Siloam Hospitals (SILO IJ Rp 2,360; BUY; TP Rp2,900) FY24 Outlook: Expect Growth Continuation from Revenue Intensity and Cost-Savings

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Siloam Hospitals (SILO IJ)

FY24 Outlook: Expect Growth Continuation from Revenue Intensity and Cost-Savings

SILO reported FY23 a solid net profit of Rp1.21tn (+73.9% yoy), demonstrating its cost-saving and higher revenue intensity initiatives.
We believe SILO’s efforts in pushing intensity and cost-savings will continue to drive growth. We lift our FY24/25F net profit est. by +2/+5%.
We maintain our Buy rating with an unchanged TP of Rp2,900 on still attractive FY24-25F EPS growth of 13-21% and undemanding valuation.

FY23 Results: In-Line with Market Expectations

SILO reported FY23 net profit of Rp1.21tn (+73.9% yoy), in-line with our forecast and consensus estimates, at 101.3% and 104.7% of FY23 est. respectively. The key driver of FY23 net profit growth was the lower cost of medicines/salary costs (down 100bps to 22/31% of total revenues, respectively), with overall opex only up by 9.9% yoy, yielding EBITDA margin expansion of 260 bps to 25.2% in FY23 (in-line with our forecast and the consensus). The efficiency efforts were supported by strong volume growth (+22% yoy) and higher revenue intensity (up +40% for inpatient and +15% for outpatient vs. the pre-pandemic FY19 level).

FY24: Focus on Revenue Intensity and Cost Savings to Drive Profit Growth

We believe the company’s strategic efforts will continue to drive net profit growth in FY24F despite no new hospital additions. We expect revenue intensity growth to be supported by C.O.N.G.O Case Mix (exh.10), while volume to be aided by the operation of the new capacity-extended hospitals (Lippo Village: expected to open in 1Q24; Makassar: 3Q24; and Sentosa Bekasi: 4Q24). On the cost front, we expect procurement efficiency (exh.11) and IT initiatives to help lower COGS and patient waiting times (27% decline in 4Q23 vs. 1Q23 according to the mgmt.), ultimately to drive a BOR improvement to reach 70% level (FY23 at 65% vs. FY22 at 59%). Up until 1Q24, price increases reached ~3%, with the management noting positive qoq growth in patient volume. The management expects low to mid double-digit revenue growth (10-15%) in FY24.

We lift FY24/25F net profit est. by +2/5%; Maintain Buy rating

Taking into account the FY23 result, we raise our FY24/25F net profit estimates by +2/5%. We maintain our Buy rating with an unchanged TP of Rp2,900 (implying 11.2x FY24 EV/EBITDA) on still attractive growth outlook and current undemanding valuation at 9.0x FY24F EV/ EBITDA. Key risks are: 1) cost-control strategy execution and 2) weaker purchasing power which may lead to soft growth in revenue intensity.

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