in 2018 (piling work has been completed already). Further we believe that there are no major expansion
plans by other three hospitals mentioned above to increase their room capacity.
Thus being a chain of private hospitals with wider availability of consultants and being the hospital with the higher
number of bed capacity among the top players, ASIR will be well positioned to cater to the increasing patients' needs
over its competitors while strengthening its top line growth.
Table 05: Concentration in terms of visiting Consultants
Private hospital industry is characterized by oligopolistic market structure which is reflected by the concentration
exists in the industry. In the private health industry listed top 4 players namely Asiri Hospital Holdings PLC (ASIR),
Nawaloka Hospitals PLC (NHL), Durdans Hospitals (CHL) and The Lanka Hospitals (LHCL) have become the key
players which accounts for higher portion of the market share in terms of the consultants.
An oligopolistic market
structure.
Consultants
No of beds
FY 2018(F)
849
400
12%
6%
Table 06: Concentration in terms of the beds (2015)
275
2100*
588
Total
4%
Capacity
growthMarket Share FY 2018(F)
7%
Initiation Coverage: Asiri Hospitals Holdings PLC | 26 September 16
Kandy Hospital- A key strategic investment
Valuation for the hospital
Total Investment 4500
Capex incurred 500
Estimated Capital Expenditure2016/17 20002017/18 2000
Graph 18: Revenue and Occupancy projections for Kandy hospital
10 | LOLC Securities Limited 11 | LOLC Securities Limited
Top line to grow at a CAGR of 27% FY17-19 with increased market share (contd…)
Kandy Hospital of ASIR is expected to complete in 2018 with an investment of LKR 4.5 Bn. New facility would be built
up on a land in Kandy. This new hospital will feature state of the art technology and is expected to get benefitted due
to its strategic location. Accordingly, we expect ASIR to attract patients coming from other regions as Kandy is the
Central hub of the country. We believe this will help to further increase the market share over its peers.
ASIR is the only private hospital among the top four listed hospital to expand their presence out of the Colombo.
Although currently there are 10 private hospitals operating in Kandy District and 16 hospitals in Central Province we
believe ASIR to attract a larger patients segment due to its strong brand name augmented with the state of the art
technology. Non- existence of any expansion plans by the major four listed hospitals in Central Province or close by
area is another factor which further strengthens its competitive position. New hospital especially focuses on
Cardiovascular and Cardiothoracic services and some of the services will be the first for the Central Province.
We estimate that out of LKR 4.5 Bn total cost of the hospital, LKR 500 Mn has been incurred and remaining LKR 4 Bn
we have spilt into two equal tranches for our estimation purposes. Further we expect hospital to have 55%
occupancy in the first year and reach up to 70%, leveraging on the benefit of its strategic location.
55%
60%
65%
70% 70% 70%
0%
10%
20%
30%
40%
50%
60%
70%
80%
0
1000
2000
3000
4000
5000
6000
7000
2018/19 2019/20 2020/21 2021/22 2022/23 2023/24
Occ
up
ancy
Rat
io
Rev
enu
e (L
KR
Mn
)
Estimated Revenue Estimated Occupancy
Initiation Coverage: Asiri Hospitals Holdings PLC | 26 September 16
Table 07: Competitive Benchmarking
Hospital
ASIR 9952
NHL 5860
CHL 4728
LHCL 5514
Graph 19: Revenue has grown at a 6 year CAGR of 15% FY10-FY16 and expect to grow at CAGR of 27% FY 17-FY18
Graph 20: Central Hospital continued to be the highest contributor to the group revenue
11 | LOLC Securities Limited 12 | LOLC Securities Limited
Source: Company Annual reports
Revenue growth (6 year CAGR)
15.14%
12.63%
9.13%
11.81%
Source: Company Annual reports
Top line to grow at a CAGR of 27% FY17-19 with increased market share
Revenue FY16(LKR Mn)
Among the hospital portfolio of the group Central Hospital is expected to continue its position as the top contributor
to group top line while Asiri Medical's contribution to the group topline is estimated to increase from FY 17 due to the
200 Mn investment in the state-of-the-art laboratory building to be built adjacent to the hospital.
Source: Company Annual reports
4,9176,097
7,0767,963
8,594
9,952
11,727
13,878
19,038
0%
5%
10%
15%
20%
25%
30%
35%
40%
0
2,000
4,000
6,000
8,000
10,000
12,000
14,000
16,000
18,000
20,000
FY 11 FY 12 FY 13 FY 14 FY 15 FY 16 FY 17 (F) FY 18(F) FY 19 (F)
Rev
enu
e G
row
th
Rev
enu
e (L
KR
)
Revenue Revenue Growth
66%71%
61%
70%
55%
0%
10%
20%
30%
40%
50%
60%
70%
80%
0
1000
2000
3000
4000
5000
6000
7000
8000
Asiri Medical AMSL Central Hospital Asiri Hospital Matara Asiri Hospitals Kandy
Occ
up
ancy
Rev
enu
e (L
KR
Mn
)
FY14 FY15 FY16 FY17 FY18 FY19 Current Occupancy
Initiation Coverage: Asiri Hospitals Holdings PLC | 26 September 16
Flexibility in raising funds despite the high leverage
Graph 21: Net debt and Net debt to equity
Graph 22: ASIR has high net debt to equity ratio (gearing) compared to its peers
12 | LOLC Securities Limited 13| LOLC Securities Limited
Among the listed peers ASIR has been high leveraged compared to its peers due to the borrowings taken for
expansion plans.
Despite being high leveraged ASIR is one of the few private hospitals in Sri Lanka to have access to funds from
international financing agencies such as IFC (International Finance Corporation) and accordingly we believe that it
will be easier to raise international financing due to its strategic foreign representation in the board (now TPG and
earlier Actis). Further we believe that leadership of ASIR's chairman being a one of the leading entrepreneurs and
capital market expert will remain as a key strong factor to attract borrowings and equity necessary for expansions.
During the period FY 10 to FY 15, total debt of ASIR depicted an increase of 34% and stood at LKR 7171 whereas
increase in debt was mainly to fund the expansion plans. However, ASIR's net debt declined to LKR 7059 with the
settlement of IFC loan which represented USD in advance due to the fluctuations in the exchange rates.
Source: Bloomberg
ASIR is highly leveraged
compared with its peers
Source: Bloomberg
ASIR to have more
funding flexibility due to
the foreign
representation in the
board.
5355
65416802
6224
8207
7171 7059
0
20
40
60
80
100
120
140
160
3000
4000
5000
6000
7000
8000
9000
FY10 FY11 FY 12 FY13 FY14 FY15 FY16
Net
deb
t to
eq
uit
y (%
)
Net
Deb
t (L
KR
Mn
)
Net debt Net debt to equity
102.83
135.65
122.24
81.10
140.02
99.54 101.33
-40.00
-20.00
0.00
20.00
40.00
60.00
80.00
100.00
120.00
140.00
160.00
FY 10 FY 11 FY 12 FY 13 FY 14 FY 15 FY 16
%
ASIR NHL LHCL CHL
Initiation Coverage: Asiri Hospitals Holdings PLC | 26 September 16
Strong Brand name
Table 08: Listed Health care brands (2016)
Company Rank 2016 Rank 2015
ASIR 35 34 2162
LHCL 59 65 801
NHL 64 55 720
CHL 68 74 576
13| LOLC Securities Limited 14 | LOLC Securities Limited
ASIR lead among other
listed health care brands.
Leading brand in private health industry in Sri Lanka
Source: Brands Annual, 2016
* Brand values are in LKR Mn
We believe that strong health care brand name of ASIR that has been built over last 30 years to be a key
differentiating factor among its rivals. Proving its brand strength, it has taken the lead among the listed Medicare
providers while being ranked at 35th in most valuable brands with a value of LKR 2162 Mn (Brand Annual 2016).
It has also been able to take the reputation global with the WHO and other International research organizations using
the Asiri Laboratory for their projects.
Brand
Value* Brand Rating
A
BBB
ASIR is currently on the track to achieve JCI accreditation for its nursing care and clinical procedures while obtaining
the JCI accreditation will enable to market "The Central" and "Asiri Surgical" in foreign markets and position these
two hospitals at the forefront of medical tourism thrust.
BBB
BB
Initiation Coverage: Asiri Hospitals Holdings PLC | 26 September 16
Valuation
Table 09: Valuation Sensitivity Matrix
15% 16% 17% 18% 19%6.0% 38.60 33.90 30.10 29.00 26.306.5% 40.50 35.40 31.30 27.90 25.207.0% 42.70 37.00 33.10 28.90 26.007.5% 45.20 38.90 34.00 30.00 26.808.0% 48.10 41.00 35.50 31.30 27.80
Source:CSE, Bloomberg, LOLC SEC Estimates
Table 10: Domestic and Regional Peer Comparison
Name PE (x) PBV (X) ROE %
Asiri Hospitals Holdings Plc (Sri Lanka) 231 21.71 5.77 1.57 32.43Lanka Hospital Corp Plc (Sri Lanka) 106 17.26 2.99 1.45 18.05Nawaloka Hospitals Plc (Sri Lanka) 44 32.86 1.62 1.74 5.23Ceylon Hospitals Plc (Sri Lanka) 22 10.56 1.12 3.62 10.93
Nonthavej Hospital Pub Co (Thailand) 175 20.30 4.04 2.95 20.73Sarana Meditama Metropolitan (Indonesia) 248 131.66 4.43 0.25 5.16Chiang Mai Ram Medical Busin (Thailand) 580 50.71 6.46 0.83 14.32Apollo Hospitals Enterprise (India) 2790 56.29 5.39 0.45 9.99Raffles Medical Group Ltd (Singapore) 1958 37.32 4.20 1.31 11.65
Source:CSE, Bloomberg, LOLC SEC Research
14 | LOLC Securities Limited 15| LOLC Securities Limited
Cost of Equity
Market Cap (USD Mn) Dividend
Yield %
We have used the Free Cash Flow to Equity (FCFE) model in deriving the valuation for ASIR. Accordingly, we estimate
total valuation for the company at LKR 37.5 billion. We assumed a cost of equity of 16.62% which is 5% premium to 3
years Sri Lanka Govt Treasury Bond Yield. We have taken a mid-term growth of 11% considering the health industry
potential in Sri Lanka and a free cash flow terminal growth of 7.0% considering the GDP growth of the country.
Accordingly, we value the share at LKR 33.10 which is a 15% upside to the current price of the share. At the current
share price, ASIR is trading at PE of 21.71X and a PBV of 5.77X.
Share price in LKR
Ter
min
al
Gro
wth
Rat
e
Initiation Coverage: Asiri Hospitals Holdings PLC | 26 September 16
Summarized Sensitivity of Assumptions
Graph 23:GDP growth rate of the country: High Graph 24: Cost of Borrowings sensitivity: Meadium
Source: LOLC SEC Estimates Source: LOLC SEC Estimates
Graph 25: Corporate tax sensitivity on health sector: Low Graph 26: Kandy Hospital Occupancy: Meadium
Source:LOLC SEC Estimates Source: LOLC SEC Estimates
Source:CSE, Bloomberg, LOLC SEC Research
15| LOLC Securities Limited 16 | LOLC Securities Limited
Government has been following a laissez-faire policy of light regulations on private health industry allowing
more freedom to health providers without controlling prices other than for consultation and hospital fee
charge on private channelling services. This enables private health providers such as ASIR to increase prices
to a certain extent without affecting demand due to the inelastic nature for health services. However, if
government imposes minimum price regulations this may affect all major private hospitals including ASIR
leading to declined margins. However, at the moment there is no any clear indication as such of establishing
pricing policies for private hospitals.
Earlier, Sri Lankan health industry has been less exposed to certain tax increases as it has been seen as a
necessity by the society. Private hospitals were charged on a discounted corporate tax rate of 12% vis-a-vis
28% charged on other corporates. However, under new Government, corporate tax charged on health
industry increased to 17.5% while VAT on healthcare services which was exempt in Sri Lanka until May 1,
2016, increased to 15% (Later on government officials reported that facilities provided by private hospitals
are fully VAT exempted and Private channelling fees will have no implication from the VAT increase
although private hospitals deny it). However, this indicates the likelihood of further increase of some of tax
rates for health industry resulting in lesser margins for private health providers. However, since health
being considered as a necessity and due to social pressure that might arise on such kind of imposition
likelihood of occurrence can be considered lower.
Group is also exposed to risk associated with patient safety, which is arising from treatments and other
patient care processes which is considered as utmost important area of exposure to any hospital, where as
any failure can lead to reputational, legal as well as financial risk due to payment of losses.
As the industry needs immense capital infusions and due to the brand loyalty associated with the existing
market leaders, new entrants hesitate to enter the market resulting in entry barriers. But in the long run
there is a possibility of new players entering the market. (E.g. Hemas Hospital chain). Further since the
health industry is liberalized, there is a possibility of foreign hospitals commencing operations in Sri Lanka
(ex: Apollo India entered Sri Lanka in 2000) which will lead the industry to become more competitive while
deteriorating market share of ASIR.
Earnings Risk Comment
33.40
33.10
32.70
32.2
32.4
32.6
32.8
33
33.2
33.4
33.6
-1.00% 0.00% 1.00%
LK
R
30.60
33.10
36.10
27.00
28.00
29.00
30.00
31.00
32.00
33.00
34.00
35.00
36.00
37.00
-1.00% 0% 1.00%
LK
R
33.80
33.10
32.40
31.50
32.00
32.50
33.00
33.50
34.00
-1.00% 0% 1.00%
LK
R
31.90
33.10
34.20
30.50
31.00
31.50
32.00
32.50
33.00
33.50
34.00
34.50
-5.00% 0% 5.00%
LK
R
Initiation Coverage: Asiri Hospitals Holdings PLC | 26 September 16
Appendices
Table 11: Return comparison
3 months 9.13 1.71 7.35 6.466 months 22.65 6.35 12.20 30.57YTD 19.58 -6.02 -1.06 14.761 year 36.02 -8.88 -7.71 36.49
Source:CSE, Bloomberg
Graph 27: Share Price Movement
Source: LOLC SEC Estimates
Source:CSE, Bloomberg
Graph 28: PE Chart Graph 29: PBV Chart
Source: LOLC SEC Estimates
Source:CSE, Bloomberg Source:CSE, Bloomberg
Source:CSE, Bloomberg Source:CSE, Bloomberg
Source:CSE, Bloomberg Source:CSE, Bloomberg
16 | LOLC Securities Limited 17 | LOLC Securities Limited
Graph 32: CSE PE Chart
Graph 30: Price per Sales
ASI IndexASIR
Graph 31: Dividend Yield
LHCLS&P SL 20
Index
Graph 33: CSE PBV Chart
%
10
15
20
25
30
35
(10,000,000)
10,000,000
30,000,000
50,000,000
70,000,000
Rs
Vo
lum
e
Volume Price
SMAVG (50) SMAVG (100)
0.0025.0050.0075.00
100.00
9/19/13 3/19/14 9/19/14 3/19/15 9/19/15 3/19/16 9/19/16
RSI (14)
9.0
14.0
19.0
24.0
29.0
9/19/13 3/19/14 9/19/14 3/19/15 9/19/15 3/19/16 9/19/16
PE ratio Highest Average Lowest
2.1
3.1
4.1
5.1
6.1
7.1
09/19/13 03/19/14 09/19/14 03/19/15 09/19/15 03/19/16 09/19/16
PBV ratio Highest Average Lowest
1.5
2.0
2.5
3.0
3.5
4.0
9/19/13 3/19/14 9/19/14 3/19/15 9/19/15 3/19/16 9/19/16
Price to Sales ratio Highest Average Lowest
10.0
11.0
12.0
13.0
14.0
15.0
16.0
17.0
09/12/13 03/12/14 09/12/14 03/12/15 09/12/15 03/12/16 09/12/16
ASI PE ratio Highest Average Lowest
1.3
1.4
1.5
1.6
1.7
1.8
9/12/13 3/12/14 9/12/14 3/12/15 9/12/15 3/12/16 9/12/16
ASI PBV ratio Highest Average Lowest
1.0
1.5
2.0
2.5
3.0
3.5
8/11/13 2/11/14 8/11/14 2/11/15 8/11/15 2/11/16 8/11/16
ASIR dividend yield Highest Average Lowest
Initiation Coverage: Asiri Hospitals Holdings PLC | 26 September 16
Table 12: Financial Summary ForecastFigures in LKR Mn (31st March) FY 14 FY 15 FY 16 FY 17 (F) FY 18 (F) FY 19 (F)Income Statement
Revenue 7,963 8,594 9,952 11,727 13,878 19,038
Cost of Revenue -4,073 -4,641 -5,392 -6,353 -7,518 -10,314
Gross Profit 3,889 3,952 4,561 5,374 6,360 8,724
Operating Expenses -2,030 -2,288 -2,591 -2,592 -2,933 -4,143
Operating Income 2,007 1,799 2,142 2,954 3,599 4,754
Pretax Income 1,465 1,743 1,583 2,256 2,880 4,279
Income Tax Expense 169 161 194 338 432 565
Minority Interest 255 166 207 285 364 552
Net Profit att. to shareholders 1,041 1,417 1,182 1,633 2,084 3,161
Balance Sheet Cash & Near Cash Items 192 1,247 904 543 649 3,266
Trade and other debtors 365 374 397 469 555 761
Inventories 355 381 444 523 619 849
Total Current Assets 1,511 5,211 2,423 2,193 2,481 5,534
Total Long-Term Assets 13,834 13,003 14,345 15,920 17,406 16,921
Total Assets 15,345 18,215 16,768 18,113 19,887 22,455
Accounts Payable 305 372 458 509 603 827
Other Short-Term Liabilities 2,801 3,002 2,632 2,097 2,676 2,867
Total Current Liabilities 3,106 3,374 3,090 2,606 3,279 3,694
Total Long-Term Liabilities 6,378 7,636 6,794 7,562 7,204 6,987
Total Liabilities 9,484 11,010 9,884 10,168 10,483 10,681
Share Capital 3,902 3,902 4,748 4,748 4,748 4,748
Retained Earnings & Other Equity 858 2,120 1,184 2,245 3,703 6,074
Total Equity 5,861 7,205 6,883 7,944 9,403 11,774
Total Liabilities & Equity 15,345 18,215 16,768 18,113 19,887 22,455
Cash Flow StatementPre tax Income 1,465 1,743 1,583 2,256 2,880 4,279
Depreciation & Amortization 658 667 700 895 984 955
Changes in Non-Cash Capital -221 1,437 -230 -100 -89 -212
Net Cash From Operations 1,296 3,277 1,735 2,848 3,479 4,591
Capital Expenditure -334 -906 -1,099 -2,500 -2,500 -500
Net Cash From Investing Activities -2,668 -1,590 -179 -2,470 -2,470 -470
Dividends Paid -599 -541 -222 -571 -625 -790
Change in Long Term Borrowings 2,006 879 -850 800 -600 -600
Net Cash from Financing Activities 1,180 241 -2,255 -383 -902 -1,505
Net Changes in Cash -192 1,929 -700 -4 107 2,616
Source:CSE, Bloomberg, LOLC SEC Estimates
17 | LOLC Securities Limited 18 | LOLC Securities Limited
Initiation Coverage: Asiri Hospitals Holdings PLC | 26 September 16
Table 13: Forecast Ratios FY 14 FY 15 FY 16 FY 17 (F) FY 18 (F) FY 19 (F)
Profitability Ratios
GP Margin (%) 49% 46% 46% 46% 46% 46%
NP Margin (%) 13% 16% 12% 14% 15% 17%
ROE (%) 22% 24% 20% 23% 25% 29%
ROA (%) 7% 8% 7% 9% 10% 14%
Earnings per share (LKR) 0.86 1.29 1.36 1.44 1.83 2.78
Dividend per Share (LKR) 0.55 0.50 1.94 0.50 0.55 0.69
Credit Ratios
Total Debt/Common Equity Ratio (%) 176% 139% 134% 117% 95% 68%
Interest Coverage (X) 3.3 3.2 3.7 3.7 4.4 6.2
Total Assets/Total Equity (X) 2.6 2.5 2.4 2.3 2.1 1.9
Net Debt/EBIT (X) 4.1 4.0 3.3 2.6 2.0 0.9
Liquidity Ratios
Current Ratio (X) 0.5 1.5 0.8 0.8 0.8 1.5
Quick Ratio (X) 0.4 1.4 0.6 0.6 0.6 1.3
Asset Turnover Ratio (X) 0.5 0.5 0.6 0.6 0.7 0.8
Net Asset Value per share (LKR) 4.18 5.29 5.21 6.15 7.43 9.51
Growth Ratios
Revenue Growth YOY% 13% 8% 16% 18% 18% 37%
Earnings growth YOY% 52% 36% -17% 38% 28% 52%
Total Assets YOY% -0.08% 18.70% -7.94% 8.02% 9.80% 12.91%
Total Debt YOY% 30.90% 0.27% -5.26% 3.15% -2.44% -7.51%
Investment Ratios
PE Ratio (X) 25.81 15.66 17.66 20.00 15.67 10.33
Price to Book Value (X) 5.13 3.69 4.56 4.67 3.86 3.02
Dividend Yield (%) 2.48% 2.48% 2.08% 1.75% 1.91% 2.42%
Table 14: Dividend Forecast
Frequency Declared date XD Date Type Amount Proportion2009/10 Interim 27/07/2009 6/8/2009 Cash 0.75
2010/11 Interim 6/5/2010 17/05/2010 Cash 0.10
2011/12 First Interim 25/8/2011 6/9/2011 Cash 0.125
Second Interim 2/2/2012 15/02/2015 Cash 0.13
2012/13 Interim 11/3/2013 20/03/2013 Cash 0.50Source:CSE, Bloomberg, LOLC SEC Estimates
2013/14 Interim 13/03/2014 24/03/2014 Cash 0.55
2014/15 Interim 9/3/2015 18/03/2015 Cash 0.50
1/12/2015 10/12/2015 Scrip 1 for 95
2015/16 Interim 5/5/2016 16/05/2016 Cash 0.45
2016/17 ( F) Interim Mar- July 2017 Mar- July 2017 Cash 0.50
2017/18 (F) Interim Mar- July 2017 Mar- July 2017 Cash 0.55
2018/19 (F) Interim Mar- July 2017 Mar- July 2017 Cash 0.69
18 | LOLC Securities Limited
Source:CSE, Bloomberg, LOLC SEC Estimates
19 | LOLC Securities Limited
Source:CSE, Bloomberg, LOLC SEC Estimates
Initiation Coverage: Asiri Hospitals Holdings PLC | 26 September 16
Company
20 | LOLC Securities Limited
ASIR has invested to operate the Group’s newest hospital in Kandy. With a 140- bed capacity, the Hospital is to
commence operations in 2018 while the construction of the hospital has commenced.
ASIR is the market leader in the private health care industry in Sri Lanka accounting for total beds of 600 with an
estimated market share of 11% in the bed capacity of private hospitals and with 60% market share in the
diagnostic segment. Out of the 6 listed private health providers in the Colombo Stock Exchange, ASIR is the
largest counter with a total market capitalization of LKR 32.8 Bn and LKR 5.6 Bn equity value.
Being more than 30 years in the healthcare industry in Sri Lanka, ASIR is currently owned by the Softlogic Group
of companies which is one of largest conglomerate operates in Sri Lanka with its investment into retail,
healthcare, financial, ICT, automobile and leisure sectors. ASIR's operations portfolio consists of its four main
hospitals namely, Asiri Medical, AMSL, The Central hospital, Asiri Hospitals Matara (pvt) Ltd and its diagnostic
segment.
The Central Hospital (pvt) Ltd
Added to the Asiri Group of Hospitals in 2010, Central Hospital is a tertiary care hospital which offers a range of
diagnostic, therapeutic and intensive care facilities. With luxurious medical facilities, it consists of 264-bed while
all rooms are equipped with modern comfortable furnishings and fittings in line with patient's needs. As a result
of the continuous investment in the technology Central hospital conducted the first ever Bone Marrow
Transplant in June 2014.
With a bed capacity of 165, AMSL is mainly specialized in offering surgical and scanning services. It is the only
hospital in SL equipped with nuclear medicine (PET Scanner) and 3D X-Ray machine for Dental. AMSL comprises
of a fully -fledged heart centre, modern operating theatres and is also specialized in providing urology services.
During the year of 2014/15, AMSL conducted introduction of several key surgical procedures which also
includes the Bariatric surgery for weight loss. The Hospital’s surgical services include General surgery, Plastic
surgery, Cardiology, ENT (ear, nose, throat) surgery, Oncology and Orthopedics.
Hospitals portfolio
Consisting of 60 bed facility in the Southern province, the hospital offers a range of general and surgical care
facilities. Established in 2007, it acquired Matara Medi House (Pvt) Ltd in 2010 where two hospitals now
function as one entity. Asiri Hospitals Matara is a fully owned subsidiary of the Asiri Group of Hospitals.
Asiri Medical started as a laboratory service provider which is now also operating as a specialist in pediatrics
and maternity, while catering to the other branches as well. The lab business of the total group is operated as a
division of this entity while accounting for 60% of the market share with conducting 13,000 daily lab tests. As
the market leader it has a network of over 400 collection centres (including third party collection centres). In
order to further strengthen ASIR's position in the laboratory segment, an advance laboratory building is to be
built adjacent to the hospital while a facelift is also in progress. This is expected to be completed in 2016 which is
estimated to cost LKR 250 Mn.
Asiri Hospitals Matara (Pvt) Ltd
Asiri Surgical Hospital PLC (AMSL)
Asiri Hospital Kandy (Pvt) Ltd
Asiri Medical Hospital
Initiation Coverage: Asiri Hospitals Holdings PLC | 26 September 16
Timeline
20 | LOLC Securities Limited 21| LOLC Securities Limited
Current group structure
Source: CSE
Incorporation
Incorporation of Digital Health Pvt Ltd
Completion of the sale of land occupied by Asha Central
TPG acquiring shares in ASIRfrom Actis
Introduction of pet/ CT scan by AMSL.
Acquisition of the controlling stake of ASIR by SHL.
ASIR being allotted with shares 2.4 Mn shares of NDB.
Asiri Surgical Hospital PLC (AMSL)
Central Hospital Ltd
Asiri Central Hospital LTD (ASHA)Owns the land in Colombo 07The Company operated as an investment company (Not operational).
Asiri Hospital Matara Asiri Hospital Kandy
Hospital under construction in Kandy
Labs Business
Labs BusinessCore labs business including central and satellite labs
• Division of Asiri Hospital Holdings PLC
Asiri Diagnostic Services Limited (JV in Kandy)
JV for diagnostics in Kandy
33.46% owned by JV partner
Softlogic Holdings PLC50.73%
TPG Growth
28.86%
Public Holding
20.26%
73.6% 99.73% 99.7% 100%
66.54%100%
100%
ASIR
ASIR entered into an agreement with JKH, UAL and Aureos South Asia Fund LLC to participate in a private placement of shares (37.34%) in Central Hospital
Commencement of Lab Operations inASIR
Quoted in the CSE
Commencement of Asiri Surgical Hospital.
Commencement of Central Hospital.
ASIR signed an agreement with the IFC to raise USD 20 Mn.
Issue of ordinaryshares of the company to Actis Investment Holdings SL Limited by way of a private placement.
Delisting of ASHA
ASIR acquiring 37.34% stake in Central Hospital subsequent to the share purchase agreement entered into in 2009 from the JKH, UAL and Aureos South Asia Fund LLC.
ASIR settled in advance the outstanding amount of $ 12.9 Mn from the loan of $ 20 Mn taken from the IFC.
1980 1984 1986 2000 2009 2010 2011 2012 2014 2015 2016
Initiation Coverage: Asiri Hospitals Holdings PLC | 26 September 16
ASIR Shareholding Distribution (as at 30. 06.2016)
Shareholder % Stake
1 Softlogic Holdings PLC 41.09%2 Merrill Lynch Pierce Fenner & Smith-TPG Growth III SF Pte Ltd 28.86%3 Commercial Bank of Ceylon PLC/Softlogic Holdings PLC 4.18%4 BNYM SA/NV-CF Ruffer Investment Fund : CF Ruffer Pacific Fund 3.18%5 HSBC INTL NOM LTD - SSBT- Wasatch International opportunities Fund 2.68%6 Softlogic Holdings PLC A/C No 3 2.30%7 Softlogic Holdings PLC A/C No 2 2.30%8 HSBC International Nominees LTD - Morgan Stanley and Co. INTL PLC - OW 1.25%9 Mr.Chaminda Dilantha Weerasinghe (Deceased) 0.82%
10 Mr. P P Subasinghe 0.70%11 Union Bank of Colombo Ltd/Softlogic Holdings PLC 0.50%12 Asian Alliance Insurance PLC A/C 02 (Life Fund) 0.48%13 Pictet and CIE (Europe) S.A.S/A Ruffer Sicav-Ruffer Global Smaller 0.35%14 CBHK S/A Platinum Broking Company Ltd 0.31%15 Dr. L.D.A.C. Luvis 0.30%16 Dr. W.M.S.Welagedara 0.30%17 Mr. A.U. Maniku 0.27%18 Estate of Mr. Tissa Weerasinghe 0.26%19 Mr. H.J.Dharmadasa 0.25%20 Mr. A H Weerasuriya 0.24%
Other 9.38%Total Shares 100.0%
Source: Annual Report FY15/16 Source: Annual Report FY15/16
Mr. Ashok PathirageDr. Manjula KarunaratneDr. S SelliahMr. G L H PremaratneMr. S A B Rajapaksa Mr. J E HuxtableMr. V NarainMr. Vishal BaliRitesh PandeyA.N Thandani
Source: CSE
21| LOLC Securities Limited 22 | LOLC Securities Limited
Corporate governance structure
Table 15: Independence of the Directors
Non Executive/Independent
Source: CSE
Non ExecutiveNon Executive Director (Alternate)
Graph 36: Composition of EDs and NEDs
Non Executive/Independent
Non Executive Director (Alternate)
Non Executive
30,536,611
ASIR's ultimate control lies with Mr. Ashok Pathirage who acts as the Chairman as well as the Managing Director.
But its operations seem to managed by fairly independent board decisions with a sound board composition (The
Board consists of 8 directors, with a split between 2 executives and 6 non-executive directors, out of whom 4 are
independent). Further ASIR's strong corporate governance structure is reflected with foreign investor appetite
towards the group with strategic investments made earlier by Actis and currently by TPG Growth.
Graph 34: Shareholder structure 1 (as at 31.03.2016)
Non Executive/ IndependentNon Executive/Independent
Executive Director
26,184,018
47,554,473 36,148,930
9,375,000 7,979,090
Executive Director
5,500,000 4,000,000 3,523,601 3,441,720
3,036,050
14,198,551
26,184,018
Graph 35: Shareholder structure 2 (as at 31.03.2016)
5,655,789
3,000,000 2,788,920 2,700,000
No. of shares
467,358,655 328,258,328
1,137,533,596
3,375,000
106,734,842
Individuals12%
Institutions88%
Resident63%
Non-Resident37%
2
4
2EDs
Independent NEDs
Non IndependentNEDs
Initiation Coverage: Asiri Hospitals Holdings PLC | 26 September 16
Key Management (Source: Company Annual Report 2014/15 )
1,030,798,754
Source: Annual Report FY15/16
22 | LOLC Securities Limited 23 | LOLC Securities Limited
Note- The Board consists of only two Executive Directors.
Dr. Manjula
Karunaratne
Group Chief Executive
Officer
Dr. Manjula Karunaratne was appointed to the Board of Asiri Hospital Holdings PLC and
Asiri Surgical Hospital PLC in 2006. He also serves on the Boards of Central Hospital Ltd,
Asiri Central Hospital PLC, Asiri Hospital Matara (Pvt) Ltd., Asiri Diagnostics Services (Pvt)
Ltd. and Asiri Hospital Kandy (Pvt) Ltd. He has previously held the positions of Medical
Director, Asiri Hospital Holdings PLC as well as Group Chief Operating Officer and is
currently the Chief Executive Officer of Asiri Hospital Group.
Dr. Karunaratne is a Specialist in Sports/ Orthopedics Medicine. He possesses over 25 years
of professional medical experience both in Sri Lanka and overseas, and is responsible for the
overall medical policy of the Group.
Mr. Pathirage is one of the co-founders of Softlogic and was appointed as Chairman of
Softlogic in 2000. He is also Chairman/ Managing Director of Asiri hospital chain, Softlogic
Capital PLC, Softlogic Finance PLC, Asian Alliance Insurance PLC and Odel PLC which are
listed in addition to the other companies of the Group operating in Leisure & Restaurants,
Retail, Automobile, Insurance and ICT industries. He is also the Deputy Chairman of National
Development Bank PLC and the Chairman of NDB Capital Holdings Limited. Due to his
business acumen and corporate leadership he is one of the top business leaders in the
country.
Mr. Ashok Pathirage
Chairman / Managing
Director
ProfileName of Director
Initiation Coverage: Asiri Hospitals Holdings PLC | 26 September 16
Health industry in Sri Lanka
ASIRASIR SL EQUITY 28.70 32.87 1,510.00 5.07 32.43 10.46 21.26 5.66 1.57
AMSL AMSL SL EQUITY13.00 6.87 414.90 6.66 11.21 8.60 18.57 1.95 3.08
CHL CHLN SL EQUITY99.50 3.21 429.13 88.62 10.93 6.32 10.56 1.12 3.62
LHCL LHCL SL EQUITY69.20 15.48 859.70 23.17 18.05 14.37 17.26 2.99 1.45
NHL NHL SL EQUITY 4.60 6.48 206.00 2.83 5.23 2.08 32.86 1.62 1.74Source: Bloomberg
Indicator Value Health Care ProviderPER 22.08 ASIR
AMSLPBV 4.47 CHL
LHCLDividend Yield 1.69% NHL
SINHSource: LOLC SEC Research
Table 19: Distribution of private hospitals Province 2006 2007 2008 2009 2010 2011 2012 2013 2014Western 46 47 53 54 58 60 63 65 70
Southern 7 7 7 9 10 10 11 12 13
Central 6 6 6 6 7 7 9 15 16
Eastern 4 4 6 6 6 7 10 14 14
Northern 1 1 1 1 5 8 10 11 12
North Western 6 6 8 8 8 9 10 12 12
North Central 0 0 0 0 1 1 3 4 5
Uva 1 1 1 1 2 3 3 5 5
Sabaragamuwa 5 5 5 5 5 5 6 7 8
23 | LOLC Securities Limited 24 | LOLC Securities Limited
Bed Capacity
Table 18: # of beds of listed private health providers
Source: LOLC SEC research
Source: IPS, Health Statistics
40050
260165600
Ticker PER PBV
Table 17: Selected "Healthcare" sector
indicators
350
Price(LKR per
Share)
ROA% Dividend Yield %Market Cap (LKR
Bn)
Y/E Net
Profit(LKRMn)
NAV(LKR per
Share)
ROE%Counter
Table 16: Financial performance comparison of listed hospitals operating in private health care industry
Within the past two decades (1995 to 2015) Sri Lanka has reduced its infant mortality rate and under age
5 mortality rate by 51%. Life expectancy at birth has recorded a level of 74 years (2013). In comparison
with the South Asian region currently Sri Lanka has surpassed above health indicators remarking the
sustainable growth in the country's health industry. Further in terms of the per capita total health
expenditure Sri Lanka has recorded a higher amount than the South Asian countries. However since
government has no control over private health care sector pricing strategies (other than for consultation
and hospital fee on private channeling services),private sector providers have freedom to charge premium
prices which would be one of the key reasons behind high per capita health expenditure in Sri Lanka.
Despite the progress in health sector in Sri Lanka, still some of the key challenges exist in the state health
sector which opens up more room for private sector providers to grow in par with the evolving trends.
This is also proven by the increase in the number of private hospitals in the country over the years despite
the Government dominance. Accordingly, we expect private health providers to better capitalize on this
opportunity with a north headed demand.
Sri Lankan healthcare industry is mainly a two tier system with dominant participation of the state health
sector along with supportive participation of private healthcare sector. Private sector largely provides
outpatient services while their inpatient service is much more limited with only 5596 beds compared to
the 76,781 beds in the public sector. Free healthcare policy of Government is targeted on middle to low
income earners since main customer base of private sector is middle to high income earners. As a result,
most of the private health service providers are clustered in urban areas where high and middle earners
are scattered, while state hospitals are spread island wide in order to provide an equivalent service.
Initiation Coverage: Asiri Hospitals Holdings PLC | 26 September 16
SWOT Analysis
Strengths
-Leading brand in the health care industry in Sri Lanka-Market leadership in diagnostic segment and group efficiencies to generate superior margins over peers.-Broad spectrum of services backed by the state of art technology-Partnership with TPG to provide diverse experience to the Board as well as access to TPG’s global network
-Service is limited to Colombo and Matara
Opportunities
-Positive prospects in private health sphere in Sri Lanka-Barriers of market entry to the health industry which limits the low risk of new entrants
Threats
-Competition arising from the other private and government sector hospitals
-Growing concern of shortage of skilled medical personnel in Sri Lanka-Exposure to persistent increase in cost of consumables and pharmaceuticals.
Bargaining power of suppliers- High
Bargaining power of customers- Low
Threat of substitutes- Low
Threat of new entrants- Low
Existing Rivalry- High
24 | LOLC Securities Limited 25 | LOLC Securities Limited
Physicians, equipment and pharmaceutical suppliers are the main suppliers of ASIR whereas bargaining power of them
is high. As the healthcare industry is mainly brand name driven, private healthcare providers tend to go for high valued
equipment and pharmaceutical brands in order to maintain quality of their service. Furthermore, since the Sri Lankan
health system is doctor centric rather than the institution centric bargaining power of Physicians is considered as very
high.
There are many competitors in the industry while only handful of them drives the private health industry. Therefore, an
oligopolistic market has been created where there is high competition among the big players. Prices of the industry are
mainly decided by them and they are highly involved in investing in modern technology. Government Hospitals also
could be identified as competitors where they hold the market leadership in inpatient care service.
Ayurvedic healthcare services are the substitutes for the private healthcare services. Due to the non- significant
contribution from the Ayurvedic healthcare service the threat is not material.
As the industry needs immense capital infusion new entrants hesitate to enter the market. Also since most of the
customers are loyal with the service of market leaders, it is difficult for the new entrants to capture the market. But in
the long run there is a possibility of foreign players entering the market.
Healthcare being an essential need and being a doctor centric industry, bargaining power of customers is low.
Customers have to pay any amount that hospitals charge for certain health services, while there are no price ceilings
other than for consultation and hospital fee on private channelling services. Since there are few major private health
providers, bargaining power of customers is low resulting an inelastic nature of demand.
Weaknesses
-High leverage compared with the peers due to its expansion plans
-Unfavorable implication from changes to regulations and various policies affecting the health industry (ex:- Increase in
the corporate tax rate applicable to health industry to 17.5% and increase in the VAT rate to 15%)
Industry Analysis
Initiation Coverage: Asiri Hospitals Holdings PLC | 26 September 16
Recommendation Guidance
BUY – expected return > 10% in excess of benchmark return
SELL – expected return less than benchmark return
HOLD – expected return between 0% and 10% in excess of benchmark return
Investment Horizon: 3 years
12 months target price (12M Tgt Price) is based on the expected capital appreciation of the share excluding dividend.
Benchmark Interest Rate: Average Weighted Fixed Deposit Rate (AWFDR) published by Central Bank of Sri Lanka.
Risk Level Evaluation
High: Maximum price volatility to be up or down more than 50% monthly
Medium: Maximum price volatility to be up or down between 25% - 50% monthly.
Low: Maximum price volatility to be up or down less than 25% monthly.
Risk Level is calculated taking the historical standard deviation measures.
Financial Glossary
EPS = Earnings per Share
ROA = Return on Assets (adjusted net profit/average total assets)
ROE = Return on Equity (adjusted net profit/average total equity)
CAGR = Compound Annual Growth Rate ((End Value/Start Value) ̂(1/number of years) -1)
GP= Gross Profit
EBITDA= Earnings before interest, tax, depreciation and amortization
PBT= Profit before tax
PAT= Profit after tax
NP= Net Profit
PBV= Price to book value ratio
PE= Price to earnings ratio
Illiquidity Risk Premium
Average Time Between Liquidity Events (or Average Turnover) Illiquidity Risk Premium
10 Years 6.0%
5 Years 4.3%
2 Years 2.0%
1 Years 0.9%
1/2 Years 0.7%
0.0%
25 | LOLC Securities Limited
Illiquidity Risk Premium calculates how much does an investor need to be compensated for the average duration of the investor's possession after making buy/sell
decision of the respective share. Illiquidity Risk Premium has been calculated by considering 6 months CSE Average Daily Turnover and Company Average Daily
Turnover and allocating appropriate illiquidity risk premium as per the following schedule.
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expressed in this research accurately reflect the personal view of the analyst(s) about the subject securities and issuers and/or other subject matter as appropriate and has taken
reasonable care to achieve and maintain independence and objectivity in making any recommendations. No part of the compensation received by the analyst(s) was, is or will be directly
or indirectly related to specific inclusion of specific recommendation or views in this research. On a general basis analyst’s performance appraisal may be influenced by quality of the
content and efficacy of the research. The analyst(s) who is/are responsible for compiling or co-compiling this research and whose names appear as the analyst(s) receive compensation
based on overall revenues of LOLC Securities Limited and its holding company (Lanka ORIX Company PLC – LOLC Group), which may include brokerage revenue from transactions
involved with the securities mentioned in this research.
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