Healthcare

3Q24 Preview: Expect Earnings to Remain Solid, In-Line 9M24

• We expect hospitals’ 9M24 net profit to meet our/cons. estimates (at 71%/70% of FY24F), driven by steady patient traffic in 3Q24.
• We see no signs of rises in specific cases nationally, which should lead to in-line overall revenue achievement in 9M24.
• We retain our OW rating on the sector. HEAL remains our top pick on the back of its resilient earnings growth with a DCF-based TP of Rp2,000.

Expect a Solid 13%yoy Net Profit Growth, In-Line 9M24 Achievement

We expect overall hospitals’ 9M24 net profit to meet our/consensus estimates (72/70% of FY24F), driven by steady patient traffic in 3Q24 (+3-4%yoy) given fewer holidays (~63 working days vs. an average of 55 days in 1H24). This, combined with a continuous cost-optimization strategy, should yield a stable EBITDA margin at an average of 26% in 3Q24, based on our estimation. We foresee net profit to be potentially stronger for HEAL at 78%/81% of our/cons. FY24F, followed by MIKA at 74%/75%, while SILO’s core profit should reach 70% of our FY24F. Our latest discussion with hospital operators indicated that overall revenue achievement should be in-line with their respective guidance, despite possible weaker qoq/yoy volume in 3Q24 due to a higher base contributed by dengue cases in 2Q24 and pneumonia cases during 3Q23.

3Q24: No Signs of Rises in Any Specific Cases; In-line Revenue

We monitored air pollution metrics and found that there were no changes in the current situation in Greater Jakarta compared to previous year (exh.14), yet there were no signs of rising specific cases in hospitals during 3Q24. We believe FY23’s worsening air pollution situation was also related to the rising overall global temperature affected by the El Niño phenomenon, resulting in rising respiratory cases. MIKA indicated there was a potential yoy decline in its 3Q24 volume due to a higher base, yet its overall revenue achievement remains in-line with its guidance (FY24F revenue growth at ~15%) driven by better intensity in its private patient mix. Meanwhile, HEAL and SILO only indicated that their FY24F guidance will remain on track (Revenue at Rp6.6-6.7tr with an EBITDA Margin of ~28.7% for HEAL’s FY24F; and 10-15% revenue growth for SILO with a 29-30% Adjusted EBITDA Margin to its Net Revenue).

Maintain OW on sectors’ attractive growth; HEAL remains top pick for now

We maintain our OW rating on the sector as it continues to offer solid earnings growth both in ST (3Q24 at 13%yoy) and LT (FY25F/FY29F CAGR at 21%), supported by its inelastic demand characteristics due to Indonesian overall underpenetrated facilities supply. We maintain our top pick in HEAL with a DCF-based TP of Rp2,000 (implying 16.6/14.6x FY24F/FY25 EV/EBITDA). We believe that its consistent growth and margin expansion amid serving lower-margin JKN patients should remain intact. Meanwhile, MIKA and SILO’s strong brand equity and continuous focus on personnel, cost management, and complex treatments should drive better margins over the next 2-3 years (potential +200-300bps/year EBITDA margin until FY26F). Key risks: 1) soft intensity growth, 2) cost-control execution, which includes the pre-operating costs of new hospitals (0.5-1.5% impact to EBITDA margin).

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