Company Update

04 November 2020

Healthcare Sector - On the Ground Research Report 04 November 2020

Healthcare Sector - On the Ground Research Report
Hospital Players Continues to adapt of Battling the Covid-19 Crisis
Healthcare Impact of Covid-19
Indonesia has highest Covid-19 infection and death rate in ASEAN (406,945 cases on October 2020), with an average number of cases per day reaching 2,325. However, with a lack of health facilities, the Government has to established emergency facilities to treat Covid-19 patients. We note that hospitals are currently the areas with the highest risk in the spread of Covid-19. These factors have led to reductions in hospital inpatient and outpatient volumes in our coverage to an average decrease of 9.3% YoY and 17.8% YoY in 1H20. Meanwhile, EBITDA weakened by 24.50% YoY on average with EBITDA margin decreased by 523bps to 25.17% in 1H20 (30.40% in 1H19). Nonetheless, MIKA IJ and SILO IJ recorded a better result in 3Q20 with outpatient and inpatient grew by 47.93%/17.48% QoQ, respectively. Thus, the average EBITDA sharply increased by 241.75% QoQ in 3Q20.
Population Growth and Middle Class Opportunity to Increase Demand for Health Services
The demand for health services will grow along with the increase in the population of a country. Indonesia currently has a population of 268 million in FY19 (vs 265 million in FY18), where the population has the potential to increase to 305 million in FY35F. This growth is also accompanied by an increase in the middle class from 7% to 20% of the total population, which will be followed by unhealthy consumption patterns. WHO estimates that in FY30F lifestyle-related diseases will be the leading cause of 87% of deaths. This is also supported by the growth of insurance premiums by 37.05% YoY in 5M20, indicating that people are starting to be aware of the urgency of healthcare. Furthermore, the growth of JKN participants has reached 222 million people in FY19, supported by the increase in JKN contributions in FY21E.
Telemedicine: A Friend or a Fiend for Conventional Hospital?
As the Covid-19 outbreak begins in China and spreads across the World, it is very risky to see doctors regularly. This can be minimized by utilizing telemedicine. Digitalization and big data have revolutionized almost all industries, one of which is health. Technology will revolutionize the healthcare industry through a wide range of applications in the fields of health prevention and patient management and monitoring. Telemedicine increases the efficiency of care and quality of health, enabling remote monitoring of patients. We consider that telemedicine is a threat to hospital players, due to the fact that telemedicine is able to overcome hospital disparities, namely: 1) Easy to access via the internet, so that it becomes a solution to problems of distance and area; 2) Save time and money; and 3) Consultation and inspection in real time.
Overweight Outlook with Top Picks : MIKA, SILO and HEAL
We believe the hospital business will remain attractive, due to Indonesia's low bed to population ratio at the 1.18: 1000 level. In addition, the improvement of Indonesia's life expectancy to the level of 72.2 years in FY35F will have an impact on growing state spending to build health infrastructure in Indonesia. We see an OVERWEIGHT Recommendation for the Hospital sector, with the following preferred stocks: MIKA IJ (BUY; TP: IDR2,740), SILO IJ (BUY; TP: IDR6,700)  and HEAL IJ (BUY; TP: IDR3,530). Meanwhile, we note that SAME IJ (Noted Rated) plans to conduct a right issue to take over PT Elang Medica Corpora (EMC) which is engaged in the health and beauty business (plastic surgery), will be the next turnaround story.
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