Healthcare: KTAs from the meeting with ARSSI: KRIS and Single-Tariff JKN Still Awaits Further Regulation (OVERWEIGHT)

Stock Code	Last Price	Change	Change %
DCII	160,200	3,200	2.04%
MLPT	34,400	2,775	8.77%
DSSA	49,300	1,100	2.28%
CTBN	4,410	400	9.98%
INDF	7,875	350	4.65%
BREN	6,500	300	4.84%
AMMN	7,800	250	3.31%
FORU	1,845	250	15.67%

Healthcare

KTAs from the meeting with ARSSI: KRIS and Single-Tariff JKN Still Awaits Further Regulation

ARSSI expects non-chain hospitals’ dependency on JKN to continue in FY25F and the KRIS-JKN single tariff to be subject to further regulation.
KRIS implementation might impact the capex of hospitals, but ARSSI members are generally prepared to adjust to a 4 beds/room layout.
We retain our OW rating on the sector. HEAL (Buy, TP Rp2,000) remains our top pick given its resiliency from serving the whole middle-clas

Non-Chain Hospitals’ high dependency on JKN expected to continue in FY25F

According to the Indonesian Private Hospitals Association (ARSSI), business for solitary hospitals (non-chain/non-group) is highly dependent on JKN patients, and it expects this trend to continue in FY25F. We have shared a similar view since mid-FY23, as we expect the overall weak purchasing power to impact the ability of corporates/individuals to retain private healthcare coverage. Despite this, we believe ARSSI’s view backs our thesis that the listed hospital network has a competitive edge from its wide offering of complex treatments and ability to attract doctors, with healthy revenue drivers (overall 1Q24 revenue intensity at +4%yoy, while the JKN payer mix is relatively stable or even trending lower (exh.7)

Implementation of KRIS and Single-Tariff JKN: Awaits Further Regulation

ARSSI indicated that its members already comply with 11 of 12 KRIS standards (exh.6), showing their preparedness for the implementation of standardized inpatient rooms, except for the 4 beds/room layout prerequisites. As complying with the latter standard will require additional capex/extra space in the hospital, the association generally views that its members will only make the adjustments according to their financial capacity and existing space (e.g., adjusting a 5 beds/room or 3 beds/room layout to 4 beds/room). ARSSI still awaits further regulation to ensure the standardized of service is still delivered well and to avoid negative perceptions from JKN users (i.e. Class-1 JKN users). Meanwhile, it sees that the Single-Tariff Implementation (including the new rate) still awaits further regulation, which is expected to be released at the end of FY24 to early FY25.

Coordination of Benefit (CoB): Hurdles from Limited Product Penetration

ARSSI stated that its members are already prepared for any extra volume from CoB patients (Current portion: <10% of total ARSSI patients). However, it noted that the current challenge for CoB comes from the limited product penetration from the private insurance side. ARSSI believes that a more significant impact for its members’ financials might come if there is a double upgrade from JKN services to VIP Class (hence, uplifting revenue intensity).

Maintain OW on the sector’s attractive growth; HEAL is our top pick

We remain OW on the sector amid its most defensive growth in the JCI (FY24F EBITDA/net profit growth at +15%/+14%yoy), with healthy revenue drivers and a competitive edge for the listed operators. HEAL remains our top pick in the sector, as the company is less susceptible to economic turmoil by catering to the entire middle class. Our DCF-based TP for HEAL of Rp2,000 implies 16.6/14.6x FY24F/FY25F EV/EBITDA at a 6% disc. to the regional avg. of 17.6/16.3x. Key risks to our view are lower revenue intensity and a JKN deficit.

… Read More 20240624 Healthcare