en scb 2014 4 8 indonesia healthcare scout siloam and tempo intiation
| Equity Research | Indonesia | Health Care |
8 April 2014
Indonesia healthcare
Power of healing
Poised for structural growth: After a detailed study of health expenditure to GDP trends across 25 countries over 19952012, we conclude that Indonesia’s healthcare market is still at an early stage of development. We found that low- to middleincome countries have a health expenditure to GDP ratio of 3.5-5.5% while the ratio for high-income countries is above 7%.
With Indonesia’s ratio of 3% in 2012, our study gives us confidence in the long-term growth outlook for Indonesian healthcare.
Multi-country study: We delved further into the health expenditure trends in Brazil, Malaysia and Poland, countries with a
significant rise in GDP per capita over the study period. Over 1995-2012, their health expenditure to GDP ratio rose to 4-9.5%
from 2.5-6.5%, as GDP per capita rose from under USD 5k to USD 10k. Health expenditure was a robust 10-14% CAGR
when per capita GDP hit USD 5k, compared to 4-7% annual growth when below USD 5k. We expect a similar transition in
Indonesia, as we forecast GDP per capita to exceed USD 5k in 2016 and USD 10k in 2023.
Health expenditure to GDP model shows a ‘sweet spot’: Our model shows that the next five years are likely to be a sweet
spot for growth in Indonesia’s healthcare sector. We forecast a 17% CAGR in healthcare spending, up from 13% in 2008-13.
We expect health expenditure per capita to double to USD 229 in 2018 from USD 107 in 2013. Rising incomes and the launch
of a national health insurance programme (the JKN) in 2014 should drive growth. We think the JKN will spur middle- to upperincome Indonesians to switch to private hospitals as public hospitals become overcrowded, while expanded coverage under
the JKN will boost drug consumption.
Actionable ideas: We initiate coverage of the sector with Outperform ratings on Siloam Hospitals Internasional (Siloam), the
largest private hospital operator by number of beds, and Tempo Scan Pacific (Tempo), the largest drug producer by volume
and a leading personal care player. Our top pick is Siloam, for its market leadership, robust growth outlook, and attractive
valuations given its long-term growth potential. We also present three non-rated companies in the sector – Kalbe Farma,
Kimia Farma and Sido Muncul. Click here to get The Scoop, an audiovisual summary of the report.
Alvin Witirto
Stephen Hui
+65 6596 8530
Equity Research
Standard Chartered Bank, Singapore Branch
+65 6596 8514
Equity Research
Standard Chartered Bank, Singapore Branch
Important disclosures can be found in the Disclosures Appendix
All rights reserved. Standard Chartered Bank 2014
http://research.standardchartered.com
Equity Research l Indonesia healthcare
Contents
Investment highlights
3
Investment implications
6
An underserved market
8
Health expenditure to GDP model
12
Prognosis: Positioned to take off
16
JKN improves affordability
19
Increased private investment in healthcare
23
Favourable long-term trends
25
Companies
Siloam Hospitals International
Tempo Scan Pacific
Kalbe Farma
Kimia Farma
Sido Muncul
28
58
87
91
95
SCout is Standard Chartered’s premium research
product that offers Strategic, Collaborative, Original
ideas on Universal and Thematic opportunities
8 April 2014
2
Equity Research l Indonesia healthcare
Investment highlights
Higher incomes drive growth
A study of 25 countries
We analysed health expenditure trends across 25 countries from 1995-2012, and
conclude that Indonesia’s healthcare sector is still at an early stage of development,
but is entering a period of structural growth. We estimate Indonesia’s health
expenditure to GDP ratio was only 3.0% in 2012, compared to 3.5-5.5% in low- to
middle-income countries and over 7% in high-income countries. The correlation
between rising incomes and a higher health expenditure to GDP ratio has been well
1
documented across low, middle and high income countries.
Nominal GDP per capita (USD)
12,000
Figure 2: High-income countries*
Time series: 1995-2012
12 countries
10,000
8,000
6,000
4,000
2,000
102,000
Nominal GDP per capita (USD)
Figure 1: Low- to middle-income countries*
0
Time series: 1995-2012
13 countries
92,000
82,000
72,000
62,000
52,000
42,000
32,000
22,000
12,000
1.5%
2.5%
3.5%
4.5%
5.5%
5.0%
10.0%
Healthcare expenditure as a % of GDP
15.0%
20.0%
Healthcare expenditure as a % of GDP
* GDP per capita below USD 12,000. Countries: China, India, Indonesia, Malaysia,
Philippines, Thailand, Vietnam, Cambodia, Singapore.
Source: Global Health Expenditure Database, World Development Indicators
GDP per capita above USD 12,000. Countries: Australia, Denmark, France, Italy, Japan,
Norway, Spain, Sweden, United Kingdom, United States, South Korea, Canada.
Source: Global Health Expenditure Database, World Development Indicators
Our health expenditure to GDP model
We have developed a health expenditure to GDP model to assess the growth
potential for Indonesia’s healthcare sector. We model this ratio to increase to 3.4% in
2018 and 3.9% in 2023. Based on our economists’ forecast of a nominal 2013-30
GDP CAGR of 10%, we estimate a health expenditure CAGR of 12% over the same
period. We estimate health expenditure per capita will rise from USD 107 in 2013 to
USD 229 in 2018 and USD 402 in 2023.
Figure 3: Health expenditure to GDP ratio, 2012
100,000
90,000
80,000
70,000
60,000
50,000
40,000
30,000
20,000
10,000
0
High income
Healthcare expenditure per capita
450
NW
350
AU
SW
SG
KR
MX PO
MY
CN
ID
TH
CM VN
IN PH
DN
CA
JP GR
UK
FR
IT
SP
US
Source: WHO, World Bank, Standard Chartered Research estimates
17.5%
3.5%
2.8%
3.0%
2.5%
250
402
200
2.0%
1.5%
150
50
4.5%
4.0%
3.4%
3.1%
229
100
BRL
7.5%
12.5%
Health expenditure as a % of GDP
300
% of GDP
3.9%
400
2.5%
1
Figure 4: Healthcare expenditure per capita, Indonesia
Time series: 1995-2012
25 countries
USD per capita
Nominal GDP per capita (USD)
Low-to-middle income
61
107
2008
2013E
1.0%
0.5%
0.0%
0
2018E
2023E
Source: WHO, World Bank, Frost & Sullivan, Standard Chartered Research estimates
OECD (2010), Health at a glance: Europe 2010; OECD (2013), Health at a glance: Asia Pacific 2012; World Health Organization and Results for Development Institute (2011), The Determinants of Health Expenditure; Huber
(1999), Health expenditure trends in OCED countries 1970-99; Huber and Orosz (2003), Health expenditure trends in OECD countries in 1999-2001.
8 April 2014
3
Equity Research l Indonesia healthcare
A severely underserved market
Poor healthcare infrastructure
In 2012, Indonesia’s hospital bed per 1,000 persons ratio of 1.0 was well below
Thailand’s (2.0) and Malaysia’s (1.6). In 2012, the OECD average for hospital beds
per 1,000 people was 4.93, and the OECD average was 3.14. Indonesia’s doctors
per 1,000 persons ratio was 0.3, compared to 1.5 in China and 1.3 in Malaysia.
Low health expenditure per capita
The fact that the market is underserved is reflected in the low health expenditure per
capita, which was USD 108 in 2012. Indonesia’s health expenditure per capita is only
26% and 49% of Malaysia’s and Thailand’s, respectively (see table below).
Figure 5: Beds & doctors per 1,000 population, 2012
Hospital Beds per 1,000 population
Doctors per 1,000 population
Per 1,000 population
3.0
450
2.5
2.0
1.5
1.0
0.5
Indonesia
India
Malaysia
Thailand
Singapore
UK
US
China
0.0
Source: Frost & Sullivan
Health expenditure per capita (USD)
3.5
Figure 6: Health expenditure per capita, 2012
410
400
322
350
300
250
215
200
150
119
108
102
100
61
51
IN
CM
50
0
MY
CN
TH
PH
ID
VN
Source: Global Health Expenditure Database
National healthcare insurance a catalyst
Universal health coverage for
Indonesians by 2019 with the JKN
Introducing the JKN
The JKN is the national health insurance programme introduced in January 2014. It
aims to provide universal health insurance coverage in Indonesia by 2019 from 63% in
2012. Participants pay a monthly insurance premium to the National Social Security
Agency (BPJS). (In Indonesia the JKN is also sometimes referred to as the BJPS, as
the BJPS administers the JKN.) The premium is sponsored by the government for poor
and near-poor Indonesians. JKN participants will have access to healthcare services at
9,217 community clinics and 1,710 participating hospitals (out of Indonesia’s 2,300).
Figure 8: Universal coverage by 2019
37%
Insured
Uninsured
63%
Populaiton with health insurance
(mn)
Figure 7: Health insurance coverage, 2012
300
258
250
200
175
152
150
100
50
0
2012
Source: Road Map Toward National Health Insurance 2012-19
8 April 2014
2014E
2019E
Source: Road Map Toward National Health Insurance 2012-19
4
Equity Research l Indonesia healthcare
The JKN could increase patient
volumes at private hospitals...
Hospital services – ready to take-off
We expect the JKN rollout to drive demand for inpatient and outpatient services at
public hospitals and participating private hospitals, as large ticket hospitalisation and
specialist expenses will now be covered by the JKN. We estimate the overall hospital
services market will increase at a 2013-23 CAGR of 13-16%. We think the higher
patient volume at private hospitals will be driven by: (1) rising purchasing power, as
the JKN will subsidise or fully cover medical costs at participating hospitals; and (2)
middle- to upper-income patients switching to private hospitals as public hospitals
become overcrowded by JKN patients.
…and drive demand for generic
prescription drugs
Pharmaceuticals – Sustainable growth
We expect the JKN to boost demand for pharmaceutical products, and we estimate a
2013-23 CAGR of 13-18% for the overall pharmaceutical market. In the short term,
we expect the JKN to significantly boost prescription drug demand, as it will cover
medical consultation and drug costs for participants.
Figure 9: Indonesia’s private hospital market
Public
Private
Figure 10: Indonesia’s pharmaceutical market
5-year forward CAGR
80
OTC
12%
13.1
30
46.1
20
6.4
3.8
6.9
11.9
2008
2013E
5-year forward CAGR
20%
18%
6%
2018E
Source: Frost & Sullivan, Standard Chartered Research estimates
2023E
7.2
14%
12%
9%
10%
10
13.7
5
0
2.0
1.4
1.8
3.0
2008
2013E
10%
8%
4.2
10%
8%
25.4
15
16%
13%
CAGR
12%
USD bn
13% 14%
13%
40
8 April 2014
20
Prescription
26.5
50
0
16%
CAGR
USD bn
60
10
25
18%
16%
70
18%
6%
4%
7.3
2%
0%
2018E
2023E
Source: IMS, Standard Chartered Research estimates
5
Equity Research l Indonesia healthcare
Investment implications
Positive on Indonesian healthcare
Expect ‘sweet spot’ for growth over the next five years: We expect health
expenditure per capita in Indonesia to double to USD 229 in 2018 from USD 107 in
2013. This implies an acceleration to a total health expenditure CAGR of 17% in
2013-18 (13% in 2008-13). Thereafter, we expect health expenditure to compound
at 13% p.a. in 2018-23 and 10% p.a. in 2023-30.
See robust growth drivers ahead: We see rising incomes as the primary driver
for rising healthcare demand, the rollout of the JKN as a catalyst, and increasing
private sector investment as an enabler for structural growth in Indonesia’s
healthcare sector.
Proxies for each segment: The five stocks we identify are prominent players in
their respective segments – Siloam in private hospitals, Tempo in over-the-counter
(OTC) drugs and personal care, Kalbe Farma in overall pharmaceuticals, Kimia
Farma in pharmacies, and Sido Muncul in traditional herbal medicine.
Siloam Hospitals: Top pick
We initiate coverage of Siloam with an Outperform rating and a price target of IDR
13,982, implying 34% upside potential.
Market leadership: Siloam is the largest private hospital operator in Indonesia
with twelve hospitals and, 3,000 beds in 2012, when it had a 7% share of the
private hospital market by bed capacity. Mitra Keluarga, the second largest
operator, has 10 hospitals with1,200 beds or a c.3.0% share. Other major private
hospital operators have market shares of less than 3.0% each. As of end-2013
Siloam had 16 hospitals and 3,700 beds.
Robust expansion: It plans to more than double its bed capacity by 2017, to 40
hospitals with 10,000 beds. We expect 2013-16 revenue/earnings CAGRs of
44%/86%, driven by: (1) rapid expansion; and (2) maturing hospitals, as EBITDA
margins and occupancy rise as younger hospitals mature.
Attractive valuations: On PE, Siloam’s multiples look rich at 67x 2015E PE, but
we believe more appropriate valuation metrics are DCF and EV/EBITDA given the
high upfront capex and initial start-up losses for new hospitals. Siloam is trading at
16x 2015E EV/EBITDA and we forecast a 2013-16 EBITDA CAGR of 63%. Other
leading Asian hospital operators are trading at 15-17 2015E EV/EBITDA, with an
average 2013-16 EBITDA CAGR of 14-23% (based on our estimates and
consensus). Our DCF-based price target translates to 21x 2015E EV/EBITDA.
Top pick: We prefer Siloam to Tempo given its: (1) market leadership in the
private hospital market – its market share is more than double that of the second
largest private hospital player; (2) stronger growth profile (we forecast an 86%
earnings CAGR in 2013-16, compared to a 15% CAGR for Tempo over the same
period); and (3) good execution track record.
8 April 2014
6
Equity Research l Indonesia healthcare
Tempo: Riding two growth waves
We initiate coverage of Tempo with an Outperform rating and a price target of IDR
3,878, implying 26% upside potential.
Riding the JKN wave: We expect Tempo’s fledgling prescription drug business to
benefit from the JKN rollout. Management expects to increase this business more
than threefold to IDR 592bn in 2017. As Indonesia’s largest pharmaceutical
producer by volume, we believe Tempo is well positioned to leverage on its
production scale to deliver the government’s generic drug needs at a cost-efficient
level.
Strong earnings growth: We expect 2014-16 revenue and earnings CAGRs of
14% and 15%, respectively, driven by volume growth and margin expansion as it
focuses more on its own products in the pharmaceutical and personal care
segments. Management plans to allocate more distribution capacity to higher
margin own-brand products (16-17% EBIT margin) rather than low-margin third
party products (3-3.5% EBIT margin).
Valuation appealing: Despite being the second-largest listed pharmaceutical
player by market capitalisation, Tempo is only trading at 17x 2015E PE, a 35%
discount to Kalbe Farma, trading at 26x (Bloomberg consensus). Our sum-of-theparts derived price target implies a target multiple of 21x 2015E PE, close to its
three-year historical average.
Figure 11: Coverage and non-rated stock highlights
Price
target
Name
Ticker
Rating
Siloam Internasional SILO IJ
OP
Tempo Scan Pacific
TSPC IJ
OP
Kalbe Farma
KLBF IJ
Kimia Farma
KAEF IJ
Sido Muncul
SIDO IJ
(LC)
3M avg
value
traded
Last
(LC) (USD mn) (USD mn)
FYE
Price
13,982 10,400
Market
cap
Price
2-yrs
/
EPS 2-yrs sales
PE (x)
FY0
FY1
FY2 CAGR
Div.
yield ROCE
(%)
(%)
EV/EBITDA
PEG
FY1
FY0
FY1
FY2
FY1
FY1
1,062
8.44 12/13 218.4
100.3 67.3
80%
0.8
3.0
34.5
23.8
16.4
0.1
8.5
3,070
1,221
0.23 12/13 21.8
19.8 16.5
15%
1.1
1.8
12.3
12.3
10.2
2.8
19.5
NR
1,500
6,213
8.43 12/13 36.2
30.8 25.6
NR
895
439
NR
825
1,093
3,878
19%
1.3
3.8
24.4
20.6
17.1
1.5
27.1
NA
NA
NA
NA
NA
NA
NA
NA
NA
NA
14.1
2.43 12/13 31.7
NA
NA
NA
NA
NA
NA
NA
NA
NA
NA
0.52 12/13
Above data as of 4 April 2014. Bloomberg consensus for non-rated stocks.
Source: Bloomberg, Standard Chartered Research estimates
8 April 2014
7
Equity Research l Indonesia healthcare
An underserved market
Indonesia’s pharmaceutical and hospital services markets are still underserved and
underpenetrated. We believe this presents a significant growth opportunity for large
hospital operators, such as Siloam, and leading domestic pharmaceutical producers,
such as Tempo.
Structural growth opportunity
Low healthcare expenditure per capita
Indonesia’s healthcare expenditure per capita of USD 108 in 2012 was well below
regional peers Thailand (USD 215) and Malaysia (USD 410). Indonesia’s total
healthcare expenditure, at 3.0% of GDP, also lagged these regional peers’ level of
3.9% in 2012.
Figure 12: Health expenditure per capita, 2012
20%
8,895
9,000
8,000
7,000
6,000
5,000
3,647
4,000
2,426
3,000
2,000
1,000
410
322
215
108
61
MY
CN
TH
ID
IN
Health expenditure as a % of GDP
Health expenditure per capita (USD)
10,000
Figure 13: Health expenditure as a % of GDP, 2012
0
17.9%
18%
16%
14%
12%
9.4%
10%
8%
5.4%
6%
4.7%
4.0%
3.9%
3.9%
IN
MY
TH
4%
3.0%
2%
0%
US
UK
SG
Source: Global Health Expenditure Database
US
UK
CN
SG
ID
Source: Global Health Expenditure Database, World Development Indicators
Low drug expenditure per capita
Although Indonesia is already one of the largest pharmaceutical markets in Asia, its
drug expenditure per capita is still among the lowest in the region, at USD 21 in 2010.
This is significantly below regional peers such as Malaysia (USD 65) and Thailand
(USD 61). We believe this indicates the strong growth potential for the domestic
pharmaceutical industry.
Figure 14: Pharmaceutical market size, 2012
Figure 15: Drug expenditure per capita, 2010
6
180
5.0
5
160
4.4
140
USD per capita
4
USD bn
154
3.1
3
2.0
2
0.8
1
120
100
80
65
61
60
56
31
40
21
20
0
0
Indonesia
Thailand
Philippines
Malaysia
Singapore
Source: UNDESA-PA, IMS Health, Business Monitor International, media reports, Standard
Chartered Research
8 April 2014
Singapore Malaysia
Thailand
China
Philippines Indonesia
Source: Kalbe Farma, Business Monitor International
8
Equity Research l Indonesia healthcare
Poor healthcare infrastructure
Indonesia’s healthcare infrastructure is still limited, with 0.3 doctors per 1,000
population (OECD: 3.1) and 1.0 hospital beds per 1,000 population (OECD: 4.9).
Frost & Sullivan estimates Indonesia has a shortfall of 267,000 doctors. Although the
annual supply of doctors exceeds growth in annual demand, it expects the shortage
to persist beyond 2020 given the size of the shortfall.
0.7
0.3
0.5
0.3
Thailand
Indonesia
India
Malaysia
China
Singapore
US
UK
0.0
Source: Frost & Sullivan
2.0
2.0
1.6
1.5
1.0
1.0
Indonesia
1.0
2.2
India
1.3
2.5
1.0
0.5
0.0
Malaysia
1.5
2.8
Thailand
1.5
2.8
UK
1.8
2.0
3.0
3.0
US
2.3
2.5
OECD average 4.93, Global average 3.00
3.5
Singapore
OECD average 3.14
2.8
Hospital Beds per 1,000 population
Doctors per 1,000 population
3.0
Figure 17: Hospital beds per 1,000 population, 2012
China
Figure 16: Doctors per 1,000 population, 2012
Source: Frost & Sullivan
Fragmented market
Pharmaceuticals: Large incumbents, but still fragmented
The two largest listed pharmaceutical producers in Indonesia controlled less than
15% of the market each in 2012: Kalbe Farma with a 12% market share by value
(10% by volume) and Tempo with a 12.4% market share by volume (3% by value).
Kalbe’s total pharmaceutical market share by sales is much larger than Tempo’s due
to Kalbe’s market leadership in the higher-priced and higher-margin prescription drug
business, where it had a 13% market share by sales in 2012, compared to Tempo’s
fledgling prescription drug business. Overall, the market is still fragmented – the top
60 companies control over 84% of the market by value, with only eight companies
having a market share of 3% or more. Both the prescription and OTC markets are
fragmented.
Figure 18: Pharmaceutical market share by sales, 2012
Figure 19: Structure of pharmaceutical market, 2012
Largest 60 companies
Other players
100%
12%
16%
Kalbe
6%
80%
5%
4%
Soho
Dexa Medica
Pharos
65%
3%
Tempo
Others
% Total market
Sanbe
5%
60%
140
84%
40%
20%
60
0%
No of companies
Note: Market share data includes both prescription and OTC drugs.
Source: IMS
8 April 2014
Market share by sales
Source: Ministry of Health (Direktorat Jenderal Bina Kefarmasian dan Alat Kesehatan)
9
Equity Research l Indonesia healthcare
Public hospitals remain dominant
Public hospitals still make up 74% of total hospitals and 83% of bed capacity in
Indonesia. Patients of public healthcare service systems are required to seek primary
care at community clinics (puskesmas) before proceeding to public hospitals. Private
patients can go directly to private hospitals without going through a primary
healthcare service provider.
Fragmented private hospital market; Siloam is leader
The private hospital market in Indonesia is extremely fragmented, with the top 10
major hospital groups controlling only c.24% of the private hospital market by bed
capacity in 2012 (or
8 April 2014
Indonesia healthcare
Power of healing
Poised for structural growth: After a detailed study of health expenditure to GDP trends across 25 countries over 19952012, we conclude that Indonesia’s healthcare market is still at an early stage of development. We found that low- to middleincome countries have a health expenditure to GDP ratio of 3.5-5.5% while the ratio for high-income countries is above 7%.
With Indonesia’s ratio of 3% in 2012, our study gives us confidence in the long-term growth outlook for Indonesian healthcare.
Multi-country study: We delved further into the health expenditure trends in Brazil, Malaysia and Poland, countries with a
significant rise in GDP per capita over the study period. Over 1995-2012, their health expenditure to GDP ratio rose to 4-9.5%
from 2.5-6.5%, as GDP per capita rose from under USD 5k to USD 10k. Health expenditure was a robust 10-14% CAGR
when per capita GDP hit USD 5k, compared to 4-7% annual growth when below USD 5k. We expect a similar transition in
Indonesia, as we forecast GDP per capita to exceed USD 5k in 2016 and USD 10k in 2023.
Health expenditure to GDP model shows a ‘sweet spot’: Our model shows that the next five years are likely to be a sweet
spot for growth in Indonesia’s healthcare sector. We forecast a 17% CAGR in healthcare spending, up from 13% in 2008-13.
We expect health expenditure per capita to double to USD 229 in 2018 from USD 107 in 2013. Rising incomes and the launch
of a national health insurance programme (the JKN) in 2014 should drive growth. We think the JKN will spur middle- to upperincome Indonesians to switch to private hospitals as public hospitals become overcrowded, while expanded coverage under
the JKN will boost drug consumption.
Actionable ideas: We initiate coverage of the sector with Outperform ratings on Siloam Hospitals Internasional (Siloam), the
largest private hospital operator by number of beds, and Tempo Scan Pacific (Tempo), the largest drug producer by volume
and a leading personal care player. Our top pick is Siloam, for its market leadership, robust growth outlook, and attractive
valuations given its long-term growth potential. We also present three non-rated companies in the sector – Kalbe Farma,
Kimia Farma and Sido Muncul. Click here to get The Scoop, an audiovisual summary of the report.
Alvin Witirto
Stephen Hui
+65 6596 8530
Equity Research
Standard Chartered Bank, Singapore Branch
+65 6596 8514
Equity Research
Standard Chartered Bank, Singapore Branch
Important disclosures can be found in the Disclosures Appendix
All rights reserved. Standard Chartered Bank 2014
http://research.standardchartered.com
Equity Research l Indonesia healthcare
Contents
Investment highlights
3
Investment implications
6
An underserved market
8
Health expenditure to GDP model
12
Prognosis: Positioned to take off
16
JKN improves affordability
19
Increased private investment in healthcare
23
Favourable long-term trends
25
Companies
Siloam Hospitals International
Tempo Scan Pacific
Kalbe Farma
Kimia Farma
Sido Muncul
28
58
87
91
95
SCout is Standard Chartered’s premium research
product that offers Strategic, Collaborative, Original
ideas on Universal and Thematic opportunities
8 April 2014
2
Equity Research l Indonesia healthcare
Investment highlights
Higher incomes drive growth
A study of 25 countries
We analysed health expenditure trends across 25 countries from 1995-2012, and
conclude that Indonesia’s healthcare sector is still at an early stage of development,
but is entering a period of structural growth. We estimate Indonesia’s health
expenditure to GDP ratio was only 3.0% in 2012, compared to 3.5-5.5% in low- to
middle-income countries and over 7% in high-income countries. The correlation
between rising incomes and a higher health expenditure to GDP ratio has been well
1
documented across low, middle and high income countries.
Nominal GDP per capita (USD)
12,000
Figure 2: High-income countries*
Time series: 1995-2012
12 countries
10,000
8,000
6,000
4,000
2,000
102,000
Nominal GDP per capita (USD)
Figure 1: Low- to middle-income countries*
0
Time series: 1995-2012
13 countries
92,000
82,000
72,000
62,000
52,000
42,000
32,000
22,000
12,000
1.5%
2.5%
3.5%
4.5%
5.5%
5.0%
10.0%
Healthcare expenditure as a % of GDP
15.0%
20.0%
Healthcare expenditure as a % of GDP
* GDP per capita below USD 12,000. Countries: China, India, Indonesia, Malaysia,
Philippines, Thailand, Vietnam, Cambodia, Singapore.
Source: Global Health Expenditure Database, World Development Indicators
GDP per capita above USD 12,000. Countries: Australia, Denmark, France, Italy, Japan,
Norway, Spain, Sweden, United Kingdom, United States, South Korea, Canada.
Source: Global Health Expenditure Database, World Development Indicators
Our health expenditure to GDP model
We have developed a health expenditure to GDP model to assess the growth
potential for Indonesia’s healthcare sector. We model this ratio to increase to 3.4% in
2018 and 3.9% in 2023. Based on our economists’ forecast of a nominal 2013-30
GDP CAGR of 10%, we estimate a health expenditure CAGR of 12% over the same
period. We estimate health expenditure per capita will rise from USD 107 in 2013 to
USD 229 in 2018 and USD 402 in 2023.
Figure 3: Health expenditure to GDP ratio, 2012
100,000
90,000
80,000
70,000
60,000
50,000
40,000
30,000
20,000
10,000
0
High income
Healthcare expenditure per capita
450
NW
350
AU
SW
SG
KR
MX PO
MY
CN
ID
TH
CM VN
IN PH
DN
CA
JP GR
UK
FR
IT
SP
US
Source: WHO, World Bank, Standard Chartered Research estimates
17.5%
3.5%
2.8%
3.0%
2.5%
250
402
200
2.0%
1.5%
150
50
4.5%
4.0%
3.4%
3.1%
229
100
BRL
7.5%
12.5%
Health expenditure as a % of GDP
300
% of GDP
3.9%
400
2.5%
1
Figure 4: Healthcare expenditure per capita, Indonesia
Time series: 1995-2012
25 countries
USD per capita
Nominal GDP per capita (USD)
Low-to-middle income
61
107
2008
2013E
1.0%
0.5%
0.0%
0
2018E
2023E
Source: WHO, World Bank, Frost & Sullivan, Standard Chartered Research estimates
OECD (2010), Health at a glance: Europe 2010; OECD (2013), Health at a glance: Asia Pacific 2012; World Health Organization and Results for Development Institute (2011), The Determinants of Health Expenditure; Huber
(1999), Health expenditure trends in OCED countries 1970-99; Huber and Orosz (2003), Health expenditure trends in OECD countries in 1999-2001.
8 April 2014
3
Equity Research l Indonesia healthcare
A severely underserved market
Poor healthcare infrastructure
In 2012, Indonesia’s hospital bed per 1,000 persons ratio of 1.0 was well below
Thailand’s (2.0) and Malaysia’s (1.6). In 2012, the OECD average for hospital beds
per 1,000 people was 4.93, and the OECD average was 3.14. Indonesia’s doctors
per 1,000 persons ratio was 0.3, compared to 1.5 in China and 1.3 in Malaysia.
Low health expenditure per capita
The fact that the market is underserved is reflected in the low health expenditure per
capita, which was USD 108 in 2012. Indonesia’s health expenditure per capita is only
26% and 49% of Malaysia’s and Thailand’s, respectively (see table below).
Figure 5: Beds & doctors per 1,000 population, 2012
Hospital Beds per 1,000 population
Doctors per 1,000 population
Per 1,000 population
3.0
450
2.5
2.0
1.5
1.0
0.5
Indonesia
India
Malaysia
Thailand
Singapore
UK
US
China
0.0
Source: Frost & Sullivan
Health expenditure per capita (USD)
3.5
Figure 6: Health expenditure per capita, 2012
410
400
322
350
300
250
215
200
150
119
108
102
100
61
51
IN
CM
50
0
MY
CN
TH
PH
ID
VN
Source: Global Health Expenditure Database
National healthcare insurance a catalyst
Universal health coverage for
Indonesians by 2019 with the JKN
Introducing the JKN
The JKN is the national health insurance programme introduced in January 2014. It
aims to provide universal health insurance coverage in Indonesia by 2019 from 63% in
2012. Participants pay a monthly insurance premium to the National Social Security
Agency (BPJS). (In Indonesia the JKN is also sometimes referred to as the BJPS, as
the BJPS administers the JKN.) The premium is sponsored by the government for poor
and near-poor Indonesians. JKN participants will have access to healthcare services at
9,217 community clinics and 1,710 participating hospitals (out of Indonesia’s 2,300).
Figure 8: Universal coverage by 2019
37%
Insured
Uninsured
63%
Populaiton with health insurance
(mn)
Figure 7: Health insurance coverage, 2012
300
258
250
200
175
152
150
100
50
0
2012
Source: Road Map Toward National Health Insurance 2012-19
8 April 2014
2014E
2019E
Source: Road Map Toward National Health Insurance 2012-19
4
Equity Research l Indonesia healthcare
The JKN could increase patient
volumes at private hospitals...
Hospital services – ready to take-off
We expect the JKN rollout to drive demand for inpatient and outpatient services at
public hospitals and participating private hospitals, as large ticket hospitalisation and
specialist expenses will now be covered by the JKN. We estimate the overall hospital
services market will increase at a 2013-23 CAGR of 13-16%. We think the higher
patient volume at private hospitals will be driven by: (1) rising purchasing power, as
the JKN will subsidise or fully cover medical costs at participating hospitals; and (2)
middle- to upper-income patients switching to private hospitals as public hospitals
become overcrowded by JKN patients.
…and drive demand for generic
prescription drugs
Pharmaceuticals – Sustainable growth
We expect the JKN to boost demand for pharmaceutical products, and we estimate a
2013-23 CAGR of 13-18% for the overall pharmaceutical market. In the short term,
we expect the JKN to significantly boost prescription drug demand, as it will cover
medical consultation and drug costs for participants.
Figure 9: Indonesia’s private hospital market
Public
Private
Figure 10: Indonesia’s pharmaceutical market
5-year forward CAGR
80
OTC
12%
13.1
30
46.1
20
6.4
3.8
6.9
11.9
2008
2013E
5-year forward CAGR
20%
18%
6%
2018E
Source: Frost & Sullivan, Standard Chartered Research estimates
2023E
7.2
14%
12%
9%
10%
10
13.7
5
0
2.0
1.4
1.8
3.0
2008
2013E
10%
8%
4.2
10%
8%
25.4
15
16%
13%
CAGR
12%
USD bn
13% 14%
13%
40
8 April 2014
20
Prescription
26.5
50
0
16%
CAGR
USD bn
60
10
25
18%
16%
70
18%
6%
4%
7.3
2%
0%
2018E
2023E
Source: IMS, Standard Chartered Research estimates
5
Equity Research l Indonesia healthcare
Investment implications
Positive on Indonesian healthcare
Expect ‘sweet spot’ for growth over the next five years: We expect health
expenditure per capita in Indonesia to double to USD 229 in 2018 from USD 107 in
2013. This implies an acceleration to a total health expenditure CAGR of 17% in
2013-18 (13% in 2008-13). Thereafter, we expect health expenditure to compound
at 13% p.a. in 2018-23 and 10% p.a. in 2023-30.
See robust growth drivers ahead: We see rising incomes as the primary driver
for rising healthcare demand, the rollout of the JKN as a catalyst, and increasing
private sector investment as an enabler for structural growth in Indonesia’s
healthcare sector.
Proxies for each segment: The five stocks we identify are prominent players in
their respective segments – Siloam in private hospitals, Tempo in over-the-counter
(OTC) drugs and personal care, Kalbe Farma in overall pharmaceuticals, Kimia
Farma in pharmacies, and Sido Muncul in traditional herbal medicine.
Siloam Hospitals: Top pick
We initiate coverage of Siloam with an Outperform rating and a price target of IDR
13,982, implying 34% upside potential.
Market leadership: Siloam is the largest private hospital operator in Indonesia
with twelve hospitals and, 3,000 beds in 2012, when it had a 7% share of the
private hospital market by bed capacity. Mitra Keluarga, the second largest
operator, has 10 hospitals with1,200 beds or a c.3.0% share. Other major private
hospital operators have market shares of less than 3.0% each. As of end-2013
Siloam had 16 hospitals and 3,700 beds.
Robust expansion: It plans to more than double its bed capacity by 2017, to 40
hospitals with 10,000 beds. We expect 2013-16 revenue/earnings CAGRs of
44%/86%, driven by: (1) rapid expansion; and (2) maturing hospitals, as EBITDA
margins and occupancy rise as younger hospitals mature.
Attractive valuations: On PE, Siloam’s multiples look rich at 67x 2015E PE, but
we believe more appropriate valuation metrics are DCF and EV/EBITDA given the
high upfront capex and initial start-up losses for new hospitals. Siloam is trading at
16x 2015E EV/EBITDA and we forecast a 2013-16 EBITDA CAGR of 63%. Other
leading Asian hospital operators are trading at 15-17 2015E EV/EBITDA, with an
average 2013-16 EBITDA CAGR of 14-23% (based on our estimates and
consensus). Our DCF-based price target translates to 21x 2015E EV/EBITDA.
Top pick: We prefer Siloam to Tempo given its: (1) market leadership in the
private hospital market – its market share is more than double that of the second
largest private hospital player; (2) stronger growth profile (we forecast an 86%
earnings CAGR in 2013-16, compared to a 15% CAGR for Tempo over the same
period); and (3) good execution track record.
8 April 2014
6
Equity Research l Indonesia healthcare
Tempo: Riding two growth waves
We initiate coverage of Tempo with an Outperform rating and a price target of IDR
3,878, implying 26% upside potential.
Riding the JKN wave: We expect Tempo’s fledgling prescription drug business to
benefit from the JKN rollout. Management expects to increase this business more
than threefold to IDR 592bn in 2017. As Indonesia’s largest pharmaceutical
producer by volume, we believe Tempo is well positioned to leverage on its
production scale to deliver the government’s generic drug needs at a cost-efficient
level.
Strong earnings growth: We expect 2014-16 revenue and earnings CAGRs of
14% and 15%, respectively, driven by volume growth and margin expansion as it
focuses more on its own products in the pharmaceutical and personal care
segments. Management plans to allocate more distribution capacity to higher
margin own-brand products (16-17% EBIT margin) rather than low-margin third
party products (3-3.5% EBIT margin).
Valuation appealing: Despite being the second-largest listed pharmaceutical
player by market capitalisation, Tempo is only trading at 17x 2015E PE, a 35%
discount to Kalbe Farma, trading at 26x (Bloomberg consensus). Our sum-of-theparts derived price target implies a target multiple of 21x 2015E PE, close to its
three-year historical average.
Figure 11: Coverage and non-rated stock highlights
Price
target
Name
Ticker
Rating
Siloam Internasional SILO IJ
OP
Tempo Scan Pacific
TSPC IJ
OP
Kalbe Farma
KLBF IJ
Kimia Farma
KAEF IJ
Sido Muncul
SIDO IJ
(LC)
3M avg
value
traded
Last
(LC) (USD mn) (USD mn)
FYE
Price
13,982 10,400
Market
cap
Price
2-yrs
/
EPS 2-yrs sales
PE (x)
FY0
FY1
FY2 CAGR
Div.
yield ROCE
(%)
(%)
EV/EBITDA
PEG
FY1
FY0
FY1
FY2
FY1
FY1
1,062
8.44 12/13 218.4
100.3 67.3
80%
0.8
3.0
34.5
23.8
16.4
0.1
8.5
3,070
1,221
0.23 12/13 21.8
19.8 16.5
15%
1.1
1.8
12.3
12.3
10.2
2.8
19.5
NR
1,500
6,213
8.43 12/13 36.2
30.8 25.6
NR
895
439
NR
825
1,093
3,878
19%
1.3
3.8
24.4
20.6
17.1
1.5
27.1
NA
NA
NA
NA
NA
NA
NA
NA
NA
NA
14.1
2.43 12/13 31.7
NA
NA
NA
NA
NA
NA
NA
NA
NA
NA
0.52 12/13
Above data as of 4 April 2014. Bloomberg consensus for non-rated stocks.
Source: Bloomberg, Standard Chartered Research estimates
8 April 2014
7
Equity Research l Indonesia healthcare
An underserved market
Indonesia’s pharmaceutical and hospital services markets are still underserved and
underpenetrated. We believe this presents a significant growth opportunity for large
hospital operators, such as Siloam, and leading domestic pharmaceutical producers,
such as Tempo.
Structural growth opportunity
Low healthcare expenditure per capita
Indonesia’s healthcare expenditure per capita of USD 108 in 2012 was well below
regional peers Thailand (USD 215) and Malaysia (USD 410). Indonesia’s total
healthcare expenditure, at 3.0% of GDP, also lagged these regional peers’ level of
3.9% in 2012.
Figure 12: Health expenditure per capita, 2012
20%
8,895
9,000
8,000
7,000
6,000
5,000
3,647
4,000
2,426
3,000
2,000
1,000
410
322
215
108
61
MY
CN
TH
ID
IN
Health expenditure as a % of GDP
Health expenditure per capita (USD)
10,000
Figure 13: Health expenditure as a % of GDP, 2012
0
17.9%
18%
16%
14%
12%
9.4%
10%
8%
5.4%
6%
4.7%
4.0%
3.9%
3.9%
IN
MY
TH
4%
3.0%
2%
0%
US
UK
SG
Source: Global Health Expenditure Database
US
UK
CN
SG
ID
Source: Global Health Expenditure Database, World Development Indicators
Low drug expenditure per capita
Although Indonesia is already one of the largest pharmaceutical markets in Asia, its
drug expenditure per capita is still among the lowest in the region, at USD 21 in 2010.
This is significantly below regional peers such as Malaysia (USD 65) and Thailand
(USD 61). We believe this indicates the strong growth potential for the domestic
pharmaceutical industry.
Figure 14: Pharmaceutical market size, 2012
Figure 15: Drug expenditure per capita, 2010
6
180
5.0
5
160
4.4
140
USD per capita
4
USD bn
154
3.1
3
2.0
2
0.8
1
120
100
80
65
61
60
56
31
40
21
20
0
0
Indonesia
Thailand
Philippines
Malaysia
Singapore
Source: UNDESA-PA, IMS Health, Business Monitor International, media reports, Standard
Chartered Research
8 April 2014
Singapore Malaysia
Thailand
China
Philippines Indonesia
Source: Kalbe Farma, Business Monitor International
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Equity Research l Indonesia healthcare
Poor healthcare infrastructure
Indonesia’s healthcare infrastructure is still limited, with 0.3 doctors per 1,000
population (OECD: 3.1) and 1.0 hospital beds per 1,000 population (OECD: 4.9).
Frost & Sullivan estimates Indonesia has a shortfall of 267,000 doctors. Although the
annual supply of doctors exceeds growth in annual demand, it expects the shortage
to persist beyond 2020 given the size of the shortfall.
0.7
0.3
0.5
0.3
Thailand
Indonesia
India
Malaysia
China
Singapore
US
UK
0.0
Source: Frost & Sullivan
2.0
2.0
1.6
1.5
1.0
1.0
Indonesia
1.0
2.2
India
1.3
2.5
1.0
0.5
0.0
Malaysia
1.5
2.8
Thailand
1.5
2.8
UK
1.8
2.0
3.0
3.0
US
2.3
2.5
OECD average 4.93, Global average 3.00
3.5
Singapore
OECD average 3.14
2.8
Hospital Beds per 1,000 population
Doctors per 1,000 population
3.0
Figure 17: Hospital beds per 1,000 population, 2012
China
Figure 16: Doctors per 1,000 population, 2012
Source: Frost & Sullivan
Fragmented market
Pharmaceuticals: Large incumbents, but still fragmented
The two largest listed pharmaceutical producers in Indonesia controlled less than
15% of the market each in 2012: Kalbe Farma with a 12% market share by value
(10% by volume) and Tempo with a 12.4% market share by volume (3% by value).
Kalbe’s total pharmaceutical market share by sales is much larger than Tempo’s due
to Kalbe’s market leadership in the higher-priced and higher-margin prescription drug
business, where it had a 13% market share by sales in 2012, compared to Tempo’s
fledgling prescription drug business. Overall, the market is still fragmented – the top
60 companies control over 84% of the market by value, with only eight companies
having a market share of 3% or more. Both the prescription and OTC markets are
fragmented.
Figure 18: Pharmaceutical market share by sales, 2012
Figure 19: Structure of pharmaceutical market, 2012
Largest 60 companies
Other players
100%
12%
16%
Kalbe
6%
80%
5%
4%
Soho
Dexa Medica
Pharos
65%
3%
Tempo
Others
% Total market
Sanbe
5%
60%
140
84%
40%
20%
60
0%
No of companies
Note: Market share data includes both prescription and OTC drugs.
Source: IMS
8 April 2014
Market share by sales
Source: Ministry of Health (Direktorat Jenderal Bina Kefarmasian dan Alat Kesehatan)
9
Equity Research l Indonesia healthcare
Public hospitals remain dominant
Public hospitals still make up 74% of total hospitals and 83% of bed capacity in
Indonesia. Patients of public healthcare service systems are required to seek primary
care at community clinics (puskesmas) before proceeding to public hospitals. Private
patients can go directly to private hospitals without going through a primary
healthcare service provider.
Fragmented private hospital market; Siloam is leader
The private hospital market in Indonesia is extremely fragmented, with the top 10
major hospital groups controlling only c.24% of the private hospital market by bed
capacity in 2012 (or