en scb 2014 10 10 indonesia healthcare otg siloams long term growth potential

l Equity Research l Indonesia l Health Care l

10 October 2014

Indonesia hospitals
Siloam’s long-term growth potential is intact
 In the recent South East Asia Hospital Development Summit, we spoke to management of six private hospitals in
Greater Jakarta. We also took the opportunity to visit reputed public hospitals and three other private hospitals.
 Our key takeaways: (1) there is still pent-up demand for hospital services in Greater Jakarta; (2) Siloam’s bed tariffs
appear to be mid-priced despite its premium image; and (3) Siloam is the only Indonesian private hospital player with
the willingness and ability to deliver on an aggressive expansion plan of 6-8 hospitals per year.
 High occupancy at mature private hospitals and their bed-tariff premiums over newer hospitals support a strong
long-term growth outlook for Siloam. Bed-tariff differential among hospitals is a fair indicator of price differences for
medical procedures, in our view, given hospitals’ practice of charging patients based on bed-tiering.
Siloam hospitals’ occupancy in Jakarta
Jakarta
60%

50%

45%

35%
2011

2013

1H14

Average bed tariff for SVIP and VIP - 2013
3.00

Siloam is
competitively
priced vs other
leading hospitals

2.50
2.50
1.96

1.80

1.76

1.63

1.52
1.30

1.50

1.04

1.00
0.50

Premier

Omni

Siloam

RSPAD

RSPP

Kencana

0.00
Medistra

p.a. We see three key factors distinguishing Siloam from other
players: (1) its asset-light business model, (2) a strong pipeline
of 29 sites at various stages of development, and (3) its
organisational ability to manage/staff these new hospitals.

2012

Source: Company

IDR mn

Although there are many new entrants in the private hospitals
market, we believe Siloam is the only player with the ability
and willingness to deliver a rapid expansion of 6-8 hospitals

51% 52%

45%

2.00

Dominant player in the making

55%

40%

Ample scope for bed tariff hikes
Siloam’s bed tariffs are still lower than tariffs at leading Jakarta

hospitals, despite its premium image. We estimate that
Siloam’s peers charge a 7-27% premium over Siloam on tariffs
for SVIP, VIP Class I and Class II beds. Our survey reveals
that a heart bypass procedure costs 7-12% less at Siloam than
at the Medistra, Mitra Keluarga and Omni hospitals.

58% 58%

56% 57%

55%
Occupancy

and Thailand’s 2.0 and 2.2, respectively. Our discussions with
private hospital players indicate that mature hospitals in
Jakarta have an average occupancy of 70-80%. In contrast,
Siloam’s hospitals in Jakarta averaged just 58% occupancy, as
of 1H14. We see headroom for growth here as Siloam’s new
hospitals ramp up patient volumes in the next 3-5 years.

Much room for occupancy
growth for Siloam

Overall

At first glance, the hospital market in Jakarta appears mature
with 2.3 beds per 1,000 population, comparable to Singapore

Mitra
Keluarga

Pent-up demand in Greater Jakarta

RSPP ~ Rumah Sakit Pusat Pertamina, RSPAD – Rumah Sakit Pusat Angkatan Darat
Source: Companies, Asuransi Sinar Mas, Standard Chartered Research

The bottom line
We maintain our In-Line rating on Siloam; our price target of
IDR 15,100 implies a 5% upside. While the company’s longterm outlook is positive, the stock appears fairly valued to us at
current levels. We would wait for a better entry point.

Did you know… Most Indonesian hospitals have a
differential pricing policy for doctors, medicine and
procedures depending on bed class?

Alvin Witirto
+65 6596 8530
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 hospitals

Pent-up demand for hospitals in Jakarta
Seemingly high concentration of beds
We estimate 2.3 beds per 1,000 population in Greater Jakarta, much higher than the

national average of 1.0. This bed ratio in Jakarta is comparable to those for
Singapore and Thailand at 2.2 and 2.0, respectively.
Figure 1: Hospital beds per 1,000 population
Despite high bed per 1,000
population ratio, private hospital
operators in Jakarta have an
average occupancy of 70-80%

3.5

Beds per 1,000 population

3.0

3.0

2.8

2.8
2.3

2.5

2.2

2.0

2.0

1.6

1.5
1.0

1.0

India

Indonesia

1.0
0.5
0.0
China

US

UK

Jakarta Singapore Thailand Malaysia

Source: Frost & Sullivan, Ministry of Health, Standard Chartered Research

But occupancy indicates pent-up demand
Most hospital managers we met indicate an average occupancy of 70-80% as the
norm for their hospitals. We see this as a confirmation of the strong growth potential
for Siloam’s younger vintage hospitals.
Mature hospitals enjoy double-digit margins
Hospital operators also indicated that their EBITDA margin is at least 15%, with
larger network players and mid-to-upper segment players delivering 20-30%.

Siloam’s management guided for its new hospitals to achieve an 18-20% EBITDA
margin from year 4. We estimate that 70% of Siloam’s bed capacity is still less than
four years old in 2014. We think Siloam could potentially deliver similar margins,
comparable to those of mature private hospital operators, in the next 5-10 years.
Figure 2: Key metrics of major private hospitals
Description

Siloam Hospitals

Hospital A

Hospital B

Hospital C

Hospital D

Omni Hospitals

Large operator
Mid-to-upper
segment

Large operator
Mid-segment

Large operator
Mid-segment

Standalone
Low-to-mid
segment

Small operator
Mid-to-upper
segment

Small operator
Mid-to-upper
segment

Hospitals
Beds
Occupancy

17

11

8

1

2

2

3,900

1,700

900

50-100

640

440

51%

70-80%

80%

70%

70%

70%

Daily outpatient volume

262

600-700

NA

NA

800-900

NA

Revenue per patient days

4.1

3.6

NA

NA

4.3

NA

11%

High Twenties

15-20%

15-20%

Twenties

30%

2%

High teens

NA

7-10%

Teens

14%

Limited

No

Yes

Yes

No

Limited

EBITDA margin
Net profit margin
BPJS

Note: Private hospital players’ names are not disclosed.
Source: Companies, Standard Chartered Research

10 October 2014

2

Equity Research l Indonesia hospitals

Preferred hospitals in Indonesia
Few leading players
A recent study by Swa Magazine, a business publication in Indonesia, named Siloam
as the top hospital brand in Greater Jakarta, Makassar and Surabaya (Siloam
acquired BIMC Hospitals in December 2013). Other network operators that were
named in the survey were Mitra Keluarga, Omni Hospitals (SAME IJ), Awal Bros and
Premier Hospitals.
Figure 3: Top-rated private and public hospitals in Indonesia
Private hospitals

Public hospitals

Rank

Greater Jakarta

Surabaya

Medan

Makassar

Denpasar

Greater Jakarta

1

Siloam Hospital

Premier

ColumbiaAsia

Siloam Hospital

BIMC Hospital*

Dharmais

2

Omni Internasional

RS Darmo

Elisabeth

Awal Bros

Puri Rahardja

Koja

3

RS Pusat Pertamina

Mitra Keluarga

Gleneagles

Siti Khadijah

Surya Husada

Fatmawati

4

Medistra

Surabaya International

Muhammadiyah

Fatima

Prima Medika

RSCM

5

Mitra Keluarga

Husada Utama

NA

Hasanuddin

Bali Royal

Tarakan

Source: Swa Magazine

Potential for strong occupancy ramp-up
We believe Siloam is well positioned to leverage pent-up demand for hospital
services in Greater Jakarta. Siloam’s hospitals in Jakarta had an average occupancy
of 51% in 2013. We believe the 70-80% occupancy at more mature private hospitals
in Jakarta indicates the potential for a strong ramp-up at Siloam’s new hospitals in
the next five years.

25%
2010
Source: Company

10 October 2014

2011

2012

2013

1H14

TB Simatupang

35%

Cinere

45%
45%

1H14

RSUS

51%

55%

2013

MRCCC

58%

56%

2012

Lippo Village

Occupany

65%

Occupany

70%

90%
80%
70%
60%
50%
40%
30%
20%
10%
0%

Lippo Cikarang

75%

Figure 5: Siloam’s Jakarta hospital occupancy

Kebon Jeruk

Figure 4: Overall occupancy – Siloam Hospitals

Source: Company

3

Equity Research l Indonesia hospitals

Room for margin expansion
Premium image with mass pricing for Siloam
Despite its ‘premium’ image, our price survey indicates Siloam’s bed and medical
procedure tariffs are either below or in line with those at leading hospitals in Greater
Jakarta. We surveyed the prices in five hospitals and used the room tariff data
tracked by the website Asuransi Sinar Mas.
Room tariff as a proxy to procedure costs
We view room tariffs as a proxy to procedure prices across hospitals, based on the
practice of Indonesian hospitals in applying differential pricing for procedures,
medical supplies, and nurses’ and doctors’ fees based on the patient’s ward-class
choice (also known as ‘bed-tiering’). Hospital CEOs we met at the conference
confirmed that differential pricing is standard practice across both public and private
hospitals in Indonesia.

Siloam’s bed tariffs are in the lower range
Siloam charges lower prices than most leading hospitals
Our study indicates that Siloam’s bed tariffs across six different room types are still in
the lower range of prices at nine leading hospitals in Greater Jakarta. Siloam’s top
suite ranked fifth, at IDR 3mn per night, while its SVIP/VIP /Class I, II and III beds
ranked fourth or lower. We believe this indicates that there is room for further tariff
hikes given Siloam’s premium image.
Figure 6: Top suite tariff
0.00

IDR mn
2.00
4.00

Figure 7: SVIP tariff
6.00

0.00

1.00

Figure 8: VIP tariff
IDR mn
2.00 3.00

IDR mn
0.00 0.50 1.00 1.50 2.00 2.50

4.00

Medistra

Medistra

Medistra

Mayapada

Mayapada

Kencana

Kencana

RSPP

RSPAD

Mitra Keluarga

Mitra Keluarga

Mayapada

Siloam

Kencana

Mitra Keluarga

RSPP

Siloam

RSPP

Omni

RSPAD

Omni

RSPAD

Omni

Siloam

Premier

Premier

Premier

Source: Companies, Standard Chartered Research

Source: Companies, Standard Chartered Research

Source: Companies, Standard Chartered Research

Figure 9: Class I tariff

Figure 10: Class II tariff

Figure 11: Class III tariff

0.00

IDR mn
0.50
1.00

1.50

0.00

IDR mn
0.20 0.40 0.60

IDR mn
0.00 0.10 0.20 0.30 0.40

0.80

Kencana

RSPP

RSPP

Medistra

Medistra

Omni

Mitra Keluarga

Medistra
Mitra Keluarga
Omni

RSPP

Mitra Keluarga

Omni

Siloam

Siloam

Mayapada

RSPAD

RSPAD

RSPAD

Mayapada

Premier

Premier

Premier

Mayapada
Siloam

Source: Companies, Standard Chartered Research

10 October 2014

Source: Companies, Standard Chartered Research

Source: Companies, Standard Chartered Research

4

Equity Research l Indonesia hospitals

Competitively priced versus other private hospitals
We see Siloam largely as a mid-to-upper segment player with positioning similar to
that of Medistra, Premier, Mitra Keluarga Kelapa Gading (MKKG), Omni and
Mayapada hospitals. Our analysis shows Siloam’s peers are charging, on average, 727% more for SVIP, VIP Class I and Class II beds.
 Cheaper than most mid-to-upper players: Our study indicates Medistra’s bed
tariffs are 38-90% more expensive than Siloam’s bed tariffs. Similarly, Mitra
Keluarga Kelapa Gading also charges an 8-28% premium over Siloam’s tariffs
across the five bed classes. We note that MKKG is probably one of the few
hospitals in the Mitra Keluarga network that targets mid-to-upper segment
clientele, given its location in the affluent Kelapa Gading district. Omni and
Maypada largely charge a 5-32% premium over Siloam.
 Charging a premium versus Premier: Siloam is priced at a premium only to
Premier Hospital (affiliated to Ramsay Healthcare) whose rooms are at a 17-48%
discount to Siloam’s.
 Mixed record for class III beds: For class III beds, Medistra, MKKG and Omni
still charge a 6-48% premium to Siloam’s, while Premier and Mayapada priced a
35-48% discount to Siloam’s. However, class III beds make up the smallest
proportion of private hospitals’ bed capacity at 10-15%.
Figure 12: Hospital bed tariff comparison for leading private hospitals
IDR mn

Siloam

Medistra

Mitra Keluarga

Premier

Omni

Mayapada

SVIP

1.90

3.00

2.06

1.20

1.40

2.50

VIP

1.14

2.00

1.45

0.88

1.20

1.50

Class I

0.56

1.07

0.72

0.48

0.65

0.65

Class II

0.36

0.50

0.41

0.30

0.45

0.35

Class III

0.16

0.23

0.18

0.08

0.17

0.10

Premium (discount) to Siloam
SVIP

58%

8%

-37%

-26%

32%

VIP

75%

27%

-23%

5%

32%

Class I

90%

28%

-16%

16%

16%

Class II

38%

13%

-17%

24%

-3%

Class III

45%

16%

-48%

6%

-35%

Source: Companies, Standard Chartered Research

Figure 13: Medistra and Mitra Keluarga – Above Siloam
Medistra
100%

Figure 14: Premier, Mayapada and Omni – Mixed record

Mitra Keluarga
40%

90%

58%
45%

50%

38%

40%
28%

27%

30%
20%
10%

13%

8%

16%

Mayapada
24%

16% 16%

20%

6%

5%

10%
0%
-10%

-3%

-20%
-30%
-40%

-16%
-26%

-17%

-23%
-35%

-37%

-50%

0%

-48%

-60%
SVIP

VIP

Class I

Source: Companies, Standard Chartered Research

10 October 2014

Premium (discount) to Siloam

Premium (discount) to Siloam

75%

80%
60%

Premier
Omni
32%

30%

90%
70%

32%

Class II

Class III

SVIP

VIP

Class I

Class II

Class III

Source: Companies, Standard Chartered Research

5

Equity Research l Indonesia hospitals

Siloam’s procedure prices lower than competitors’
Cheaper on more complex surgeries
We believe Siloam prices more complex procedures at lower rates than its peers.
Siloam’s heart bypass surgery is 7-12% cheaper than that at Mitra Keluarga,
Medistra and Omni hospitals. Its angioplasty procedure is also 4-10% cheaper than
at its peers.
Still competitive on simpler procedures
In simpler procedures like C-sections and appendectomies, Siloam’s pricing remains
24-29% below Medistra’s, which seems to be the most premium-priced player in the
market. We believe Siloam’s image as a premium player could be due to its higher
pricing for high-volume procedures.
Figure 15: Comparison of procedure prices
Siloam’s heart bypass procedure is
7-12% cheaper than its private
hospital peers

IDR mn

Type

Siloam Mitra Keluarga

Medistra

Omni

Heart bypass

VIP

168

190

180

188

Angioplasty*

VIP

135

140

150

147

C-section*
Appendicitis**

VIP

30

25

42

22

Class I

15

13

19

13

Source: Companies, Detik Health, Standard Chartered Research estimates

Figure 16: Procedure cost for C-section
42.0

25
37.9

40

20.0

36.3
32.8

35

30.0

30

20

16.0
24.9

25
IDR mn

19.0

29.0
24.0

22.3

20

IDR mn

45

Figure 17: Procedure cost for appendectomy

15

14.5

13.0

12.5

12.5

10

6.4

15
10

5

5
0

Source: Companies, Detik Health

RSUP
Fatmawati

RSCM
Kencana

Mitra
Keluarga

Mitra
Keluarga

Siloam

Awal Bros

Medistra

Bunda

Omni

Hermina

Mitra
Keluarga

Bunda

Siloam

Premier

MMC

Pondok
Indah

Medistra

0

Source: Companies, Detik Health

Procedure price hikes could boost Siloam’s margins

We see three drivers of Siloam’s lower margins: (1) its relatively lower pricing; (2)
higher doctors’ fee-sharing arrangement; and (3) a high proportion of non-mature
beds, with 77% bed capacity being less than four years old. Given the pent-up
demand for hospital services, we believe Siloam could raise prices faster as its
hospitals mature.
Still the lowest-margin player
Siloam’s gross profit and EBIT margins of 26% and 3%, respectively, in 2013 are still
the lowest among ASEAN hospital players. Omni Hospital’s (SAME IJ) gross profit
margin of 49% and EBIT margin of 22% indicate Siloam’s long-term margin potential,
once the younger ‘vintage’ (under 4 years old) hospitals in its portfolio mature. Both
of Omni’s hospitals are mature, with over 10 years’ operating history.

10 October 2014

6

Equity Research l Indonesia hospitals

Figure 18: Gross profit margin, 2013

Figure 19: EBIT margin, 2013
30%

60%
49%

25%
38%

40%

35%

35%

32%

31%

30%
26%

30%

EBIT margin

Gross profit margin

50%

28%

22%

22%

21%

20%

17%
15%

15%
10%

20%

6%
3%

5%

10%

0%

0%

RFMD SP BH TB SAME IJ BCH TB IHH MK BGH TB KPJ MK SILO IJ

SAME IJ BH TB IHH MK BGH TB BCH TB SRAJ IJ KPJ MK SILO IJ
Source: Companies, Standard Chartered Research

Source: Companies, Standard Chartered Research

Higher doctor fee-sharing policy
Siloam’s total expenses-to-sales ratio was high at 97% in 2013, compared with 78%
for Omni. While start-up losses at its younger vintage hospitals are the primary
reason behind this, we believe Siloam’s aggressive fee-sharing arrangement for
doctors at 90-97% also plays a part. Most private hospitals we surveyed during the
conference indicated an 80-85% fee-sharing arrangement. We see Siloam’s
aggressive offer as part of its bid to attract sufficient quality specialists for its
hospitals. We expect this to taper over time, closer to the market average of 85%.
Figure 20: Total expense to sales ratio, 2013

Personnel costs

23%
27%

74%
51%

Siloam
Source: Companies

SG&A

% of sales

% of sales

COGS
100%
90%
80%
70%
60%
50%
40%
30%
20%
10%
0%

Figure 21: Total expenses breakdown, 2013

100%
90%
80%
70%
60%
50%
40%
30%
20%
10%
0%

Omni

Medical supplies
21%
8%
28%

Depreciation

Marketing

Others

16%
8%
28%

42%

48%

Siloam

Omni

Source: Companies

We expect faster ‘revenue intensity’ growth in the long term
We believe Siloam could still increase its tariffs in the longer term, especially as its
hospitals mature. Management is guiding for a revenue intensity (we define ‘intensity’
as revenue per patient) growth of 5-6% for its younger vintage hospitals and up to 8%
for its mature hospitals in the next 3-5 years. We believe this is conservative
compared with revenue intensity growth of 14% for KPJ Healthcare and 18% for
Bangkok Dusit Medical Services (Figure 22).

10 October 2014

7

Equity Research l Indonesia hospitals

Figure 22: Revenue intensity growth
20%

18%

18%
16%

14%

14%
CAGR

12%
10%
7%

8%
6%

6%

6%

Siloam Hospitals

Parkway Holding

4%
2%
0%
Bangkok Dusit

KPJ Healthcare

Bumrungrad
Hospital

Source: Companies, Standard Chartered Research

10 October 2014

8

Equity Research l Indonesia hospitals

Siloam – A dominant player in the making
Based on our conversations with major hospital operators during the conference, find
Siloam to be the only operator among the Indonesian private hospitals with the
willingness and ability to expand rapidly in the market today. We gauge willingness
based on the different players’ expansion plans over the next few years, and ability to
expand based on their capacity to fund and staff these new hospitals.

Most aggressive player in the market
During the conference, we noted that most hospital operators are not pursuing the
same scale of growth like Siloam. Siloam is planning to open 6-8 hospitals p.a. in
2015-17. In contrast, other network operators such as Mitra Keluarga, Awal Bros,
Ciputra Hospital and Eka Hospital are only aiming up to two hospitals p.a, according
to management. While Mitra Keluarga and Awal Bros both have sizeable operations
of 11 and eight hospitals, respectively, neither has expressed any plans to match
Siloam’s expansion scale.
Figure 23: Expansion plans by major private hospital players
Company

Ticker

Core business

Profile and expansion plan

Siloam Hospital

SILO IJ

Healthcare

Siloam targets to operate 40 hospitals with over 10,000 beds by 2017. It currently has 29 sites
in various stages of development

Mitra Keluarga

Private

Healthcare

Mitra Keluarga is the privately held hospital arm of the Kalbe Farma Group. It is currently the
second largest private hospital operator with 10 hospitals. According to Forbes, management
plans to add two more hospitals p.a. over the next few years

Ciputra Hospital

CTRA IJ

Property

The Ciputra Group currently operates one hospital in Greater Jakarta. It plans to develop up to
15 hospitals by 2016.

Mayapada Hospital

SRAJ IJ

Healthcare

SRAJ operates the Mayapada Hospital network. As of December 2013, SRAJ operates two
hospitals in Greater Jakarta with a total capacity of 500 beds. SRAJ plans to build at least two
more hospitals by 2016.

Omni Hospital

SAME IJ

Healthcare

SAME operates the Omni Hospital network comprising two hospitals in Greater Jakarta.

Kalbe Farma

KLBF IJ

Pharmaceuticals Kalbe Farma is expanding into healthcare services through its Mitrasana Clinic and pharmacy
network. It has 60 clinics in Greater Jakarta area and plans to expand its network to 200 clinics
by 2015.

Kimia Farma

KAEF IJ

Pharmaceuticals Kimia Farma is the largest operator of pharmacies in Indonesia with over 480 outlets across
Indonesia. As of December 2013, it also operates 200 Kimia Farma clinics offering primary
healthcare services (general practitioners and pharmacies). Kimia Farma plans to expand its
clinic network to 1000 outlets by 2018.

Ramsay Sime Darby

Private

Healthcare

Ramsay Sime Darby currently operates three hospitals in Greater Jakarta. This joint venture
between Ramsay Healthcare and Sime Darby was set up to manage further investments in
Asian healthcare. There have been no disclosures of further expansion plans in Indonesia.

KPJ Healthcare

KPJ MK

Healthcare

KPJ Healthcare operates two hospitals in Greater Jakarta. Management says it is keen to
acquire more hospitals in Indonesia

IHH Healthcare

IHH MK

Healthcare

IHH is the largest healthcare operator in Malaysia with its network of Parkway Pantai Hospitals.
It also acquired the Parkway Healthcare Group in 2010. Management is evaluating the
possibility of re-entering the Indonesian market (Parkway Holdings previously held an
ownership interest in Siloam Gleneagles, before it was acquired by Lippo Group).

Domestic players

Foreign players

Source: Companies, multiple news sources, Standard Chartered Research

An asset-light business model
 Favourable asset-light model: While some investors find this to be an
unorthodox business model for Asia hospitals, we believe Siloam’s asset-light
business model allows it to expand rapidly given the lower capex requirement per
hospital. Of the USD 25mn required to set up a new hospital, Siloam only needs to
cover USD 15mn for medical equipment, while the land and building costs of USD
10mn are covered by its parent, Lippo Karawaci.

10 October 2014

9

Equity Research l Indonesia hospitals

 Largely long-term turnover leases: We find comfort in Siloam’s long-term lease
agreements between Siloam and its hospital land and building owners. These
lease agreements are locked for 15 years and operate largely on a turnover-rent
basis at a 1-3% progressive rate from year 1/year 2/year 3 onwards.
Figure 24: Siloam’s lease agreements
Expiry (remaining
Lease
lease) agreement Lease information

Hospital

Owner

SH Lippo Village*

First REIT

2021 (8 years)

15+15 1% of annual GOR in year 1, 2% in year 2 and 3% thereafter

SH Kebon Jeruk*

First REIT

2021 (8 years)

15+15 1% of annual GOR in year 1, 2% in year 2 and 3% thereafter

SH Surabaya*

First REIT

2021 (8 years)

15+15 1% of annual GOR in year 1, 2% in year 2 and 3% thereafter

SH Lippo Cikarang First REIT

2025 (12 years)

SH Jambi

Self-owned

NA

SH Balikpapan

Self-owned

NA

MRCCC*

First REIT

RSUS
SH Manado*

12+15 Aggregate of a base rent and a variable rent determined by
hospital GOR
NA NA
NA NA

2025 (12 years))

15+15 1% of annual GOR in year 1, 2% in year 2 and 3% thereafter

Lippo Karawaci

2028 (15 years)

15+15 1% of annual GOR in year 1, 2% in year 2 and 3% thereafter

First REIT

2027 (14 years)

15+15 1% of annual GOR in year 1, 2% in year 2 and 3% thereafter

SH Makassar*

First REIT

2027 (14 years)

15+15 1% of annual GOR in year 1, 2% in year 2 and 3% thereafter

SH Sriwijaya

Metropolis Propertindo Utama

SH Cinere

Anadi Sarana Tatahusada

SH Bali*

First REIT

2028 (15 years)

15+15 1% of annual GOR in year 1, 2% in year 2 and 3% thereafter

SH TB Simatupang* First REIT

2028 (15 years)

15+15 1% of annual GOR in year 1, 2% in year 2 and 3% thereafter

10+18 IDR 3bn for the first three years, IDR 3.5bn for 4th to 6th years and
IDR 4bn for 7th to 10th years

2022 (9 years)
2018 (5 years)

BIMC Nusa Dua

Self-owned

NA

BIMC Kuta

Self-owned

NA

SH Purwakarta

First REIT

13+5 IDR 6.5bn p.a

NA NA
NA NA

2029 (15 years)

15+15 1% of annual GOR in year 1, 2% in year 2 and 3% thereafter

Source: Companies

Siloam has a strong pipeline through 2017
Siloam management said it would complete four hospitals in 2014 versus its initial
target to complete 4-5 hospitals. Its Purwakarta hospital was opened in June, and it
plans to open two greenfield hospitals in Medan and Kupang in 4Q14. We believe the
company will potentially acquire one hospital in 2014. It has 29 sites in various stages
of development.
Figure 25: Siloam’s pipeline through 2017
Siloam is on track to expand its
network to 40 hospitals in 2017
from 17 hospitals currently. It has
29 sites in various stages of
development

8

New hospitals

45

Total Hospitals
7

7

40

7
6
6

30

5
4

25

4

4
20

3
3

Total hospitals

New hospitals

5

35

15

2

10

1

5

0

0
2010

2011

2012

2013

2014E

2015E

2016E

2017E

Source: Company, Standard Chartered Research estimates

10 October 2014

10

Equity Research l Indonesia hospitals

Is there a capital raising risk?
We note that Siloam will continue to report a negative FCF of IDR 408-626bn, as it
remains in an aggressive expansion mode until 2017. Assuming a 4-5 year ramp-up
per new hospital, we expect Siloam to begin delivering a positive FCF from 2018, as
more than half of its bed capacity is mature (year 4 and year 5) and achieves an
EBITDA margin of 17-18%.
Management indicated that capex could be funded by the following means: (1) a
shareholder loan from its parent, Lippo Karawaci; (2) divestment of existing
company-owned hospitals to First REIT; and (3) equity raising. Management
confirmed that there are still no plans for further equity raising from the market to
support its expansion plans.
Figure 26: Leverage and cash flow outlook
We believe net gearing could peak
in 2017, when the rapid expansion
phase is completed

2500

Total debt

Free Cash Flow

Net gearing (RHS)

100%
80%

2000

60%

1500
IDR bn

20%
500
0%
0

Net gearing

40%
1000

-20%

-500

-40%

-1000

-60%
2010

2011

2012

2013

2014E

2015E

2016E

2017E

2018E

Source: Company, Standard Chartered Research estimates

10 October 2014

11

Equity Research l Indonesia hospitals

Maintain our In-Line rating on Siloam
While we continue to like Siloam’s long-term outlook, we believe the stock is fairly
valued at current levels. Our DCF-based price target offers only a 5% potential
upside and implies 23x EV/EBITDA on 2015E. The stock trades at a 28% premium to
regional peers due to its market leadership and strong earnings growth outlook. We
would wait for a better entry point into Siloam.
Key potential downside risks could be: (1) slippage in delivering 6-8 hospitals p.a.;
and (2) slower-than-expected ramp-up at its younger vintage hospitals. We think
Siloam should be a core portfolio holding for Indonesia healthcare exposure, but we
recognise that its short listing history could be an issue for investors.
Figure 27: Asia hospitals – Peer comparison
Price
Target Price Market cap 3M ADTV
Name

(LCY) (LCY)

Last

(USD mn) (USD mn)

FYE

2-yrs
Price / EV/EBITDA
Div. ROCE
EPS 2-yrs sales
(x)
Yield (%)
(%)

PER (x)

Ticker

Rating

FY0

FY1

FY2 CAGR PEG

Siloam Hospitals

SILO IJ

IL

15,100 14,375

1,364

72%

Omni Hospitals

SAME IJ

NR

2,695

261

0.51 12/13

67.9

NA

NA

NA

Mayapada Hospitals

SRAJ IJ

NR

234

154

0.02 12/13

NM

NA

NA

Bangkok Dusit

BGH TB

OP

20.62 18.10

8,650

20.87 12/13

45.6

38.0

Bumrungrad Hospital

BH TB

OP

136.00 128.50

2,888

2.90 12/13

45.0

41.1

Bangkok Chain
Hospital

BCH TB

NR

9.90

762

2.77 12/13

43.0

IHH Healthcare

IHH MK

NR

4.88

12,302

6.45 12/13

KPJ Healthcare

KPJ MK

OP

4.56

3.85

1,204

1.62 12/13

Raffles Medical Group RFMD SP OP

4.47

3.91

1,737

FY1

FY1

FY2

FY1

FY0

1.4

4.8 35.5

23.2

0.1

4.3

NA

NA

NA

NA

NA

34.1

NA

NA

NA

NA

NA

NA

NA

31.8

20%

1.6

5.0 23.6

20.5

1.1

11.6

35.6

12%

2.8

6.1 22.6

19.8

1.4

19.9

36.8

30.7

19%

1.7

4.6 19.2

16.6

1.6

12.3

62.7

51.4

42.1

22%

1.9

5.2 22.5

19.5

0.3

7.1

42.8

37.6

35.6

10%

3.7

1.5 15.6

14.4

1.5

8.2

0.82 12/13

34.5

30.0

26.5

14%

1.9

5.8 22.2

18.7

1.5

16.1

48.8

42.6

34.6

19%

1.8

3.2 21.5

17.6

0.7

11.5

9.5 964.8 361.0

-84%

-4.3

1.1 25.3

27.9

0.0

78.4

0.0

1.4

4.1 21.6

19.4

1.0

20.6

Indonesia hospitals
5.70 12/13 301.9 160.4 101.5

ASEAN Hospitals

Apollo Hospitals

APHS IN OP

1,080 1,068

2,443

3.71 03/14

Fortis Healthcare

FORH IN NR

118

894

1.15 03/14

Average

41.5 155.3

74.7

Share prices as of 9 October 2014; Bloomberg consensus estimates for NR stocks
Source: Bloomberg, Standard Chartered Research estimates

Strong valuation gain YTD
Siloam’s share price has risen 52% YTD, making it one of the top performers within
our healthcare coverage universe (with Bumrungrad Hospital and Bangkok Dusit
Medical). The stock re-rated strongly in May after its inclusion in the Indonesia MSCI
Index.

22,500
21,000
19,500
18,000
16,500
15,000
13,500
12,000
10,500
9,000
7,500
Sep-14

Sep-14

Aug-14

Jul-14

Jul-14

Jun-14

May-14

Apr-14

May-14

Mar-14

Feb-14

Feb-14

Jan-14

Dec-13

Dec-13

Nov-13

Oct-13

Oct-13

28x
26x
24x
22x
20x
18x

Sep-13

Share price (IDR)

Figure 28: Forward 12-month EV/EBITDA

Source: Bloomberg, Standard Chartered Research estimates

10 October 2014

12

Equity Research l Indonesia hospitals

Positive longer-term outlook intact
While on a 12-month basis Siloam offers only a limited 6% potential upside, we
reiterate our positive view on its long-term potential. Over three years, we believe
Siloam could offer an average return of 13% p.a. assuming it trades at 15x
EV/EBITDA in 2017E. Meanwhile, over five years, we believe Siloam could deliver an
average return of 17% p.a., assuming it trades at 12x EV/EBITDA in 2019E. We
believe the next stage of re-rating could take place when Siloam proves its track
record in executing its plan to expand its hospital network to 40 hospitals in 2017
from 17 hospitals currently.
Figure 29: Siloam – 3-year potential returns

Figure 30: Siloam – 5-year potential returns
IDR bn

IDR bn

Enterprise value

24,534

Enterprise value

36,597

Net debt

(1,378)

Net debt

(1,378)

Minorities
Equity value
Outstanding shares
2017E fair value
2017E EV / EBITDA
Current share price

(105)
23,051
1.2
19,938
15
14,300

Minorities
Equity value
Outstanding shares (bn)
2019E fair value (IDR)
2019E EV / EBITDA
Current share price (IDR)

Share price return

39%

Share price return

Share price return p.a.

12%

Share price return p.a.

Cumulative dividend return p.a.
Total return p.a.
Source: Standard Chartered Research estimates

10 October 2014

0%
12%

Cumulative dividend return p.a.
Total return p.a.

(105)
35,114
1.2
30,373
12
14,300
112%
16%
1%
17%

Source: Standard Chartered Research estimates

13

Equity Research l Indonesia hospitals

Siloam Hospitals Internasional
Income statement (IDR bn)
Year-end: Dec
Sales
Gross profit
SG&A
Other income
Other expenses
EBIT
Net interest
Associates
Other non-operational
Exceptional items
Pre-tax profit
Taxation
Minority interests
Exceptional items after tax
Net profit

Cash flow statement (IDR bn)
2012
1,788
445
(368)
15
0
91
(5)
0
(9)
0
77
(25)
(1)
0
50

2013
2,504
659
(583)
3
0
79
(0)
0
(7)
0
72
(22)
(0)
0
50

2014E
3,421
924
(740)
9
0
184
(27)
0
(10)
0
147
(41)
(3)
0
104

2015E
4,995
1,374
(1,049)
12
0
325
(77)
0
(15)
0
233
(64)
(5)
0
164

2016E
7,273
2,037
(1,478)
18
0
558
(141)
0
(22)
0
395
(109)
(8)
0
278

50
212

50
281

104
473

164
754

278
1,140

50
50
0
1,000

48
48
5
1,047

90
90
9
1,156

142
142
21
1,156

241
241
48
1,156

Year-end: Dec
Cash
Short-term investments
Accounts receivable
Inventory
Other current assets
Total current assets

2012
169
0
187
75
26
457

2013
515
0
271
95
26
907

2014E
397
0
375
137
50
958

2015E
146
0
547
198
72
964

2016E
21
0
797
287
103
1,208

PP&E
Intangible assets
Associates and JVs
Other long-term assets
Total long-term assets

865
61
0
203
1,129

1,402
188
0
103
1,693

1,834
184
0
103
2,120

2,518
179
0
103
2,800

3,161
175
0
103
3,439

Total assets

1,586

2,601

3,079

3,763

4,647

16
156
96
268

17
164
115
296

17
222
139
378

17
322
180
518

17
465
238
720

Long-term debt
Convertible bonds
Deferred tax
Other long-term liabilities
Total long-term liabilities

55
0
0
1,019
1,074

43
0
0
623
666

543
0
0
423
966

1,043
0
0
323
1,366

1,543
0
0
273
1,816

Total liabilities

1,342

962

1,343

1,884

2,536

Shareholders’ funds
Minority interests

245
0

1,639
0

1,735
0

1,879
0

2,110
0

Total equity

245

1,639

1,735

1,879

2,110

Total liabilities and equity

1,586

2,601

3,079

3,763

4,647

Net debt (cash)
Year-end shares (mn)

(98)
1,000

(456)
1,047

163
1,156

913
1,156

1,539
1,156

Net profit adj.
EBITDA
EPS (IDR)
EPS adj. (IDR)
DPS (IDR)
Avg fully diluted shares (mn)

Balance sheet (IDR bn)

Short-term debt
Accounts payable
Other current liabilities
Total current liabilities

10 October 2014

Year-end: Dec
EBIT
Depreciation & amortisation
Net interest
Tax paid
Changes in working capital
Others
Cash flow from operations

2012
91
120
(14)
(33)
(45)
84
203

2013
79
202
(7)
(27)
(67)
10
189

2014E
184
288
(27)
(41)
(88)
(10)
307

2015E
325
429
(77)
(64)
(115)
(15)
483

2016E
558
582
(141)
(109)
(167)
(22)
701

Capex
Acquisitions & Investments
Disposals
Others
Cash flow from investing

(523)
(53)
0
61
(515)

(598)
(163)
1
0
(761)

(716)
0
0
0
(716)

(1,109)
0
0
0
(1,109)

(1,221)
0
0
0
(1,221)

Dividends
Issue of shares
Change in debt
Other financing cash flow
Cash flow from financing

0
0
320
0
320

0
0
(423)
1,326
904

(10)
0
500
(200)
290

(25)
0
500
(100)
375

(56)
0
500
(50)
394

9
0
(320)

333
0
(409)

(119)
0
(408)

(250)
0
(626)

(125)
0
(520)

2012

2013

2014E

2015E

2016E

24.9
11.8
5.1
2.8
32.5
42.0
15.4
15.4
15.4
-

26.3
11.2
3.1
2.0
30.1
40.0
-1.2
-5.6
-5.6
nm

27.0
13.8
5.4
3.0
27.5
36.6
107.7
88.2
88.2
88.2

27.5
15.1
6.5
3.3
27.5
46.0
58.1
58.1
58.1
137.1

28.0
15.7
7.7
3.8
27.5
45.6
70.0
70.0
70.0
126.7

23.8
8.2
1.3
2.2
0.2
16.2
31.8
36.6

5.3
4.3
1.2
2.4
0.3
16.8
33.4
31.6

6.1
7.4
1.2
1.7
0.4
16.9
34.4
28.2

9.1
10.9
1.5
1.5
0.4
16.9
33.7
27.4

14.0
15.6
1.7
1.3
0.5
16.9
33.7
27.4

-40.0
5.4
10.7
0.4
1.7

-27.8
2.6
6.5
0.2
3.1

9.4
20.7
4.8
0.7
2.5

48.6
32.7
3.5
1.1
1.9

72.9
39.7
3.7
1.1
1.7

-

4.1
36.1
129.0
209.2
209.2
6.1
0.0

4.9
35.5
91.1
160.4
160.4
9.6
0.1

3.5
23.2
54.0
101.5
101.5
8.8
0.1

2.5
15.9
32.5
59.7
59.7
7.9
0.3

Change in cash
Exchange rate effect
Free cash flow

Financial ratios and other
Year-end: Dec
Operating ratios
Gross margin (%)
EBITDA margin (%)
EBIT margin (%)
Net margin adj. (%)
Effective tax rate (%)
Sales growth (%)
Net income growth (%)
EPS growth (%)
EPS growth adj. (%)
DPS growth (%)
Efficiency ratios
ROE (%)
ROCE (%)
Asset turnover (x)
Op. cash/EBIT (x)
Depreciation/capex (x)
Inventory days
Accounts receivable days
Accounts payable days
Leverage ratios
Net gearing (%)
Debt/capital (%)
Interest cover (x)
Debt/EBITDA (x)
Current ratio (x)
Valuation
EV/sales (x)
EV/EBITDA (x)
EV/EBIT (x)
PER (x)
PER adj. (x)
PBR (x)
Dividend yield (%)

14

Equity Research l Indonesia hospitals

Disclosures appendix
The information and opinions in this report were prepared by Standard Chartered Bank (Hong Kong) Limited, Standard Chartered Bank Singapore Branch, Standard
Chartered Securities (India) Limited, Standard Chartered Securities Korea Limited and/or one or more of its affiliates (together with its group of companies, ”SCB”)
and the research analyst(s) named in this report. THIS RESEARCH HAS NOT BEEN PRODUCED IN THE UNITED STATES.
Analyst Certification Disclosure: The research analyst or analysts responsible for the content of this research report certify that: (1) the views expressed and
attributed to the research analyst or analysts in the research report accurately reflect their personal opinion(s) about the subject securities and issuers and/or other
subject matter as appropriate; and (2) no part of his or her compensation was, is or will be directly or indirectly related to the specific recommendations or views
contained in this research report. On a general basis, the efficacy of recommendations is a factor in the performance appraisals of analysts.
Where “disclosure date” appears below, this means the day prior to the report date. All share prices quoted are the closing price for the business day prior to the
date of the report, unless otherwise stated.

Recommendation and price target history for Siloam Hospital Internasional

IDR
15,900

14,600

1

2

3

13,300

12,000
10,700
9,400
Oct-13
Date

Jan-14

Recommendation

Apr-14

Price target

Date

Recommendation

Jul-14
Price target

1 8 Apr 14
OUTPERFORM
13,982 2 25 Jun 14 IN-LINE
Source: FactSet prices, SCB recommendations and price targets

15,137

Date
3 31 Jul 14

Oct-14
Recommendation

Price target

IN-LINE

15,100

Recommendation and price target history for Tempo Scan Pacific

IDR
4,750

4,265

1

3,780

3,295
2,810
2,325
Nov-11
Date

Feb-12

May-12

Recommendation

Aug-12

Nov-12

Price target

Date

Feb-13

May-13

Recommendation

Aug-13

Nov-13

Price target

Feb-14
Date

May-14

Recommendation

Aug-14

Nov-14
Price target

1 8 Apr 14
OUTPERFORM
3,878
Source: FactSet prices, SCB recommendations and price targets

Recommendation Distribution and Investment Banking Relationships
% of covered companies
currently assigned this rating

% of companies assigned this rating with which SCB has provided
investment banking services over the past 12 months

OUTPERFORM

55.6%

10.8%

IN-LINE

33.6%

9.4%

UNDERPERFORM
As of 30 September 2014

10.8%

9.7%

Research Recommendation
Terminology
OUTPERFORM (OP)
IN-LINE (IL)
UNDERPERFORM (UP)

Definitions
The total return on the security is expected to outperform the relevant market index by 5% or more over the next 12 months
The total return on the security is not expected to outperform or underperform the relevant market index by 5% or more over the next
12 months
The total return on the security is expected to underperform the relevant market index by 5% or more over the next 12 months

SCB uses an investment horizon of 12 months for its price targets.
Additional information, including disclosures, with respect to any securities referred to herein will be available upon request. Requests should be sent to
scer@sc.com.
Global Disclaimer: Standard Chartered Bank and/or its affiliates ("SCB”) makes no representation or warranty of any kind, express, implied or statutory regarding
this document or any information contained or referred to in the document. The information in this document is provided for information purposes only. It does not
constitute any offer, recommendation or solicitation to any person to enter into any transaction or adopt any hedging, trading or investment strategy, nor does it
constitute any prediction of likely future movements in rates or prices or represent that any such future movements will not exceed those shown in any illustration.
The stated price of the securities mentioned herein, if any, is as of the date indicated and is not any representation that any transaction can be effected at this price.
While reasonable care has been taken in preparing this document, no responsibility or liability is accepted for errors of fact or for any opinion expressed herein. The
contents of this document may not be suitable for all investors as it has not been prepared with regard to the specific investment objectives or financial situation of
10 October 2014

15

Equity Research l Indonesia hospitals

any particular person. Any investments discussed may not be suitable for all investors. Users of this document should seek professional advice regarding the
appropriateness of investing in any securities, financial instruments or investment strategies referred to in this document and should understand that statements
regarding future prospects may not be realised. Opinions, forecasts, assumptions, estimates, derived valuations, projections, and price target(s), if any, contained in
this document are as of the date indicated and are subject to change at any time without prior notice. Our recommendations are under constant review. The value
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