Medikaloka Hermina (HEAL.IJ Rp 1,455; BUY TP Rp 2,000) Steady FY24F Growth Outlook Remains Intact Despite Muted Inpatient Volume

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Medikaloka Hermina (HEAL IJ)

Steady FY24F Growth Outlook Remains Intact Despite Muted Inpatient Volume

Despite weaker inpatient volume in 3Q24, we believe HEAL is on track to meet its FY24F rev. target (Rp6.6-6.7tr) and EBITDA margin (~28%).
Management hinted at a potential +100bps in FY25F EBITDA margin from volume increases, cost control, and CoB Managed Care.
We reiterate our Buy rating and DCF-based TP of Rp2,000; we believe the current valuation overlooks its sustained operational performance.

Steady Growth Despite Weaker Demand

We believe HEAL’s 9M24 earnings (net profit of Rp468bn, +34% yoy) reflects management’s intact volume-focused and cost-efficiency strategy, despite relatively muted inpatient in 3Q24 (exh.1), which management attributed to overall weaker demand due to rain-season postponement and a higher base in 2Q24 (from rising dengue cases). Outpatient visits, however, offset the decline of inpatient in 3Q24, as the company started to accept MCUs from Astra’s employees. Volume mix remains dominated by JKN (exh.3), yet mgmt. observed that its private-patients revenue contribution in 3Q24 has reached 50% (vs. 1H24’s 40%), due to higher device utilization and complex treatment.

Potential FY25F Margin Expansion from The Kickstart of CoB Managed Care

Incorporating the 9M24 results, also considering the risks of continued muted volume in 4Q24 due to the holiday season (which could trigger medical-treatment postponement to 1Q25), we trimmed our FY24F revenue/net profit by 1%/10% (exh.4). Latest management observation however sees that Oct24 patient volume has recovered compared to Sep24. HEAL also hinted at a potential continuation of EBITDA margin expansion by 100bps to ~29%, in FY25F driven by: 1) patient volume increases 2) drug and salary cost-control strategy 3) the kickstart of CoB Managed Care Implementation (our previous note) 4) additional revenue contribution from operatorship business (exh.9).

Maintain Buy rating with TP of Rp2,000; Remains our Top Pick in the Sector

We raise our FY25-26F EBITDA margin est. by 1%, incorporating the projected expansion and roll-forward our DCF valuation, while also conservatively assuming a higher LT capex (from ~12% of revenue to ~17%). These result in an unchanged TP of Rp2,000 (exh.5). We believe that the current valuation of 10.8/9.2x FY24F/FY25F EV/EBITDA (35% disc. to regional peers) (exh.6) is unwarranted given its consistent growth and margin expansion despite serving lower-margin JKN patients. Key risks: 1) JKN deficits impacting receivables 2) cost-control execution 3) higher capex leading to lower FCF.

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