Professional Documents
Culture Documents
Insights Universal Healthcare Boon For Hospitals
Insights Universal Healthcare Boon For Hospitals
JCI : 4,585.55
The pulse is on for hospitals
Grand entrance of COB scheme?
Further upside from strong healthcare spending
Universal healthcare coverage – a game changer for Analyst
the industry Edward Ariadi Tanuwijaya +6221 3003 4932
edward.tanuwijaya@id.dbsvickers.com
Prefer hospitals over pharmaceutical players
Coordination of Benefits (COB) scheme – a grand Maynard P. Arif +6221 3003 4930
entrance? BPJS Health finally issued the long awaited maynard.arif@id.dbsvickers.com
circular to roll-out the COB scheme pilot project in Aug
2015, which allows private insurance companies to
supplement JKN using a top-up scheme. This (if
STOCKS
implemented successfully) will be the catalyst for both
non-BPJS-affiliated hospitals (boost in patient volumes) Price Mkt Cap Target Price Performance (%)
and BPJS-affiliated hospitals (margin improvement given Rp US$m Rp 3 mth 12 mth Rating
the higher segment target). Mitra Keluarga 2,505 2,666 2,900 (8.4) N.A BUY
Healthcare spending to continue to grow. Siloam International 9,775 827 10,000 (29.1) (31.3) HOLD
Kalbe Farma 1,350 4,628 1,600 (15.7) (24.6) BUY
According to the recent 2016 state budget plan,
healthcare budget is expected to increase by 43% y-o-y Source: DBS Vickers
to Rp106.1tn (or 5% of total budget). This allocation is Mitra Keluarga Karyasehat : MIKA is Indonesia's largest private
the highest ever and includes coverage of 92m “poor & hospital operator by market cap with 12 hospitals in both Greater
near-poor” population under the JKN programme. Jakarta and Surabaya under its portfolio
Overall, Indonesia’s healthcare expenditure is expected Siloam International Hospitals : SILO is Indonesia's largest private
hospital operator with 20 hospitals nationwide and many new
to grow at a 12% CAGR for the next five years due to hospitals in the pipeline for the next five years.
current low-base spending (lowest in the region),
Kalbe Farma : Kalbe Farma manufactures and distributes
universal coverage and rising middle class. pharmaceutical, consumer health, and nutritional products. It
commands the highest market share within Indonesian pharmaceutical
Universal healthcare coverage - the game changer. and OTC drugs market.
As of Nov 2015, there were c.155m BPJS Health
members, equivalent to 65% of the total population, Universal Healthcare Coverage (JKN) roadmap
from 142m at the end of 2014. In terms of membership,
the progress has been good so far, but this programme
remains underfunded (with Rp6tn deficit expected in
2015) as we had predicted. Therefore, we can expect
some tweaking to the programmes which will have an
impact to the hospital and pharmaceutical industries.
(2019)
Switching preference to hospitals. Considering the (Aug2015) 270m
progress of the JKN programme, we now prefer the 150m 100% coverage
(2014) 63% coverage
hospital players over pharmaceuticals' due to more
142m
stable earnings outlook despite their rich valuations. The
(2012) 56% coverage
volatility in USD/IDR and regulatory issues are the current
76.4m
major risks for the pharmaceutical sector. Our preferred
30% coverage
pick in this sector is Mitra Keluarga Karyasehat (MIKA IJ).
Source: Roadmap to National Health Insurance 2012-2019, DBS
We also upgraded Kalbe Farma (KLBF IJ) to BUY mainly
Vickers
on valuation and potential recovery in its stock price.
www.dbsvickers.com
ed-JS / sa- MA
Industry Focus
Indonesia Healthcare Sector
The healthcare reform - fair progress with more Regular vs informal employees in working population
challenges ahead 120 m population Regular employees Informal employees
BPJS Health (or BPJS Kesehatan) is the social security agency
100
acting as facilitator with main functions of pooling members’
premiums and making payments to healthcare providers for 80
services provided to members under the universal healthcare 62.4 60.4 60.4 59.7
scheme (JKN). 60
40
The progress towards full coverage by 2019 is encouraging
(refer to the chart on page 1). According to some sources, as of 20 37.8 40.9 41.1 43.4
Nov 2015, there were c.155m BPJS Health members, equivalent
to 65% of the total population vs. 142m in 2014. 0
2011 2012 2013 2014
Source: Statistics Indonesia (BPS), DBS Vickers
Monitoring the membership growth
Note: Informal employees include casual employees.
Despite the encouraging growth in BPJS Health memberships,
we will continue to monitor the progress of membership growth
Indonesia’s labour force - latest breakdown
next year. We believe that the current surge in memberships
was mostly due to “low hanging fruit” memberships : 1) Unemployed
5.9%
conversion from previous scheme (i.e. ASKES – public sector
workers); and 2) participation from formal/regular employees. Regular
employees
Going forward, it would be a challenge to secure more 35.6%
membership from “difficult-to-track” informal employees
(including casual employees), which form 62% of the total Informal
employees
working employment in Indonesia. 49.0%
Casual
On the funding side, as we had predicted in our previous report employees
9.4%
on 24 Jun 2014 titled Long road to good health, JKN is
underfunded. BPJS Health experienced a Rp3.3tn deficit in 2014
and according to estimates by BPJS officials, the deficit in 2016 Source: Statistics Indonesia (BPS), DBS Vickers
may widen to about three times the amount in 2014.
In order to prevent the deficit from ballooning in the future, the
Indonesia’s working population and unemployment government issued regulation no. 48/2015, and will inject
rate Rp3.46tn into BPJS Health, to be taken from the state budget
116 m population Working population (LHS) 7.5% 2015. In addition, the premium for BPJS is reviewed once every
Unemployment rate (RHS) two years, according to Presidential decree no. 111/2013. The
114
premium payable is up for evaluation in 2016 and careful
7.0%
112
consideration may improve the underfunded status.
Page 2
Industry Focus
Indonesia Healthcare Sector
Cambodia
Singapore
Japan
Brunei
Indonesia
Philippines
ASEAN
Laos
Vietnam
Myanmar
South Korea
China
Malaysia
Thailand
India
More subscribers for private insurance companies. The
industry is still very much underpenetrated, with only
an estimated 8m subscribers or just around 3% of total
Source: CIA World Factbook
population.
Private remains the driver of healthcare expenditure
However, despite the issue of the circular and the expanded list 400 Rptr Government Private
of private insurers and non-BPJS hospitals participating in this 350
COB scheme, we have not seen the finer details on the
300
implementation of COB, which has been the main issue
between BPJS and private insurers for the past few years. 250
216
170 192
200
151 14.8%
Growing healthcare spending – starting from low base... 150 132 CAGR
Indonesia’s healthcare expenditure at 2.9% of GDP is one of the 96
117
100
lowest in the region and below ASEAN countries’ average of 109 131
50 99 13.3% 119
4%, despite growing at 14% CAGR for the last five years. 64 66 81
CAGR
According to Business Monitor International, Indonesia’s -
2009 2010 2011 2012 2013 2014 2015F
healthcare expenditure is expected to continue to grow at 12%
Source: WHO, DBS Vickers.
CAGR for the next five years (slightly higher-than-expected
nominal GDP growth), primarily driven by private expenditure
... with increasing commitment from government
(which currently contributes c.62% of total healthcare
Recent 2016 state budget draft has allocated Rp106.1tn
expenditure) rather than government spending; despite the
healthcare budget (or 5% of total budget), a staggering 43% y-
progress on much heralded JKN implementation.
o-y increase. This allocation on healthcare matters is the highest
ever and includes coverage of 92m “poor & near-poor”
Indonesia’s healthcare spending
population under the JKN programme.
350 Rp tr
311
300 14.2% CAGR 279 Healthcare budget trend
250 120 5.5%
250 Rp tr
Healthcare budget (LHS)
212
As % of total budget (RHS)
200 183 100 5.0% 5.0%
160
150 4.5%
80
100 4.0%
60
50 106.1 3.5%
40
- 3.0%
2009 2010 2011 2012 2013 2014
20 2.5%
Source: WHO, Business Monitor International (BMI)
0 2.0%
2010 2011 2012 2013 2014 2015 2016
Page 3
Industry Focus
Indonesia Healthcare Sector
HOSPITAL SECTORS
Number of hospitals (private vs public) Hospitals beds grew at 20.6% CAGR (in four years)
3,000 Public Private 350,000 Beds (LHS) Beds / 10,000 population (RHS) 13.0
12.2 12.0
2,457
2,500 2,244 300,000 11.0
2,083 10.9
2,000 10.0
1,721 9.7
250,000
1,510 9.0
1,500 1,337
1,195 305,744
8.0
893 200,000
1,000 19.1% CAGR 7.0 7.0
273,762
6.0 238,373 6.0
150,000
500 888 907 947
828 170,656 5.0
4.6% CAGR 144,410
0 100,000 4.0
2012 2013 2014 2015-YTD 2010 2011 2012 2013 2014
Source: Ministry of Health, DBS Vickers Source: Ministry of Health, DBS Vickers
Breakdown of public and private hospitals Beds per 10,000 population – regional comparison
100% 30 28 27
90%
25
80% 22 21
52% 57%
70% 60% 61% 20 18
15.8
60%
15 12.2
50%
10
40% 10
7 7 6
30%
5
48% 43%
20% 40% 39%
10% 0
0%
2012 2013 2014 2015-YTD
Public Private
Source: Ministry of Health, DBS Vickers Source: Ministry of Health, DBS Vickers
Page 4
Industry Focus
Indonesia Healthcare Sector
PHARMACEUTICAL SECTOR
According IMS Health, generic drug sales in Indonesia grew by
Prescription drugs remain the driver for pharmaceuticals
11.2% CAGR from 2011 to 2015 and reached Rp60.5tn in
Pharmaceutical sales rose by respectable 9% CAGR in the past
2015. The growth is pretty much driven by volume given that
five years to Rp70.4tn and contributed 23% of total healthcare
there have been no price adjustments on generic drugs since
expenditure. The strong growth is mainly driven by prescription
2012.
drugs, including patented and generic drugs with 11.8% and
11.2% CAGR, respectively for the same period; offset by slower
Pharmaceutical companies must adapt to changing
growth in OTC market (only 5.8% CAGR in past five years).
landscape.
OTC products are regarded as “preventive” medicines. While the roll-out of JKN provides volume growth opportunities,
Therefore, these are popular in Indonesia given the low pharmaceutical companies must cope with the changing
purchasing power and limited availability of prescription drugs. landscape on the industry, i.e. the shift toward more generic
However, the roll-out of JKN programme could further increase drugs (especially unbranded generic ones).
the contribution of prescription drugs especially generic ones
when all Indonesians are covered in 2019. Major impact on pharmaceutical sector from the roll-out of JKN
programme:
Declining contribution from OTC drug sales
Patented drug Generic drug OTC Compulsory use of generic drugs, whenever possible.
100% Patients under the JKN scheme (including COB) do not
90%
37.5%
have much choice, otherwise they will not be
80% 44.8% 43.1% 42.1% 41.1% 39.7% 38.5%
70% reimbursed by the scheme.
60% The cap on ceiling prices of generic medicines have
50% been set under Ministry of Health Decree no.
41.6% 42.1%
40%
37.7% 39.4% 40.0% 40.5% 41.1% 092/MENKES/SK/11/2012, which means that
30%
pharmaceutical companies’ margins are dependent on
20%
10% 17.5% 17.5% 17.9% 18.4% 19.3% 19.9% 20.4% government’s pricing policies.
0% Shift in distribution channel, as registered hospitals and
2009 2010 2011 2012 2013 2014 2015F
clinics slowly take over as the main distribution
Source: Roadmap to National Health Insurance 2012-2019 channels from physicians and pharmacies. In addition,
the introduction of e-procurement for generic drugs by
JKN to drive growth especially generic drugs The the government will aid this apparent shift too.
progressive roll-out of JKN is expected to further boost the sales
volume of generic drugs (albeit lower sales value) from 2015 As such, pharmaceutical companies with large production
onwards as the coverage is expected to expand from c.155m capacities and networks hold advantages as benefits from
now (65% of total population) to full coverage of over 250m economies of scale would enable them to have better control
population in 2019. over costs, and hence be in a better position to win
procurement tenders conducted by the government for the
Growth in generic drug market
70
supply of generic medicines.
Rptr Unbranded Ethical Free sales
60
11.2% CAGR
Furthermore, pharmaceutical companies have to look for
50 opportunities in niche markets, where there are no generic
24.3
22.8 substitutes. For example, branded drugs used in oncology. This
40 21.0
18.3 niche market opportunity should offer a platform for
30 15.7 pharmaceutical companies to maintain their high profitability
30.6
going forward.
20 27.9
23.6 26.0
21.1
10
Page 5
Industry Focus
Indonesia Healthcare Sector
14,000
13,000
12,000
11,000
10,000
9,000
8,000
Jan-12 Jul-12 Jan-13 Jul-13 Jan-14 Jul-14 Jan-15 Jul-15
Page 6
Industry Focus
Indonesia Healthcare Sector
Valuations are not cheap due to scarcity and liquidity its existing hospitals and new hospital in the pipeline, implying
There are only a limited number of listed companies in Indonesia 45x EV/EBITDA on 2016 forecast. Potential upside to our
in these two sectors. Hence, the stocks are trading at premium valuation will be from better-than-expected growth in the
valuations due to scarcity of options (please refer to valuation number of patients and exceptional operational performance
table on APPENDIX). from its existing and new hospitals. MIKA is an established
private hospital franchise with a track record exceeding 25
Pharmaceuticals: Kalbe Farma (KLBF IJ), Kimia Farma years. MIKA is focusing on building hospitals in good population
(KAEF IJ), Indofarma (INAF IJ), Tempo Scan Pacific catchment areas to serve the surrounding communities. MIKA
(TSPC IJ) and Sido Muncul (SIDO IJ). prefers to grow organically and at a conservative pace and thus
Hospitals: Mitra Keluarga Karyasehat (MIKA IJ), Siloam maintain its profitability despite being in a great position to tap
Hospitals (SILO IJ), Sarana Meditama Metropolitan – into Indonesia’s underpenetrated healthcare sector and the
Omni Hospital (SAME IJ) and Sejahteraraya country’s rising healthcare needs.
Anugrahjaya - Mayapada Hospitals (SRAJ IJ).
We also upgraded KLBF to BUY from HOLD with Rp1,600 TP
Pharmaceutical companies are trading at 15-27x FY16 PE with (implying 18% upside from current price). Our upgrade is mainly
KLBF at the high end of the range due to its market leadership due to valuation as KLBF's stocks are now trading close to its 5-
and great execution history. Hospital stocks are also trading at year mean PE (at 26x FY16 EPS) with potential stock recovery.
sky-high valuations and by far, Indonesia's hospitals are the Volatility in USD/IDR will still be a concern in 2016. However, we
most expensive in the region due to growth prospects as well as believe it is largely priced-in, given that the stock has
scarcity and liquidity issues. underperformed the consumer space and the operational
suspension on some parts of its manufacturing line should be
Switch preference to hospitals despite rich valuations over by 2016.
Our pick is MIKA over SILO for its more conservative growth,
solid margin and strong balance sheet. Together with this
report, we initiate coverage on MIKA with a BUY
recommendation and Rp2,900 TP, based on DCF valuations on
Page 7
Industry Focus
Indonesia Healthcare Sector
A lesson from Thailand’s Universal Coverage Scheme been improving but was relatively stable because of steady
(UCS) growth in Thailand’s GDP as well (at 9% CAGR).
There is no blueprint available on how to achieve successful
implementation of the universal healthcare coverage, however, Healthcare expenditure as % of GDP
Thailand’s universal coverage experience should provide valuable 300 THB Healthcare expenditure per capita - LHS % 5
0%
2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2,000
Page 8
Industry Focus
Indonesia Healthcare Sector
APPENDIX
KLBF IJ Kalbe Farma 4,509.2 30.0 29.5 26.5 7.6 6.6 5.8 1.3 25.3
TSPC IJ Tempo Scan Pacific 550.9 13.7 13.6 12.4 1.7 1.7 1.6 3.6 13.2
SIDO IJ Sido Muncul 612.2 19.7 17.1 14.9 3.2 2.9 2.7 3.1 16.6
Mitra Keluarga
MIKA IJ Equity 2,746.4 48.4 40.2 64.8 52.4 11.7 10.5 0.8 30.1
Karyasehat
Siloam International
SILO IJ Equity 798.3 16.8 12.1 99.4 77.6 6.2 5.8 n/a 3.8
Hospitals
Sarana Meditama
SAME IJ Equity 213.3 20.8 17.0 51.8 56.6 12.1 10.6 0.3 26.5
Metropolitan
Sejahteraraya
SRAJ IJ Equity 137.5 n/a n/a n/a n/a n/a n/a n/a n/a
Anugrahjaya
BH TB Equity Bumrungrad Hospital 4,406.7 28.1 25.1 44.8 38.9 12.4 10.5 1.1 26.2
BCH TB Equity Bangkok Chain 566.4 18.5 16.3 42.4 36.1 4.5 4.2 1.4 11.4
RFMD SP Equity Raffles Medical 1,696.6 24.6 23.1 33.8 31.3 4.1 3.8 1.4 13.4
IHH SP Equity IHH Healthcare 11,821.2 24.8 21.4 56.0 46.0 2.5 2.4 0.6 4.0
KPJ MK Equity KPJ Healthcare 1,026.0 15.3 13.6 30.1 27.4 3.2 3.0 1.7 11.2
Apollo Hospitals
APHS IN Equity 2,823.7 23.3 19.3 47.2 37.6 5.4 4.8 0.5 11.1
Enterprise
FORH IN Equity Fortis Healthcare 1,122.0 28.2 18.0 66.6 32.5 1.7 1.6 n/a -3.5
RHC AU Equity Ramsay Healthcare 19,116.4 13.2 12.1 29.5 25.8 6.9 6.2 1.8 24.3
SHL AU Equity Sonic Healthcare 11,632.2 11.9 11.0 17.9 16.6 2.4 2.3 4.0 10.9
PRY AU Equity Primary Healthcare 2,366.8 7.3 7.0 13.9 12.7 0.7 0.7 5.2 5.7
Page 9
Industry Focus
Indonesia Healthcare Sector
Page 10
Industry Focus
Indonesia Healthcare Sector
Page 11
Industry Focus
Indonesia Healthcare Sector
Negative investment Maximum foreign ownership increased to 85% from 75% Revision of Presidential decree
5 Presidential decree no. 39/2014
list (DNI) previously no. 36/2010
Halal Product
6 Law no 33/2014 Pharmaceutical products must be Halal certified by 2019
Assurance
Page 12
Industry Focus
Indonesia Healthcare Sector
Page 13
Industry Focus
Indonesia Healthcare Sector
Stock Profiles
Page 14
Indonesia Company Guide
Mitra Keluarga Karyasehat
Edition 1 Version 1 | Bloomberg: MIKA | Reuters: MIKA.JK Refer to important disclosures at the end of this report
16 15
Earnings Drivers: 14 13
14
8
Greater Jakarta and Surabaya with a bed capacity of c.2,100. 8
6
MIKA is set to add six hospitals in the next five years and has 6
4
5
4
5
2 1
0
We project existing hospitals' in-patient and out-patient
admissions to grow at 6.6% and 4.8% CAGR respectively
between 2014 and 2019, and average revenue to grow at Operational beds and bed capacity
3,000
8.1% and 9.4% CAGR within the same period. Operational beds Bed capacity
2,500
Considering that and new hospital rollouts, we project Net
2,000
Operating Revenue (NOR) to increase by a 17.1% CAGR
between 2014 and 2019. Revenue contribution from existing 1,500
hospitals is still high at more than 90%.
1,000
Stable and improving EBITDA margins
500
MIKA’s EBITDA margins of 27-31% between 2011 and 2014
were among the highest in the region. As MIKA still focuses -
on cost efficiency, we believe that EBITDA margin is 2011 2012 2013 2014 2015F 2016F 2017F 2018F
sustainable and has room for further improvement going Net Operating Revenue Trend
Rp m
forward. 30.0%
3,000,000
2,500,000
MIKA’s new typical greenfield hospital has a 200-bed 25.0%
0 10.0%
Strong free cash flow enables internally funded capex 2013A 2014A 2015F 2016F 2017F
Given the mature hospitals in its portfolio and efficient Profitability Trend
operational management, MIKA has consistently and will Rp m
898,596
798,596
Greater Jakarta and Surabaya. The company began Operating EBIT Pre tax Profit Net Profit
operating its first hospital in 1989 and has expanded Margins Trend
organically with consistent and sustainable growth. MIKA 31.0%
was listed on the Indonesia Stock Exchange (IDX) on 24 Mar
29.0%
2015 and is currently the largest listed private hospital
company in Indonesia by market cap. 27.0%
25.0%
23.0%
21.0%
2013A 2014A 2015F 2016F 2017F
significant cash position. The company's strong free cash flow 0.10
0.9
2015 and 2018 for four new hospitals. Gross Debt to Equity (LHS) Asset Turnover (RHS)
Capital Expenditure
Share Price Drivers: Rp
600,000.0
Execution of expansion plan for both existing and new
500,000.0
hospitals
400,000.0
MIKA generates stable and sustainable earnings from the
mature hospitals in its portfolio, while leaning on new 300,000.0
15.0%
Key Risks:
10.0%
Shortage of medical professionals. Dearth of medical human
resources in this industry (at just 0.2% of the total 5.0%
36.3
Ability to secure sites for future growth. The availability of Mar-15 Jun-15 Sep-15
16.3 +2sd: 16.44x
Potential decline in patient volume. The lower-cost 15.3 +1sd: 15.42x
alternatives for healthcare services as laid out by the much- 14.3 Avg: 14.39x
heralded universal healthcare programme (JKN) may result in 13.3 ‐1sd: 13.37x
lower-than-expected patient volumes in MIKA’s hospitals. 12.3 ‐2sd: 12.35x
11.3
10.3
Mar-15 Jun-15 Sep-15
Segmental Breakdown
FY Dec 2013A 2014A 2015F 2016F 2017F
Revenues (Rp bn)
IP-Medical services 417 474 547 640 757
IP-Medical supplies 558 585 684 800 947
IP-Room 198 222 251 293 347
OP-Medical services 319 375 456 533 631
OP-Medical supplies 250 290 342 400 473
Growth
Revenue Gth (%) (7.9) 2.4 13.2 3.6 (10.8)
EBITDA Gth (%) (11.8) 21.8 15.8 1.7 (22.6)
Opg Profit Gth (%) (11.8) 21.8 15.8 1.7 (22.6)
Net Profit Gth (%) (12.0) (1.3) 17.4 13.5 (21.2)
Margins
Gross Margins (%) 41.0 47.1 45.7 46.0 44.6
Opg Margins (%) 25.1 29.9 30.6 30.0 26.1
Net Profit Margins (%) 26.8 25.8 26.8 29.4 26.0
167
aggressive growth ahead. SILO currently has 20 hospitals in its
14,055.0
147
50
CRITICAL DATA POINTS TO WATCH
40
Earnings Drivers:
30
Aggressive expansion to support high Gross Operating
Revenue (GOR) growth 20
6,000 50.0%
between 2014 and 2019 45.0%
5,000
40.0%
Turning free-cash-flow positive in 2017 4,000 35.0%
Premised on successful expansion, SILO will generate its first 3,000 30.0%
positive free cash flow at the end of 2017 (excluding 2015 2,000
25.0%
plans. SILO has signed a master agreement with LPKR and 149
49
2013A 2014A 2015F 2016F 2017F
Given extremely low penetration of hospital services and
Operating EBIT Pre tax Profit Net Profit
rising healthcare needs in Indonesia, the new hospitals in
smaller cities can potentially generate positive EBITDA within Margins Trend
two years of operations. 6.0%
5.5%
5.0%
COMPANY BACKGROUND 4.5%
0.04 1.3
Recently, SILO secured an option to exercise a rights issue (of 0.02 1.2
up to 10% of its current share base) within the next two 0.00
2013A 2014A 2015F 2016F 2017F
1.1
years, in the event it needs to beef up the balance sheet. Gross Debt to Equity (LHS) Asset Turnover (RHS)
Capital Expenditure
Capex to ramp up in the next four years Rp
We forecast annual capex to remain at Rp800–900bn in the 1,000.0
900.0
next three years as SILO ramps up the number of hospitals 800.0
depend on its ability to secure locations and the necessary Capital Expenditure (-)
9.0%
Successful implementation of Indonesia’s universal healthcare
8.0%
programme 7.0%
The successful implementation will be a game changer that 6.0%
187.6 +1sd: 186.1x
Related-party transactions. The asset-light model requires
167.6
asset transfers between SILO and companies within the 147.6
Avg: 156.1x
10.3 +1sd: 10.3x
6.3 ‐2sd: 6.48x
5.3
Sep-13 Mar-14 Sep-14 Mar-15 Sep-15
Key Assumptions
FY Dec 2013A 2014A 2015F 2016F 2017F
Segmental Breakdown
FY Dec 2013A 2014A 2015F 2016F 2017F
Revenues (Rpbn)
IP-Medical services 857 1,186 1,425 1,772 2,193
IP-Medical supplies 585 734 882 1,097 1,357
OP-Medical services 620 811 974 1,211 1,499
OP-Medical supplies 299 391 469 584 722 Forecast stable margins
Others 143 219 263 327 404
Total 2,504 3,341 4,013 4,991 6,176
Gross profit (Rpbn)
IP-Medical services 200 362 427 532 658
IP-Medical supplies 162 215 265 329 407
OP-Medical services 226 289 355 441 546
OP-Medical supplies 25.0 34.6 51.6 64.2 79.5
Others 46.4 50.9 64.5 80.2 99.2
Total 659 952 1,163 1,446 1,790
Gross profit Margins (%)
IP-Medical services 23.3 30.5 30.0 30.0 30.0
IP-Medical supplies 27.7 29.3 30.0 30.0 30.0
OP-Medical services 36.4 35.7 36.4 36.4 36.4
OP-Medical supplies 8.4 8.8 11.0 11.0 11.0
Others 32.4 23.3 24.6 24.6 24.6
Total 26.3 28.5 29.0 29.0 29.0
Growth
Revenue Gth (%) 3.8 9.2 5.5 3.6 1.5
EBITDA Gth (%) 2.6 62.5 37.2 (17.0) (59.4)
Opg Profit Gth (%) 2.6 62.5 37.2 (17.0) (59.4)
Net Profit Gth (Pre-ex) (%) (57.6) 1.0 318.1 (18.9) (70.2)
Margins
Gross Margins (%) 27.8 30.8 31.4 25.7 28.3
Opg Profit Margins (%) 4.0 5.9 7.7 6.1 2.5
Net Profit Margins (%) 1.0 0.9 3.5 2.8 0.8
17502 Rp 4
Closing T arget
S.No. Dat e Rat ing
16502 Pric e Pric e
1: 02 F eb 15 13500 12750 HOLD
15502
2: 30 Mar 15 13425 12750 HOLD
14502 3: 23 Apr 15 13525 12750 HOLD
2 4: 10 Aug 15 16850 17000 HOLD
13502 5: 02 Nov 15 10300 17000 HOLD
1 3
12502
11502
10502
9502 5
8502
Nov-14 Mar-15 Jul-15 Nov-15
Not e : Share price and Target price are adjusted for corporate actions.
Analyst Multiple headwinds in 2015. Kalbe was hit with a few glitches
Maynard P. Arif +6221 3003 4930 in 2015 including product recall, suspension in production line
maynard.arif@id.dbsvickers.com and slower demand overall. Hence, we revised down our
FY15/16 EPS by 6%/4% respectively after lowering our
FY15/16 revenue estimates by c.2%. The weak performance in
Price Relative 2015 is also reflected in the share price to-date.
Rp Relative Index
1,998.5 221
Recovery in 2016. We believe most of the issues in 2015
1,798.5 201
998.5 121
798.5 101 expected to grow at 12% CAGR in the next five years with the
598.5
Nov-11 Nov-12 Nov-13 Nov-14
81
Nov-15 introduction of universal healthcare (BPJS Health). This will be
Kalbe Farma (LHS) Relative JCI INDEX (RHS) the driver for long term growth in the healthcare industry
including Kalbe Farma.
Forecasts and Valuation
FY Dec (Rpbn) 2014A 2015F 2016F 2017F
Valuation:
Revenue 17,369 17,937 19,468 22,317
EBITDA 3,093 3,052 3,478 4,213 Kalbe's shares have corrected by c.20% since 2H15 vs. 8% for
Pre-tax Profit 2,764 2,695 3,043 3,717 JCI while the valuation is now at 5-year mean PE (26x FY16
Net Profit 2,065 1,976 2,234 2,733 EPS). Our new TP is Rp1,600 (previously Rp1,900) or 33x FY16
Net Pft (Pre Ex.) 2,065 1,976 2,234 2,733
EPS, pegged at 25% discount to UNVR's multiple.
EPS (Rp) 44.0 42.2 47.7 58.3
EPS Pre Ex. (Rp) 44.0 42.2 47.7 58.3
EPS Gth (%) 8 (4) 13 22 Key Risks to Our View:
EPS Gth Pre Ex (%) 8 (4) 13 22 Weak consumer spending and regulatory risk. Further
Diluted EPS (Rp) 44.0 42.2 47.7 58.3
slowdown in the economy could dampen consumer spending,
Net DPS (Rp) 17.0 16.3 18.4 22.5
BV Per Share (Rp) 200 226 255 291 which will lead to slower than expected growth for Kalbe. In
PE (X) 30.7 32.0 28.3 23.2 addition, regulatory risks such as price control, relaxation on
PE Pre Ex. (X) 30.7 32.0 28.3 23.2 foreign investment and license may have negative impact on
P/Cash Flow (X) 27.2 26.1 26.0 23.2
EV/EBITDA (X) 20.1 20.2 17.5 14.3 Kalbe's performance.
Net Div Yield (%) 1.3 1.2 1.4 1.7
P/Book Value (X) 6.7 6.0 5.3 4.6 At A Glance
Net Debt/Equity (X) CASH CASH CASH CASH Issued Capital (m shrs) 46,875
ROAE (%) 23.6 19.8 19.8 21.3 Mkt. Cap (Rpbn/US$m) 63,281 / 4,628
Earnings Rev (%): (6) (4) N/A Major Shareholders
Consensus EPS (Rp): 46.3 53.2 60.7 Gira Sole Prima (%) 9.8
Other Broker Recs: B: 12 S: 4 H: 11 Santa Seha Sanadi (%) 9.3
Diptanala Bahana (%) 9.5
Source of all data: Company, DBS Vickers, Bloomberg Finance L.P
Free Float (%) 47.2
3m Avg. Daily Val (US$m) 4.7
ICB Industry : Health Care / Pharmaceuticals & Biotechnolog
and competition.
Revenue and earnings trend
We projected gross margin in 2015 and 2016 to decline to Rpbn
20000
47.5% and 48% respectively vs. 48.8% in 2014 and 48.0% in
2013 on weaker Rupiah. Rupiah has depreciated by 9% YTD 15000
against USD, and our FX strategist expects pressures on IDR to
continue with the expected Fed rate hike. 10000
5000
New products and M&A. In terms of new products, Kalbe
plans to add between 3 to 5 products each year. So far, Kalbe 0
has added liquid milk, Extra Joss + Milk and Lo Han Kuo Komix 13 14 15F 16F
in the consumer and nutritional segment. New products will be Revenue Earnings
11000 47.0%
10000 46.5%
13 14 15F 16F
USD/IDR Gross Margin
plant expansion, joint ventures for new products and Gross Debt to Equity (LHS) Asset Turnover (RHS)
negative earnings growth, the first time since GFC crisis. 400.0
Demand recovery and improvement in distribution business 200.0
will lead to better earnings growth.
0.0
2013A 2014A 2015F 2016F 2017F
10.0%
Key Risks:
Exposure to USD. Most of the materials for pharmaceutical 5.0%
products are imported, and hence, Kalbe is affected by the
weak rupiah. Further weakness in the rupiah will hurt 0.0%
2013A 2014A 2015F 2016F 2017F
Kalbe's margins and earnings because there is a time-lag in
adjusting prices. Forward PE Band (x)
(x)
+2 stdev
Litigation risk and product recall. Kalbe is subjected to
40.0
medical claim and product recall, which could have an
+1 stdev
impact on the company's performance. 33.0
26.0 Average
Regulatory risks. The pharmaceutical industry is regulated
and subjected to government's laws such as price cap and 19.0
-1 stdev
manufacturing process. In addition, there is a restriction on
12.0
foreign investment. Material changes in the regulation could -2 stdev
have an adverse impact on Kalbe's business. 5.0
Jan-10 Jan-11 Jan-12 Jan-13 Jan-14 Jan-15
6.3
‐1sd: 6.16x
5.3
‐2sd: 4.82x
4.3
Nov-11 Nov-12 Nov-13 Nov-14 Nov-15
Segmental Breakdown
FY Dec 2013A 2014A 2015F 2016F 2017F
Revenues (Rpbn)
Prescription 3,869 4,329 4,566 4,885 5,457
Consumer Health 2,505 2,924 3,212 3,665 4,266 Distribution declined due to
3rd party customers
Nutritionals 3,792 4,581 5,039 5,761 6,956
Distribution & Logistics 5,836 5,534 5,120 5,156 5,637
Growth
Revenue Gth (%) 1.5 5.3 (7.9) 5.3 (1.5)
EBITDA Gth (%) (2.2) 1.7 0.9 0.4 (13.0)
Opg Profit Gth (%) (2.4) 14.3 (10.5) 1.3 (13.4)
Net Profit Gth (Pre-ex) (%) (1.2) 17.0 (8.6) 1.2 (18.4) Margin decline due to
currency and revenue mix
Margins
Gross Margins (%) 48.4 50.9 49.5 49.1 47.9
Opg Profit Margins (%) 15.3 16.6 16.1 15.5 13.6
Net Profit Margins (%) 11.3 12.5 12.4 12.0 9.9
1949 Rp
Target
S.No. Date Closing Price Rating
2 4 Price
6
1849 1: 02 Jan 15 1810 1900 BUY
5 2: 04 Feb 15 1835 1900 BUY
1749 1 3 3: 23 Feb 15 1795 1900 BUY
4: 26 Mar 15 1835 1900 BUY
1649 5: 31 Mar 15 1865 1900 BUY
6: 05 May 15 1825 1900 HOLD
1549 7: 16 Sep 15 1510 1900 HOLD
1449 7
1349
1249
Nov-14 Mar-15 Jul-15 Nov-15
Note : Share price and Target price are adjusted for corporate actions.
DBSV recommendations are based an Absolute Total Return* Rating system, defined as follows:
STRONG BUY (>20% total return over the next 3 months, with identifiable share price catalysts within this time frame)
BUY (>15% total return over the next 12 months for small caps, >10% for large caps)
HOLD (-10% to +15% total return over the next 12 months for small caps, -10% to +10% for large caps)
FULLY VALUED (negative total return i.e. > -10% over the next 12 months)
SELL (negative total return of > -20% over the next 3 months, with identifiable catalysts within this time frame)
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This report is prepared by PT. DBS Vickers Securities Indonesia ("DBSVI"). This report is solely intended for the clients of DBS Bank Ltd and DBS Vickers
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ANALYST CERTIFICATION
The research analyst(s) primarily responsible for the content of this research report, in part or in whole, certifies that the views about the companies and
their securities expressed in this report accurately reflect his/her personal views. The analyst(s) also certifies that no part of his/her compensation was, is, or
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spouse and/or relatives who are financially dependent on the analyst(s), do not hold interests in the securities recommended in this report (“interest”
includes direct or indirect ownership of securities).
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Industry Focus
Indonesia Healthcare Sector
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Page 34