Healthcare: New Strategic Investor in SRAJ Set to Bolster Confidence in the Sector (OVERWEIGHT)

Stock Code	Last Price	Change	Change %
DCII	278,250	25,275	9.99%
MLPT	61,900	10,300	19.96%
RAJA	3,080	470	18.01%
RATU	7,400	375	5.34%
INDR	2,690	350	14.96%
BREN	9,075	325	3.71%
SINI	3,520	320	10.00%
BBCA	8,850	300	3.51%

Healthcare

New Strategic Investor in SRAJ Set to Bolster Confidence in the Sector

SRAJ operates seven hospitals located in major cities across Java, focusing primarily on specialty care and higher-intensity medical cases.
Our estimation indicates that the recent equity injection from Bain Capital is valued at c. 16.6x FY24F EBITDA and 13.1x FY25F EBITDA.
We believe the entrance of Bain Capital should further cement confidence in the Indonesian healthcare sector’s growth resiliency.

SRAJ at Glance: Local Hospital Operator with an Upscale Brand Equity

PT Sejahteraraya Anugrahjaya Tbk (SRAJ), part of the Mayapada conglomerate group, operated 7 Mayapada Hospital (MH) with a total of 1,310 beds, located in prime location in major cities in Java (exh.6). MH’s number of operating beds is lower than the capacity of its listed operator peers (i.e. HEAL at 7,613 beds, followed by SILO at 4,097 beds, and MIKA at 4,008 beds), with relatively modest occupancy rate at 49% per FY23 vs. average peers of 67% (per 9M24). Revenue/Inpatient days as per FY23 stood at Rp38mn/ day, with ALoS of 20.5 days, which contrasts sharply with peer’s average of Rp3.6mn/days with ALoS of 2.9 days (per 9M24). The operation numbers implied that SRAJ’s product offering might lean more towards the specialty care and higher-intensity cases, targeting the upper-middle class of Indonesian consumer.

Estimates of Implied Valuation: Fairly-Valued

According to SRAJ’s latest IDX disclosure, the company has reached an agreement with US-based private equity Bain Capital. Under this agreement, Bain Capital will invest in SRAJ through its affiliated company BCCS Maverick, by subscribing to new shares worth US$32mn and bonds at US$125mn. Our estimation (exh.2) suggests that the transaction is valued at around 16.6x/ 13.1x FY24F/25F EBITDA, relatively in line with listed operator peers’ mean at 16.7x/ 14.1x. (exh.3).

New Strategic Investors Shall Cement Market Confidence on The Sector

We believe that the sector's growth resilience, which attracts long-term investors to local operators, is supported by two key factors: 1) the underpenetrated and Java-centered patient care market, and 2) the ability of large operators to secure Indonesia's medical talent and efficiently procure medicines due to economies of scale. These aspects provide Indonesia’s listed hospital operators with opportunities to expand profit margins through improved cost efficiency and naturally increasing patient volume (see our last KTA meeting note with Special Advisor to MoH).

Maintain our OW rating on the Sector with HEAL as our Top Picks

We maintain our OW rating on the sector, as we believe that profitability growth will remain robust for at least the next 5 years, with a projected CAGR of 19% for FY24F-FY29F EBITDA. The sector’s average valuation stands at 14x FY25F EV/EBITDA, which reflects a 24% discount compared to EM peers (see Exh 3). Our top pick remains HEAL, with a DCF-based target price of Rp2,000, implying 14.4x FY25 EV/EBITDA. We are confident that its consistent growth and margin expansion will continue, driven by increased intensity from the CoB program and improved operational cost-efficiency, even while serving lower-margin JKN patients.

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