Mitra Keluarga Karyasehat (MIKA IJ)

Solid 1Q24 earnings (in-line); upgrade to Buy as we expect earnings momentum to be sustained

• MIKA reported solid 1Q24 net profit of Rp289bn (+25% yoy), in-line with expectations, driven by a higher drugs margin and improving payer mix.
• We expect MIKA to further deliver stronger earnings for the remaining FY24 amid its organic strategy to obtain higher-intensity cases at an updated pricing level and a better payer mix.
• We upgrade our HOLD rating to BUY on MIKA with a TP of Rp3,200. Key risks relate to volume growth and higher opex in 2H24.

Solid 1Q24 earnings (inline) driven by higher margin and better payer mix

MIKA reported 1Q24 revenue of Rp1.2tr (+21%yoy) and Net Income of Rp289bn (+25%yoy, +26%qoq, in-line at 28/26% of our FY24F est./the cons). The EBITDA margin expanded by 210bps to 37% supported by a better drugs margin as the company imposed an average of 8-10% price increases on top of overall ASP increases of +-5-7% effective in Jan24. At the same time, MIKA managed to obtain discounts from its medicine suppliers, as reflected in the declining medicine cost as a % of revenue qoq. In terms of the payer mix, BPJS’ portion to revenue declined in 1Q24 (exh.4).

Expect earnings momentum to be sustained for the remaining FY24

The company indicated that volume traffic in the last 2 weeks of Apr24 had returned to the Mar24 level, a yearly high in terms of the avg.patients/day. We believe that if this trend persists, along with the company’s strategy to provide more bed openings to non-BPJS patients, the FY24 revenue growth should surpass the guidance (12.5-15%) with an EBITDA margin of 35.5-37%. MIKA has reorganized its marketing team to focus on priv. insurance and corp. clients separately in each account (covered patients business grew around 27%yoy, while the overall marketing costs only increased by 11%yoy in 1Q24). Meanwhile, for its Kasih Group, MIKA plans to increase bed capacity by ~200 in 2H24. As such, we expect MIKA to further deliver stronger earnings for the remaining FY24 amid its organic strategy to obtain higher-intensity cases at an updated pricing level and a better payer mix.

We raise our FY24/25F net profit estimates by +10.0/9.4%; Buy with a TP of Rp3,200

Incorporating the 1Q24 results, we raise our blended intensity growth forecast by 4%, and lower our total salary/drug cost estimates by 800/100bps in FY24 as we believe MIKA’s strategy is starting to bear fruit. We upgrade our rating to Buy (from Hold prev.) with a higher TP of Rp3,200, implying 24.9/21.3x FY24/25F EV/EBITDA. Key risks are; 1) lower volume seasonality in 2Q24 and 4Q24 2) higher opex in overall 2H24 (incurred pre-operating costs of FY25 newly opened hospitals) 3) BPJS payer mix outgrew private patients as Kasih Group starting to expand, potentially dragging down intensity.

… Read More 20240503 MIKA