en db indo healthcare

Deutsche Bank
Markets Research
Asia

Indonesia
Health Care

Industry

Indonesia
Healthcare

Date

14 November 2014

Initiation of Coverage
Samuel Sentana

A bigger pie for all
Structural growth as a result of a strong economy and rising middle class

We initiate coverage on the Indonesian healthcare sector which should have
strong structural upside in an underpenetrated market due to the emergence of
Indonesia’s middle class. Our top sector picks are Siloam International (SILO),
the largest private hospital operator, and Sarana Meditama (SAME), a mature
hospital operator with strong pricing power. We initiate coverage on SILO and
SAME with Buy ratings as we see hospitals as the best pure play for exposure
to Indonesia’s rapidly growing healthcare industry.
Bigger pie for all driven by strong domestic economy
We are bullish on private hospital operators, as they are the primary
beneficiaries of rising healthcare expenditure, which has posted a 15% CAGR
during 2009-13, a multiplier of 2.5x real GDP growth. We believe there is still
much room for growth in years to come, as Indonesia’s per capita spending on
healthcare, of US$108, is still half that of Thailand’s and one-quarter of Malaysia’s.
In addition, Indonesia’s ratio of nine hospital beds per 10,000 people is much lower
than Thailand’s 21 and Malaysia’s 19. In a country of 250mn people, this suggests
that there is room for 250,000 additional beds or c. 2,500 more hospitals before
Indonesia reaches peer levels. Growing affluence is expected to bolster demand
for private hospitals due to its superior quality and as public hospitals get
overcrowded due to the start of universal health care. In addition, hospitals
should benefit from the secular trend of an aging population, as over the next

10 years the number of Indonesians aged 65 years+ is projected to increase by
c. 23mn, equivalent to the whole population of Australia.
Growth in beds far outstripping growth in specialists
In line with the tremendous opportunity in healthcare, the number of hospital
beds in Indonesia has posted a 12% CAGR from 2007-13, far outstripping the
7% CAGR in the number of specialists during that period. Thus the key
challenge, in our view, is the ability to attract and retain highly trained
specialists, who are the main attraction of hospitals, while maintaining
reasonable compensation levels.
Broad-based expansion to drive earnings
We believe SAME and SILO’s EBITDA should register 17% and 25% p.a.
growth respectively over the next five years. The former is driven by its
brownfield expansion, whilst the latter is driven by its aggressive geographical
expansion (+10 hospitals in three years).
Valuation is still attractive at 1.4x EV/EBITDA to growth 2015F
The Indonesian healthcare sector’s valuation is at a 24% discount to ASEAN’s
1.9x 2015F EV/EBITDA to growth, which we believe is unjustified as the
Indonesian names have stronger longer-term growth. The sector is defensive
as proven by its resilience during economic slowdowns and fuel price hikes.
Our top picks are SILO (strong EBITDA growth profile) and SAME (expanding

mature hospital operation). Key risks to our calls are: shortage of medical
personnel, slower expansion, competition, regulations, and litigation.

PT Deutsche Bank Verdhana Indonesia
Research Associate
(+62) 21 2964 4512
samuel.sentana@db.com
Reggy Susanto, CFA
PT Deutsche Bank Verdhana Indonesia
Research Analyst
(+62) 21 2964 4527
reggy.susanto@db.com
Albert Saputro
PT Deutsche Bank Verdhana Indonesia
Research Analyst
(+62) 21 2964 4529
albert.saputro@db.com
Top picks
Siloam International
(SILO.JK),IDR14,000.00

Sarana Meditama Metropolita
(SAME.JK),IDR2,750.00

Buy
Buy

Source: Deutsche Bank

Companies Featured
Siloam International
(SILO.JK),IDR14,000.00
P/E (x)
EV/EBITDA (x)
Price/book (x)

Buy
2013A 2014E 2015E
230.3 241.7 294.1
35.0
40.7

33.1
6.82
9.64
9.34

Sarana Meditama Metropolita
Buy
(SAME.JK),IDR2,750.00
2013A 2014E 2015E
P/E (x)
52.8
56.2
64.3
EV/EBITDA (x)
1.4
27.8
23.2
Price/book (x)
22.18 17.02 13.45
Source: Deutsche Bank


________________________________________________________________________________________________________________
Deutsche Bank AG/Hong Kong
This research has been prepared in association with PT Deutsche Bank Verdhana Indonesia. The opinions contained in
this report are those of PT Deutsche Bank Verdhana Indonesia.
Deutsche Bank does and seeks to do business with companies covered in its research reports. Thus, investors should
be aware that the firm may have a conflict of interest that could affect the objectivity of this report. Investors should
consider this report as only a single factor in making their investment decision. DISCLOSURES AND ANALYST
CERTIFICATIONS ARE LOCATED IN APPENDIX 1. MCI (P) 148/04/2014.

14 November 2014
Health Care
Indonesia Healthcare

Table Of Contents

Healthcare valuation............................................................ 3
Company overview .............................................................. 5
SILO – Indonesia’s largest private hospital operator........................................... 5
SAME – mature hospital player with pricing power ........................................... 6


Key risks .............................................................................. 9
Indonesia Healthcare Industry........................................... 11
Healthcare expenditure fuelled by the rising middle class ................................ 11
Healthcare sector still heavily underpenetrated ................................................ 12
Private hospitals a proxy to the middle income class growth ........................... 13
Aging population creates opportunities ............................................................ 14
Defensive nature of hospitals demonstrated amid poor macro environment ... 15
Hospital landscape in Indonesia ....................................................................... 16
Growth in beds far outstripping growth in specialists ...................................... 17
Big potential for geographical expansion, but big staffing challenges ............. 18
National health insurance scheme provides long-term opportunities............... 20
Medical travel: threat in the short-term, but an opportunity in the long-term .. 22
Relevant Regulations ........................................................................................ 23

Siloam International .......................................................... 24
Sarana Meditama .............................................................. 24

Page 2


Deutsche Bank AG/Hong Kong

14 November 2014
Health Care
Indonesia Healthcare

Healthcare valuation
We initiate coverage on Siloam Hospitals (SILO) and Sarana Meditama (SAME)
with Buy recommendations and target prices of Rp17,000/share and
Rp3,170/share respectively. We believe the companies’ attractive growth
profiles and significant expertise should position them well to benefit from the
underpenetrated Indonesian healthcare industry.
At our target price, SILO’s valuation on an EV/EBITDA basis appears expensive
at 42.5x and 30.9x 2015-16 EV/EBITDA vs. ASEAN peers at 21x and 18x in the
same period. However, we believe the valuation is justified, especially given
the strong EBITDA growth profile of about 25-27% p.a. over the next five years
compared to peers at about 12-13%.
Similarly, we think that at our target price, SAME’s relatively premium
valuation of 23x 2015E EV/EBITDA vs. peers at 14.9x is justified, given a
relatively strong EBITDA growth profile (our forecast of 20%CAGR 2013-16).

Figure 1: Hospital regional valuation comps
Company name

Current price

Sales growth (%)

EBITDA growth

ROE (%)

EBITDA Margin
(%)

EV/EBITDA

EV/EBITD
A growth

ICY


:14Y

:15Y

:14Y

:15Y

:14Y

:15Y

:14Y

:15Y

:14Y

:15Y


:15Y

Raffles Medical

3.8

8.1

11.1

13.2

13.2

13.7

14.2

23.4

23.8

24.1

21.8

0.9

Apollo Hospital

1,148.5

17.9

19.3

14.1

21.0

11.8

12.3

15.3

15.5

24.4

21.7

0.9

IHH Healthcare

4.8

12.4

15.8

17.9

16.1

4.2

4.9

25.2

25.2

22.6

19.4

0.9

KPJ Healthcare

3.9

11.5

13.3

30.0

13.3

10.4

10.5

11.1

11.1

16.9

15.3

0.7

Bangkok Dusit

18.3

11.3

15.4

21.9

17.1

16.8

18.0

22.6

22.9

24.4

20.6

2.8

Bangkok Chain

8.9

14.8

12.0

19.6

16.0

16.1

18.4

28.0

29.0

17.9

15.3

1.1

134.5

8.7

14.0

15.6

16.5

27.0

27.8

28.0

28.6

22.7

19.3

3.7

Ramsay Healthcare

52.8

15.3

42.5

31.6

41.4

20.2

21.6

15.0

14.9

16.8

13.4

1.0

Sonic Healthcare

18.9

12.3

6.9

21.9

6.1

13.1

13.4

18.9

18.8

12.8

11.8

1.5

Average ASEAN

34.1

11.7

14.1

21.0

15.8

14.9

15.9

23.0

23.4

20.9

18.0

1.9

142.8

12.4

16.7

20.6

17.8

14.8

15.7

20.8

21.1

20.3

17.6

1.5

Phoenix Healthcare

15.2

12.8

18.8

37.1

21.3

11.1

12.4

26.1

26.6

33.0

26.8

0.9

Aier Eye Hospitals

25.7

16.9

25.4

20.1

26.0

16.2

18.2

23.9

24.0

29.9

23.8

1.3

Topchoice Medical

52.0

28.4

28.4

75.1

28.3

18.5

19.4

47.4

47.3

29.7

23.6

1.3

Average China

31.0

19.3

24.2

44.1

25.2

15.3

16.7

32.4

32.6

30.9

24.7

1.1

Envision Healthcare

31.6

17.1

13.9

27.3

20.1

11.2

14.3

12.7

13.4

14.4

11.7

0.8

HCA holdings

66.0

7.7

5.1

14.1

5.3

(28.7)

(47.8)

19.8

19.8

8.1

7.5

1.0

Davita Healthcare

76.1

8.0

6.4

15.8

5.9

15.4

16.4

19.0

18.9

10.2

9.4

0.6

Universal Health

98.8

8.9

7.7

8.7

9.8

15.6

16.7

18.4

18.8

9.0

8.0

1.1

Mednax

62.4

13.1

10.3

12.4

8.6

13.2

13.6

22.8

22.5

11.5

10.4

1.0

Tenet Healthcare

48.3

47.6

5.8

58.9

12.2

16.5

30.9

11.7

12.4

8.6

7.5

1.4

Community Health

48.7

45.6

8.5

68.5

11.8

8.3

11.1

15.0

15.5

7.8

6.8

3.7

Healthsouth Corp

39.1

5.1

6.2

1.2

7.4

33.3

18.3

24.7

25.0

8.7

7.9

1.0

Lifepoint Hospitals

65.9

21.9

13.3

28.3

11.3

6.6

7.9

14.2

14.0

8.2

7.0

7.3

Average US

59.7

19.4

8.6

26.1

10.3

10.1

9.0

17.6

17.8

9.6

8.5

2.0

Average

96.4

16.4

14.3

26.3

15.6

12.9

13.0

21.1

21.3

17.2

14.7

1.7

Sarana Meditama (SAME)

2765

20.3

22.7

21.5

22.9

36.5

23.8

30.0

30.1

27.8

23.1

1.8

14425

25.7

25.7

37.2

21.5

4.1

6.1

12.1

11.9

36.0

26.1

1.2

Bumrungrad Hospital

Average Asia-ex China

Siloam Int (SILO)

Source: Deutsche Bank and Bloomberg Finance LP

Deutsche Bank AG/Hong Kong

Page 3

14 November 2014
Health Care
Indonesia Healthcare

Figure 2: SAME and SILO summary

2014F
Operations
Number of hospitals
Number of mature hospitals
Number of beds
Number of specialist
Number of doctors
Number of nurses
Number of outpatient/year (th)
Number of inpatient/year (th)
Bed Occupancy Ratio
Average Length of stay
Outpatient to inpatient conv. Rate
Emergency to inpatient conv. Rate
Financials
Revenue/outpatient (Rpth)
Revenue/inpatient (Rpmn)
Net Revenue (Rpbn)
EBITDA (Rpbn)
NP (Rpbn)
Revenue growth CAGR 2014-2018
EBITDA growth CAGR 2014-2018
NP growth CAGR 2014-2018
EBITDA Margin
Net Margin
Total Asset (Rpbn)
Total Liability (Rpbn)
Total Equity (Rpbn)
ROE
Net Debt to Equity
Net Debt to EBITDA
Dividends
EV/EBITDA 2015 (at current price)
EV/EBITDA growth 2015 (at current price)
Property
Source of payment
From insurance
From corporate
From private

SAME

SILO

2
2
264
190
29
551
234
21
68%
3.1
1%
37%

18
4
2133
1384
343
3108
1500
111.5
54%
4.3
3%
41%

755
10.83
405
122
57
23%
16%
-7%
30%
14%
448
257
191
36%
72%
1.1
15% (subject to cash
flows and capex plan
22.7
1.7
Company owned

813
18
2361
397
67
22%
28%
13%
17%
2%
2724
1018
1706
4%
6%
0.3
NP