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2022 Health Budget: Remains a Priority, but Lower than FY21
The government allocated IDR255.3tn of health budget, equivalent to 9.4% of the total government spending of IDR2,708.7tn in FY22F (vs IDR326.4tn in FY21). The Ministry of Finance estimates the budget for handling Covid-19 in the health sector to reach IDR115.9tn, which is higher than the mandate of the law at 5% of APBN. The budget allocated will be focused to: 1) finance vaccination drive; 2) intensify 3T (testing, tracing, and treatment) measures; 3) hospital fees reimbursement of COVID-19 patients; 4) supply medication, and 5) to pay incentives for the medical workers. Government spending for the healthcare budget continues to grow by 22.59% (CAGR 2017-2022), indicating the higher demand for healthcare services and products, which will benefit pharmaceuticals, hospitals, clinical labs and medical players.
UHC Programme Class Simplification
• According to Presidential Regulation No.64/2020 regarding Health Insurance, the government is obliged to prepare regulations on class simplification of the nation’s Universal Health Care (UHC) programme to be tested by FY22-FY23. Currently, there are three classes under the UHC programme: Class I, Class II, and Class III, with the latter being the lowest class. The classification will be simplified to two: subsidised and non- subsidised; both would most likely be equivalent to current Class III standards. We consider this to be beneficial for HEAL IJ, since the JKN Program contributes >30% for revenue.
• On the other hand, the budget related to JKN reach IDR81.09tn in FY22E to ensure health for civil servants, PBPU and BP class III participants. Meanwhile, the IDR174.21tn budget will be focused on the Covid handling. Furthermore, the number of JKN participation in FY20 has reached 222mn people, or equivalent to 82.33% of the population. The government aims for 100% of the population to become members of the JKN program.
Telemedicine is living a kind of a hype
Driven by a shortage of professionals and lack of medical care in rural areas, telemedicine providers have popped up in Indonesia’s healthcare landscape, implementing remote services for low-risk, high-volume clinical tasks such as general practitioner consultations for minor ailments and prescription refills. We suppose the possibility of M&A between Hospital player and Health-apps provider which offers a wide variety of services, supply chain and integrated ecosystem going forward. In some cases, conventional hospitals inevitably have to lower the ASP in order to compete with telemedicine. Companies within our scope that established partnerships or already owned telemedicine includes: 1) MIKA IJ; 2) HEAL IJ; 3) SILO IJ, while telemedicine will also benefit health laboratories, namely PRDA IJ.
NEUTRAL Outlook with Top Picks : HEAL and PRDA
We recommend NEUTRAL Outlook for the healthcare sector, as the movements of healthcare sector depend more on the increase in Covid-19 cases. However, there is still potential for specialized companies with bargaining power for health consumers, with the following preferred stocks: HEAL IJ (BUY; TP: IDR1,400) and PRDA IJ (BUY; TP: IDR10,000). Our risk: 1) IDR currency; 2) Regulation.
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