Medikaloka Hermina (HEAL IJ)

Expect volume growth and efficiency effort to  sustain earnings momentum in 2Q24 onwards

 

  • 1Q24 performance has showcased HEAL’s cost-control optimization, volume expansion through operating additional beds and ASP increase.
  • We raise our FY24/25F net profit est. by +10/+14%, as we adjust our blended volume growth, amid continued strong traffic YTD.
  • We reiterate BUY rating on its solid earnings growth prospect, with a higher TP of Rp2,000.

Strong traffic volume to sustain earnings momentum in 2Q24 onwards

We believe HEAL’s 1Q24 performance has showcased management’s initiatives of cost-control optimization of and volume expansion through operating additional beds (+745 beds in 1Q24, 68% of mgmt. FY24 target), on top of the 1Q24 blended ASP increases of ~3%. While patient traffic in Apr24 may likely reflect seasonal effect due to Eid holiday (weaker m-m), we believe the rest of 2Q24-3Q24 traffic should normalize. Based on our check, patient traffic in primary care facilities in Jakarta area showed +27% growth YTD (exh.10), with JKN volume referred to HEAL at ~5-6%. (our previous note).

 

We raise our FY24/25F net profit est. by +10/+14%

HEAL reiterates its plans to add four new hospitals in FY24 (exh.11), which we expect to aid volume growth (though this will be accompanied by an increase in pre-operating salary costs, estimated at around 1-1.5% of revenue). Incorporating the 1Q24 results, we raised our FY24F IP/OP volume growth forecast by +9%/ +1%, and lowered our drug cost estimates by 250bps as we believe impact of cost optimization shall continue (exh.2).

 

Expect strong earnings momentum to be sustained in 2Q24-3Q24

Compared with historical quarterly contribution, our new earnings forecasts imply a seasonal qoq decline in 2Q24 net profit, yet still a healthy growth of around 40%yoy. Meanwhile, we expect 3Q24 earnings to show c.20-30% growth in both qoq and yoy basis (exh.5).

 

We reiterate Buy rating with a higher TP of Rp2,000

We maintain our Buy rating on the stock on the solid earnings growth outlook with a higher TP of Rp2,000 (from Rp1,800 prev.), based on our DCF valuation. Our new TP implies 16.6/14.6x FY24/25F EV/EBITDA, a 7% discount to regional average (exh.8). Key risks are minimum intensity growth and higher opex in 2H24.

 

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