en scb 2014 7 31 siloam hospitals waiting for growth acceleration in 2h14
l Equity Research l
Indonesia l Health Care
31 July 2014
Siloam Hospital Internasional
Waiting for growth acceleration in 2H14
Siloam’s revenue growth 2Q14 was in line with our and IN-LINE (unchanged)
consensus estimates. However, net profit came in below
PRICE as of 25 Jul 2014
our forecast, due to weaker-than-expected margins at some
IDR 14,300
of its key hospitals.
We maintain our In-Line rating and cut our price target to
IDR 15,100 (IDR 15,137 earlier). We reduce our 2014/15E
earnings by 9%/4% to reflect our tempered margin
expectations.
Bloomberg code
Siloam trades at 22.4x 2015E EV/EBITDA and our price
target offers 6% upside potential.
EPS adj. est. change 2014E
2Q14 results meet consensus. Revenue was in line with our and
Year-end: December
Sales (IDR bn)
EBITDA (IDR bn)
EBIT (IDR bn)
Pre-tax profit (IDR bn)
Net profit adj. (IDR bn)
FCF (IDR bn)
EPS adj. (IDR)
DPS (IDR)
Book value/share (IDR)
EPS growth adj. (%)
DPS growth (%)
EBITDA margin (%)
EBIT margin (%)
Net margin adj. (%)
Div. payout (%)
Net gearing (%)
ROE (%)
ROCE (%)
EV/sales (x)
EV/EBITDA (x)
PBR (x)
PER adj. (x)
Dividend yield (%)
consensus estimates, accounting for 22% and 23%, respectively,
of full-year estimates. Net profit was in line with consensus (22% of
2014 estimates), but met only 16% of our full-year figure. Our initial
forecasts exceeded consensus, because we expected greater
operating leverage – as eight new hospitals (2012-13 vintage)
ramp up this year – and lower finance costs in 2014. We think
Siloam could still deliver strong 42% YoY revenue growth in 2014.
Mixed margin performance in 2Q14. Siloam’s overall 2Q14
EBITDA margin of 12.0% was below our expectation of 14.2%.
EBITDA margins at two mature hospitals, Kebon Jeruk and
Surabaya, were 3-5ppt weaker QoQ at 13-15% in 2Q14, compared
to 16-20% in 1Q. Similarly, EBITDA margin at the Mochtar Riady
Comprehensive Cancer Centre (MRCCC) was lower than expected
at 2.2% in 2Q14 (1H14: 5.5%), compared with our assumption of
13-16% in 2014. Based on our margin assumption adjustments, we
lower our 2014-15E EBITDA margin by 20-30bps, translating into a
2-7% cut in our 2014-15E earnings.
Reuters code
SILO.JK
Market cap
12-month range
IDR 14,972.7bn (USD 1,293mn)
IDR 9,050 - 15,150
-9.2%
2013
2,504
281
79
72
50
(409)
48
5
1,565
-5.6
nm
11.2
3.1
2.0
10.0
-27.8
5.3
4.3
4.1
36.1
6.1
209.2
0.0
2015E
2014E
3,548
495
192
155
109
(512)
94
9
1,505
97.7
97.7
13.9
5.4
3.1
10.0
15.3
6.4
7.7
4.7
34.0
9.5
151.9
0.1
-4.3%
2015E
5,186
783
338
243
171
(622)
148
22
1,635
57.2
135.8
15.1
6.5
3.3
15.0
53.6
9.4
11.3
3.4
22.4
8.7
96.6
0.2
2016E
7,434
1,194
606
439
309
(397)
267
53
1,857
80.8
141.0
16.1
8.2
4.2
20.0
70.9
15.3
16.8
2.4
15.1
7.7
53.5
0.4
Source: Company, Standard Chartered Research estimates
Share price performance
16,000
in 1H14 amounted to IDR 24bn (66% of our 2014 estimate). We
increase our effective interest rate assumption by 100bps to 12.5%
in 2014 and 11.5% in 2015. This adjustment accounts for the
remaining 1-2% cut in our 2014-15 earnings estimates.
12,500
2015E EV/EBITDA, and our PT offers 6% upside. We see Siloam
as a long-term buy for exposure to Indonesia’s rapidly growing
healthcare market. Any strong pullback would be a good
opportunity to accumulate the leader of Indonesia’s private hospital
market, in our view.
IDR 15,100
SILO IJ
Higher finance costs than expected. Siloam’s interest expense
Maintain IL; buy on any major pullback. Siloam trades at 22.4x
PRICE TARGET
9,000
Sep-13
Siloam Hospital Internasional
Dec-13
Share price (%)
Ordinary shares
Relative to index
Relative to sector
Major shareholder
Free float
Average turnover (USD)
JAKARTA COMPOSITE INDEX (rebased)
Mar-14
Jun-14
-1 mth
-3 mth -12 mth
-1
30
-5
24
LIPPO KARAWACI TBK PT (78.9%)
21%
10,002,785
Source: Company, FactSet
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 Siloam Hospital Internasional
2Q14 results highlights
Siloam’s 2Q14 results were in line with consensus, but below our estimates. Its 1H14
net profit met 52% of the consensus estimate, but only 38% of our forecast. We had
initially expected a stronger operating leverage than the street in 2014. We prudently
lower our 2014E EBITDA to IDR 506bn, which is close to management’s guidance of
IDR 508bn.
Figure 1: 2Q14 results review
Year-end Dec
1H14 as %
Our FY14 of FY14E
est.
est.
Cons
2014
% 1H14
cons
43%
3,499
45%
982
44%
955
45%
27.0%
NA
27.3%
NA
2Q13
2Q14
YoY (%)
1H13
1H14
YoY (%)
Sales
617
817
32%
1,201
1,568
31%
3,638
Gross profit
158
218
38%
319
432
35%
% margin
25.6%
26.7%
NA
26.6%
27.5%
NA
EBITDA
% margin
82
98
19%
133
208
56%
517
40%
470
44%
13.3%
12.0%
NA
11.1%
13.3%
NA
14.2%
NA
13.4%
NA
36
33
-9%
43
80
84%
215
37%
207
39%
5.8%
4.0%
NA
3.6%
5.1%
NA
5.9%
NA
5.9%
NA
EBIT
% margin
Net profit
27
19
-30%
22
46
110%
120
38%
89
52%
% margin
4.4%
2.4%
NA
1.8%
2.9%
NA
3.3%
NA
2.5%
NA
EPS (IDR )
27
17
-39%
22
40
82%
104
38%
77
52%
Source: Company, Standard Chartered Research
Revenue ramp-up is on track: Siloam’s 2Q14 revenue was in line with our and
consensus estimates, at 22% and 23% of full-year 2014 estimates. Its revenue per
inpatient and revenue per outpatient rose up to 26% and up to 50% YoY,
respectively. We believe revenue growth will continue to pick up in 2H14 as patient
volume and revenue per patient ramp up at its younger vintage hospitals.
Management has indicated that 2H14 revenue growth will be stronger than 1H.
Figure 2: Revenue per inpatient
2012
45
2013
Figure 3: Revenue per outpatient
1Q14
2012
2Q14
2013
1Q14
2Q14
2.5
35
2.0
IDR mn per patient
IDR mn per patient
40
30
25
20
15
10
1.5
1.0
0.5
5
0
0.0
Mature
Developing MRCCC
Source: Company, Standard Chartered Research
31 July 2014
RSUS
New - 2012 New - 2013
Mature
Developing MRCCC
RSUS
New - 2012 New - 2013
Source: Company, Standard Chartered Research
2
Equity Research l Siloam Hospital Internasional
Weaker margins at some mature hospitals: Siloam’s consolidated 2Q14
EBITDA margin of 12.0% was below our expectation of 14.2%. We believe this is
attributable to weaker-than-expected margins at some of its mature hospitals (60%
of revenue in 2013) and at MRCCC (13% of revenue in 2013). EBITDA margins at
two mature hospitals, Kebon Jeruk and Surabaya, were 3-5ppt weaker QoQ at 1315% in 2Q14, compared to 16-20% in 1Q14. EBITDA margin at Cikarang hospital
may have been weaker due to higher rental costs (this hospital has a base rent of
IDR 25bn p.a.), as Siloam said that it paid IDR 16bn in rent in 1H14 (+33% YoY).
Similarly, EBITDA margin at MRCCC was lower than expected at 2.2% in 2Q14
(1H14: 5.5%), compared to our assumption of 13-16% for 2014. We believe this
could be due to a changing case mix, as the volume of general cases could have
risen faster than specialist cancer cases at MRCCC.
Good margin pick-up at new hospitals: One bright spot in the 2Q14 results is
that the ramp-up of its younger hospitals (established in 2012-13) is proceeding as
planned. We estimate the EBITDA margins at these newer hospitals at 9.5% in
2Q14, largely in line with our forecast of 10% for 2014. We see this as positive, as
it comes amid signs of weakness at Siloam’s more established hospitals.
EBITDA margin assumption adjustments: We temper our margin expectations
by 20-30bps for 2014-15, and lower our occupancy estimates for several key
hospitals, leading to a 2-7% cut in our 2014-15E earnings. We should note that
there are upside risks to our revised forecast if the margin weakness at some of
Siloam’s mature hospitals proves to be seasonal, due to Ramadan, which came
right after the long school holidays in June.
Higher finance cost than expected: Siloam’s interest expense in 1H14
amounted to IDR 24bn (66% of our 2014 estimate). We increase our effective
interest rate assumption by 100bps to 12.5% in 2014 and 11.5% in 2015. This
adjustment accounts for the remaining 1-2% cut in our 2014-15E earnings.
Completion of Siloam’s Purwakarta hospital: Siloam commenced operations at
its Purwakarta hospital in June 2014. Management noted the catchment area for
the hospital includes Indramayu and Subang. This hospital is also registered to
treat patients covered by the National Health Insurance program (JKN). We think
this could help drive a faster revenue ramp-up at this hospital, although margins
may be slightly lower than in Siloam’s non-JKN eligible hospitals.
31 July 2014
3
Equity Research l Siloam Hospital Internasional
Reiterate In-Line
Our DCF-derived price target of IDR 15,100 (from IDR 15,137) translates into 23x
2015E EV/EBITDA and offers a 6% upside potential.
DCF valuation
We value Siloam based on DCF methodology, given its relatively predictable cash
flows from the hospital services business. Our DCF-derived price target assumes a
risk-free rate of 8.5%, cost of debt of 11.5%, equity risk premium of 6%, beta of 1.0x,
target debt to firm value of 0% and implied weighted average cost of capital of 14.5%.
Figure 4: DCF valuation
Stage 1: Explicit 2013-23E
2015E
2016E
2017E
2018E
2019E
2020E
2021E
2022E
2023E
79
192
338
606
950
1,562
2,128
2,949
3,664
4,414
5,422
Change YoY
-14%
144%
76%
80%
57%
64%
36%
39%
24%
20%
23%
EBIT margin
3%
5%
6.5%
8.2%
9.4%
11.4%
12.8%
14.1%
15.1%
15.7%
16.9%
59
144
253
455
712
1,171
1,596
2,212
2,748
3,311
4,067
233
303
446
588
737
854
945
1,022
1,077
1,128
987
EBIT
EBIT (1-tax)
(+) Depreciation and amortisation
(-) Change in working capital
2013 2014E
(67)
(97)
(120)
(165)
(196)
(267)
(226)
(315)
(265)
(287)
(316)
(-) Capital expenditure
(598)
(829)
(1,124)
(1,139)
(1,192)
(1,110)
(1,004)
(1,041)
(1,061)
(1,188)
(1,228)
Unleveraged free cash flow
(373)
(480)
(545)
(261)
62
648
1,310
1,878
2,499
2,963
3,509
0.95
0.83
0.72
0.63
0.55
0.48
0.42
0.37
0.32
0.28
(453)
(450)
(188)
39
356
629
788
916
949
981
2024E
2025E
2026E
2027E
2028E
2029E
2030E
2031E
2032E
2033E
3,808
4,131
4,482
4,863
5,277
5,725
6,212
6,740
7,313
7,934
Discount factor
0.24
0.21
0.19
0.16
0.14
0.12
0.11
0.09
0.08
0.07
Present value of FCFs
930
881
835
792
750
711
674
638
605
573
Discount factor
Present value of FCFs
Stage 2: 2023-33E
Unleveraged free cash flow
Stage 3: Terminal
Terminal value
98,948
Discount factor
0.07
Present value of terminal value
7,152
Equity value
Growth rates assumptions
WACC assumptions
DCF of operations: Stage 1
3,568
Stage 1: 2013-23E
NM
DCF of operations: Stage 2
7,391
Stage 2: 2024-33E
8.5%
Cost of debt
7,152
Stage 3: Terminal
6.0%
Equity risk premium
NPV of the terminal value
Enterprise value (IDR bn)
Net cash (debt)
Minorities
Equity value (IDR bn)
Number of shares outstanding (bn)
18,111
(640)
(33)
17,437
1.156
Fair value per share (IDR)
15,100
Current price (IDR)
14,300
Upside/(downside)
6%
Current 2015E PER
97
Target 2015E PER
102
EBITDA 2015E
783
Target EV/EBITDA 2015E
Risk-free rate
Tax rate
Target debt to firm value
Equity beta
Cost of debt (after tax)
8.5%
11.5%
6.0%
25.0%
0.0%
1.00
8.6%
Cost of equity
14.5%
WACC
14.5%
23
Note: Share price as of 25 July 2014
Source: Bloomberg, Standard Chartered Research estimates
31 July 2014
4
Equity Research l Siloam Hospital Internasional
Relative valuation
Siloam is trading at 22x 2015E EV/EBITDA, at a 23% premium to its regional peers.
We believe the stock deserves to trade at a premium, given the company’s strong
growth pipeline and its EBITDA CAGR of 62% in 2013-16E.
Figure 5: Peer comparison
Name
Ticker
Siloam Intl. Hospitals SILO IJ
Price
target
Rating (LCY)
IL
3M avg.
PER (x)
EV/EBITDA (x)
Div.
value
2Y
Price/
yield ROCE
Price Mkt. cap traded Last
EPS 2Y sales
(%) (%)
(LCY) (USD mn)(USD mn) FYE 2013 2014 2015CAGR PEG 2014 2013 2014 2015 2014 2014
15,100 14,300
1,428
10.49 12/13 300.3 151.9 96.6 76%
1.3
4.2 50.0 34.0 22.4
0.1
7.7
16.9
Regional hospitals
Raffles Medical Group RFMD SP OP
4.47
3.91
1,768
1.21 12/13 34.5 30.0 26.5 14%
1.9
5.8 24.0 22.2 18.7
1.5
KPJ Healthcare
4.14
3.54
1,130
1.49 12/13 35.1 33.9 29.6
9%
3.4
1.4 20.5 18.4 16.6
1.5
7.6
NR
119.50
2,729
5.34 12/13 34.5 33.9 28.5 10%
2.8
5.6 22.6 19.8 17.0
1.6
19.0
Bangkok Dusit Med.
BGH TB NR
16.90
8,205
23.92 12/13 41.7 36.4 30.6 17%
1.8
4.6 26.1 22.4 19.4
1.3
20.6
IHH Healthcare
IHH SP
NR
1.81
11,898
0.34 12/13 59.5 48.8 40.3 22%
1.9
4.9 27.7 21.7 18.8
0.4
6.6
IHH Healthcare
IHH MK
NR
4.71
12,097
6.64 12/13 60.5 49.6 41.0 22%
1.9
5.0 28.1 22.0 19.1
0.4
6.6
44.3 38.8 32.7 15%
2.3
4.5 24.8 21.1 18.3
1.1
12.9
KPJ MK OP
Bumrungrad Hospital BH TB
Note: Share price as of 25 July 2014 for Siloam, as Indonesian market is closed this week, and 30 July 2014 for its regional peers; Bloomberg consensus for NR companies.
Source: Bloomberg, Standard Chartered Research estimates
31 July 2014
5
Equity Research l Siloam Hospital 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
3,548
958
(766)
9
0
192
(27)
0
(11)
0
155
(43)
(3)
0
109
2015E
5,186
1,426
(1,089)
13
0
338
(79)
0
(16)
0
243
(67)
(5)
0
171
2016E
7,434
2,081
(1,475)
19
0
606
(145)
0
(22)
0
439
(121)
(9)
0
309
50
212
50
281
109
495
171
783
309
1,194
50
50
0
1,000
48
48
5
1,047
94
94
9
1,156
148
148
22
1,156
267
267
53
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
293
0
389
142
52
876
2015E
46
0
568
206
74
894
2016E
36
0
815
293
105
1,249
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
1,933
184
0
103
2,220
2,616
179
0
103
2,898
3,171
175
0
103
3,449
Total assets
1,586
2,601
3,095
3,792
4,698
16
156
96
268
17
164
115
296
17
230
142
389
17
334
185
536
17
476
242
735
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
1,355
1,901
2,551
Shareholders’ funds
Minority interests
245
0
1,639
0
1,740
0
1,891
0
2,147
0
Total equity
245
1,639
1,740
1,891
2,147
Total liabilities and equity
1,586
2,601
3,095
3,792
4,698
Net debt (cash)
Year-end shares (mn)
(98)
1,000
(456)
1,047
267
1,156
1,014
1,156
1,523
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
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
192
303
(27)
(43)
(97)
(11)
317
2015E
338
446
(79)
(67)
(120)
(16)
502
2016E
606
588
(145)
(121)
(165)
(22)
741
Capex
Acquisitions & Investments
Disposals
Others
Cash flow from investing
(523)
(53)
0
61
(515)
(598)
(163)
1
0
(761)
(829)
0
0
0
(829)
(1,124)
0
0
0
(1,124)
(1,139)
0
0
0
(1,139)
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
(11)
0
500
(200)
289
(26)
0
500
(100)
374
(62)
0
500
(50)
388
9
0
(320)
333
0
(409)
(222)
0
(512)
(248)
0
(622)
(9)
0
(397)
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
13.9
5.4
3.1
27.5
41.7
118.3
97.7
97.7
97.7
27.5
15.1
6.5
3.3
27.5
46.2
57.2
57.2
57.2
135.8
28.0
16.1
8.2
4.2
27.5
43.3
80.8
80.8
80.8
141.0
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
6.4
7.7
1.2
1.7
0.4
16.7
33.9
27.8
9.4
11.3
1.5
1.5
0.4
16.9
33.7
27.4
15.3
16.8
1.8
1.2
0.5
17.0
34.0
27.6
-40.0
5.4
10.7
0.4
1.7
-27.8
2.6
6.5
0.2
3.1
15.3
20.7
5.0
0.6
2.2
53.6
32.5
3.6
1.0
1.7
70.9
39.4
4.0
1.1
1.7
-
4.1
36.1
129.0
209.2
209.2
6.1
0.0
4.7
34.0
87.5
151.9
151.9
9.5
0.1
3.4
22.4
52.0
96.6
96.6
8.7
0.2
2.4
15.1
29.8
53.5
53.5
7.7
0.4
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 (%)
Source: Company, Standard Chartered Research estimates
31 July 2014
6
Equity Research l Siloam Hospital Internasional
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
15,137
2
1
13,990
12,842
11,695
10,547
9,400
Oct-13
Date
1 8 Apr 14
Jan-14
Recommendation
OUTPERFORM
Price target
13,982
Date
2 25 Jun 14
Apr-14
Recommendation
IN-LINE
Price target
Jul-14
Date
Recommendation
Price target
15,137
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
55.8%
10.4%
IN-LINE
33.0%
10.1%
UNDERPERFORM
As of 30 June 2014
11.2%
8.1%
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
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
and income of any of the securities or financial instruments mentioned in this document can fall as well as rise and an investor may get back less than invested.
Future returns are not guaranteed, and a loss of original capital may be incurred. Foreign-currency denominated securities and financial instruments are subject to
fluctuation in exchange rates that could have a positive or adverse effect on the value, price or income of such securities and financial instruments. Past
performance is not indicative of comparable future results and no representation or warranty is made regarding future performance. While we endeavour to update
on a reasonable basis the information and opinions contained herein, there may be regulatory, compliance or other reasons that prevent us from doing so.
Accordingly, information may be available to us which is not reflected in this material, and we may have acted upon or used the information prior to or immediately
following its publication. SCB is not a legal or tax adviser, and is not purporting to provide legal or tax advice. Independent legal and/or tax advice should be sought
for any queries relating to the legal or tax implications of any investment. SCB and/or its affiliates may have a position in any of the securities, instruments or
currencies mentioned in this document. SCB and/or its affiliates or its respective officers, directors, employee benefit programmes or employees, including persons
involved in the preparation or issuance of this document may at any time, to the extent permitted by applicable law and/or regulation, be long or short any securities
or financial instruments referred to in this document and on the SCB Research website or have a material interest in any such securities or related investments, or
may be the only market maker in relation to such investments, or provide, or have provided advice, investment banking or other services, to issuers of such
investments. SCB has in place policies and procedures and physical information walls between its Research Department and differing public and private business
functions to help ensure confidential information, including ‘inside’ information is not disclosed unless in line with its policies and procedures and the rules of its
31 July 2014
7
Equity Research l Siloam Hospital Internasional
regulators. Data, opinions and other information appearing herein may have been obtained from public sources. SCB makes no representation or warranty as to the
accuracy or completeness of such information obtained from public sources. SCB also makes no representation or warranty as to the accuracy nor responsible for
any information or data contains on any third party’s website. You are advised to make your own independent judgment (with the advice of your professional advisers
as necessary) with respect to any matter contained herein and not rely on this document as the basis for making any trading, hedging or investment decision. SCB
accepts no liability and will not be liable for any loss or damage arising directly or indirectly (including special, incidental, consequential, punitive or exemplary
damages) from the use of this document, howsoever arising, and including any loss, damage or expense arising from, but not limited to, any defect, error,
imperfection, fault, mistake or inaccuracy with this document, its contents or associated services, or due to any unavailability of the document or any part thereof or
any contents or associated services. This material is for the use of intended recipients only and in any jurisdiction in which distribution to private/retail customers
would require registration or licensing of the distributor which the distributor does not currently have, this document is intended solely for distribution to professional
and institutional investors.
Country-Specific Disclosures - If you are receiving this document in any of the countries listed below, please note the following:
United Kingdom and European Economic Area: SCB is authorised in the United Kingdom by the Prudential Regulation Authority and regulated by the Financial
Conduct Authority and the Prudential Regulation Authority. This communication is not directed at Retail Clients in the European Economic Area as defined by
Directive 2004/39/EC. Nothing in this document constitutes a personal recommendation or investment advice as defined by Directive 2004/39/EC. Australia: The
Australian Financial Services Licence for Standard Chartered Bank is Licence No: 246833 with the following Australian Registered Business Number (ARBN:
097571778). Australian investors should note that this communication was prepared for “wholesale clients” only and is not directed at persons who are “retail clients”
as those terms are defined in sections 761G and 761GA of the Corporations Act 2001 (Cth). Bangladesh: This research has not been produced in Bangladesh. The
report has been prepared by the research analyst(s) in an autonomous and independent way, including in relation to SCB. THE SECURITIES MENTIONED IN THIS
REPORT HAVE NOT BEEN AND WILL NOT BE REGISTERED IN BANGLADESH AND MAY NOT BE OFFERED OR SOLD IN BANGLADESH WITHOUT PRIOR
APPROVAL OF THE REGULATORY AUTHORITIES IN BANGLADESH. Botswana: This document is being distributed in Botswana by, and is attributable to,
Standard Chartered Bank Botswana Limited which is a financial institution licensed under the Section 6 of the Banking Act CAP 46.04 and is listed in the Botswana
Stock Exchange. Brazil: SCB disclosures pursuant to the Securities and Exchange Commission of Brazil (“CVM”) Instruction 483/10: This research has not been
produced in Brazil. The report has been prepared by the research analyst(s) in an autonomous and independent way, including in relation to SCB. THE
SECURITIES MENTIONED IN THIS DOCUMENT HAVE NOT BEEN AND WILL NOT BE REGISTERED PURSUANT TO THE REQUIREMENTS OF THE
SECURITIES AND EXCHANGE COMMISSION OF BRAZIL AND MAY NOT BE OFFERED OR SOLD IN BRAZIL EXCEPT PURSUANT TO AN APPLICAB LE
EXEMPTION FROM THE REGISTRATION REQUIREMENTS AND IN COMPLIANCE WITH THE SECURITIES LAWS OF BRAZIL. Germany: In Germany, this
document is being distributed by Standard Chartered Bank Germany Branch which is also regulated by the Bundesanstalt für Finanzdienstleistungsaufsicht (BaFin).
Hong Kong: This document, except for any portion advising on or facilitating any decision on futures contracts trading, is being distributed in Hong Kong by, and is
attributable to, Standard Chartered Bank (Hong Kong) Limited 渣打銀行 香港 有限公司 which is regulated by the Hong Kong Monetary Authority. India: This
document is being distributed in India by Standard Chartered Securities (India) Limited, which is a SEBI-registered broker and a member of the Bombay Stock
Exchange Limited and The National Stock Exchange of India Limited. Registered Address: 2nd Floor, 23-25 M. G. Road, Fort, Mumbai - 400 001. India | Telephone
No: 022 - 6135 5999 | Fax No: 022 - 6135 5900| http://www.standardcharteredtrade.co.in | Email: mitesh.thakkar1@sc.com. | CIN: U65990MH1994PLC079263.
Indonesia: 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. Kenya: Standard Chartered Bank Kenya Limited is regulated by the
Central Bank of Kenya. This document is intended for use only by Professional Clients and should not be relied upon by or be distributed to Retail Clients. Korea:
This document is being distributed in Korea by, and is attributable to, Standard Chartered Securities Korea Limited which is regulated by the Financial Supervisory
Service. Macau: This document is being distributed in Macau Special Administrative Region of the Peoples' Republic of China, and is attributable to, Standard
Chartered Bank (Macau Branch) which is regulated by Macau Monetary Authority. New Zealand: New Zealand Investors should note that this document was
prepared for "wholesale clients" only within the meaning of section 5C of the Financial Advisers Act 2008. This document is not directed at persons who are “retail
clients” as defined in the Financial Advisers Act 2008. This document does not form part of any offer to the public in New Zealand. Philippines: This document may
be distributed in the Philippines by, and is attributable to, Standard Chartered Bank (Philippines) which is regulated by the Bangko Sentral ng Pilipinas. This
document is for information purposes only and does not offer, sell, offer to sell or distribute securities in the Philippines that are not registered with the Securities and
Exchange Commission unless such offer or sale qualifies as an exempt transaction under Section 10 of the Securities Regulation Code. Singapore: This document
is being distributed in Singapore by Standard Chartered Bank Singapore Branch only to accredited investors, expert investors or institutional investors, as defined in
the Securities and Futures Act, Chapter 289 of Singapore. Recipients in Singapore should contact Standard Chartered Bank Singapore Branch in relation to any
matters arising from, or in connection with, this document. South Africa: SCB is licensed as a Financial Services Provider in terms of Section 8 of the Financial
Advisory and Intermediary Services Act 37 of 2002. SCB is a Registered Credit Provider in terms of the National Credit Act 34 of 2005 under registration number
NCRCP4. Thailand: This document is intended to circulate only general information and prepare exclusively for the benefit of Institutional Investors with the
conditions and as defined in the Notifications of the Office of the Securities and Exchange Commission relating to the exemption of investment advisory service, as
amended and supplemented from time to time. It is not intended to provide for the public. United States: Except for any documents relating to foreign exchange, FX
or global FX, Rates or Commodities, distribution of this document in the United States or to US persons is intended to be solely to major institutional investors as
defined in Rule 15a-6(a)(2) under the US Securities Exchange Act of 1934. All US persons that receive this document by their acceptance thereof represent and
agree that they are a major institutional investor and understand the risks involved in executing transactions in securities. Any US recipient of this document wanting
additional information or to effect any transaction in any security or financial instrument mentioned herein, must do so by contacting a registered representative of
Standard Chartered Securities (North America) Inc., 1095 Avenue of the Americas, New York, N.Y. 10036, US, tel +1 212 667 0700. WE DO NOT OFFER OR SELL
SECURITIES TO U.S. PERSONS UNLESS EITHER (A) THOSE SECURITIES ARE REGISTERED FOR SALE WITH THE U.S. SECURITIES AND EXCHANGE
COMMISSION AND WITH ALL APPROPRIATE U.S. STATE AUTHORITIES; OR (B) THE SECURITIES OR THE SPECIFIC TRANSACTION QUALIFY FOR AN
EXEMPTION UNDER THE U.S. FEDERAL AND STATE SECURITIES LAWS NOR DO WE OFFER OR SELL SECURITIES TO U.S. PERSONS UNLESS (i) WE,
OUR AFFILIATED COMPANY AND THE APPROPRIATE PERSONNEL ARE PROPERLY REGISTERED OR LICENSED TO CONDUCT BUSINESS; OR (ii) WE,
OUR AFFILIATED COMPANY AND THE APPROPRIATE PERSONNEL QUALIFY FOR EXEMPTIONS UNDER APPLICABLE U.S. FEDERAL AND STATE LAWS.
© Copyright 2014 Standard Chartered Bank and its affiliates. All rights reserved. All copyrights subsisting and arising out of all materials, text, articles and
information contained herein is the property of Standard Chartered Bank and/or its affiliates, and may not be reproduced, redistributed, amended, modified, adapted,
transmitted in any form, or translated in any way without the prior written permission of Standard Chartered Bank.
31 July 2014
8
Indonesia l Health Care
31 July 2014
Siloam Hospital Internasional
Waiting for growth acceleration in 2H14
Siloam’s revenue growth 2Q14 was in line with our and IN-LINE (unchanged)
consensus estimates. However, net profit came in below
PRICE as of 25 Jul 2014
our forecast, due to weaker-than-expected margins at some
IDR 14,300
of its key hospitals.
We maintain our In-Line rating and cut our price target to
IDR 15,100 (IDR 15,137 earlier). We reduce our 2014/15E
earnings by 9%/4% to reflect our tempered margin
expectations.
Bloomberg code
Siloam trades at 22.4x 2015E EV/EBITDA and our price
target offers 6% upside potential.
EPS adj. est. change 2014E
2Q14 results meet consensus. Revenue was in line with our and
Year-end: December
Sales (IDR bn)
EBITDA (IDR bn)
EBIT (IDR bn)
Pre-tax profit (IDR bn)
Net profit adj. (IDR bn)
FCF (IDR bn)
EPS adj. (IDR)
DPS (IDR)
Book value/share (IDR)
EPS growth adj. (%)
DPS growth (%)
EBITDA margin (%)
EBIT margin (%)
Net margin adj. (%)
Div. payout (%)
Net gearing (%)
ROE (%)
ROCE (%)
EV/sales (x)
EV/EBITDA (x)
PBR (x)
PER adj. (x)
Dividend yield (%)
consensus estimates, accounting for 22% and 23%, respectively,
of full-year estimates. Net profit was in line with consensus (22% of
2014 estimates), but met only 16% of our full-year figure. Our initial
forecasts exceeded consensus, because we expected greater
operating leverage – as eight new hospitals (2012-13 vintage)
ramp up this year – and lower finance costs in 2014. We think
Siloam could still deliver strong 42% YoY revenue growth in 2014.
Mixed margin performance in 2Q14. Siloam’s overall 2Q14
EBITDA margin of 12.0% was below our expectation of 14.2%.
EBITDA margins at two mature hospitals, Kebon Jeruk and
Surabaya, were 3-5ppt weaker QoQ at 13-15% in 2Q14, compared
to 16-20% in 1Q. Similarly, EBITDA margin at the Mochtar Riady
Comprehensive Cancer Centre (MRCCC) was lower than expected
at 2.2% in 2Q14 (1H14: 5.5%), compared with our assumption of
13-16% in 2014. Based on our margin assumption adjustments, we
lower our 2014-15E EBITDA margin by 20-30bps, translating into a
2-7% cut in our 2014-15E earnings.
Reuters code
SILO.JK
Market cap
12-month range
IDR 14,972.7bn (USD 1,293mn)
IDR 9,050 - 15,150
-9.2%
2013
2,504
281
79
72
50
(409)
48
5
1,565
-5.6
nm
11.2
3.1
2.0
10.0
-27.8
5.3
4.3
4.1
36.1
6.1
209.2
0.0
2015E
2014E
3,548
495
192
155
109
(512)
94
9
1,505
97.7
97.7
13.9
5.4
3.1
10.0
15.3
6.4
7.7
4.7
34.0
9.5
151.9
0.1
-4.3%
2015E
5,186
783
338
243
171
(622)
148
22
1,635
57.2
135.8
15.1
6.5
3.3
15.0
53.6
9.4
11.3
3.4
22.4
8.7
96.6
0.2
2016E
7,434
1,194
606
439
309
(397)
267
53
1,857
80.8
141.0
16.1
8.2
4.2
20.0
70.9
15.3
16.8
2.4
15.1
7.7
53.5
0.4
Source: Company, Standard Chartered Research estimates
Share price performance
16,000
in 1H14 amounted to IDR 24bn (66% of our 2014 estimate). We
increase our effective interest rate assumption by 100bps to 12.5%
in 2014 and 11.5% in 2015. This adjustment accounts for the
remaining 1-2% cut in our 2014-15 earnings estimates.
12,500
2015E EV/EBITDA, and our PT offers 6% upside. We see Siloam
as a long-term buy for exposure to Indonesia’s rapidly growing
healthcare market. Any strong pullback would be a good
opportunity to accumulate the leader of Indonesia’s private hospital
market, in our view.
IDR 15,100
SILO IJ
Higher finance costs than expected. Siloam’s interest expense
Maintain IL; buy on any major pullback. Siloam trades at 22.4x
PRICE TARGET
9,000
Sep-13
Siloam Hospital Internasional
Dec-13
Share price (%)
Ordinary shares
Relative to index
Relative to sector
Major shareholder
Free float
Average turnover (USD)
JAKARTA COMPOSITE INDEX (rebased)
Mar-14
Jun-14
-1 mth
-3 mth -12 mth
-1
30
-5
24
LIPPO KARAWACI TBK PT (78.9%)
21%
10,002,785
Source: Company, FactSet
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 Siloam Hospital Internasional
2Q14 results highlights
Siloam’s 2Q14 results were in line with consensus, but below our estimates. Its 1H14
net profit met 52% of the consensus estimate, but only 38% of our forecast. We had
initially expected a stronger operating leverage than the street in 2014. We prudently
lower our 2014E EBITDA to IDR 506bn, which is close to management’s guidance of
IDR 508bn.
Figure 1: 2Q14 results review
Year-end Dec
1H14 as %
Our FY14 of FY14E
est.
est.
Cons
2014
% 1H14
cons
43%
3,499
45%
982
44%
955
45%
27.0%
NA
27.3%
NA
2Q13
2Q14
YoY (%)
1H13
1H14
YoY (%)
Sales
617
817
32%
1,201
1,568
31%
3,638
Gross profit
158
218
38%
319
432
35%
% margin
25.6%
26.7%
NA
26.6%
27.5%
NA
EBITDA
% margin
82
98
19%
133
208
56%
517
40%
470
44%
13.3%
12.0%
NA
11.1%
13.3%
NA
14.2%
NA
13.4%
NA
36
33
-9%
43
80
84%
215
37%
207
39%
5.8%
4.0%
NA
3.6%
5.1%
NA
5.9%
NA
5.9%
NA
EBIT
% margin
Net profit
27
19
-30%
22
46
110%
120
38%
89
52%
% margin
4.4%
2.4%
NA
1.8%
2.9%
NA
3.3%
NA
2.5%
NA
EPS (IDR )
27
17
-39%
22
40
82%
104
38%
77
52%
Source: Company, Standard Chartered Research
Revenue ramp-up is on track: Siloam’s 2Q14 revenue was in line with our and
consensus estimates, at 22% and 23% of full-year 2014 estimates. Its revenue per
inpatient and revenue per outpatient rose up to 26% and up to 50% YoY,
respectively. We believe revenue growth will continue to pick up in 2H14 as patient
volume and revenue per patient ramp up at its younger vintage hospitals.
Management has indicated that 2H14 revenue growth will be stronger than 1H.
Figure 2: Revenue per inpatient
2012
45
2013
Figure 3: Revenue per outpatient
1Q14
2012
2Q14
2013
1Q14
2Q14
2.5
35
2.0
IDR mn per patient
IDR mn per patient
40
30
25
20
15
10
1.5
1.0
0.5
5
0
0.0
Mature
Developing MRCCC
Source: Company, Standard Chartered Research
31 July 2014
RSUS
New - 2012 New - 2013
Mature
Developing MRCCC
RSUS
New - 2012 New - 2013
Source: Company, Standard Chartered Research
2
Equity Research l Siloam Hospital Internasional
Weaker margins at some mature hospitals: Siloam’s consolidated 2Q14
EBITDA margin of 12.0% was below our expectation of 14.2%. We believe this is
attributable to weaker-than-expected margins at some of its mature hospitals (60%
of revenue in 2013) and at MRCCC (13% of revenue in 2013). EBITDA margins at
two mature hospitals, Kebon Jeruk and Surabaya, were 3-5ppt weaker QoQ at 1315% in 2Q14, compared to 16-20% in 1Q14. EBITDA margin at Cikarang hospital
may have been weaker due to higher rental costs (this hospital has a base rent of
IDR 25bn p.a.), as Siloam said that it paid IDR 16bn in rent in 1H14 (+33% YoY).
Similarly, EBITDA margin at MRCCC was lower than expected at 2.2% in 2Q14
(1H14: 5.5%), compared to our assumption of 13-16% for 2014. We believe this
could be due to a changing case mix, as the volume of general cases could have
risen faster than specialist cancer cases at MRCCC.
Good margin pick-up at new hospitals: One bright spot in the 2Q14 results is
that the ramp-up of its younger hospitals (established in 2012-13) is proceeding as
planned. We estimate the EBITDA margins at these newer hospitals at 9.5% in
2Q14, largely in line with our forecast of 10% for 2014. We see this as positive, as
it comes amid signs of weakness at Siloam’s more established hospitals.
EBITDA margin assumption adjustments: We temper our margin expectations
by 20-30bps for 2014-15, and lower our occupancy estimates for several key
hospitals, leading to a 2-7% cut in our 2014-15E earnings. We should note that
there are upside risks to our revised forecast if the margin weakness at some of
Siloam’s mature hospitals proves to be seasonal, due to Ramadan, which came
right after the long school holidays in June.
Higher finance cost than expected: Siloam’s interest expense in 1H14
amounted to IDR 24bn (66% of our 2014 estimate). We increase our effective
interest rate assumption by 100bps to 12.5% in 2014 and 11.5% in 2015. This
adjustment accounts for the remaining 1-2% cut in our 2014-15E earnings.
Completion of Siloam’s Purwakarta hospital: Siloam commenced operations at
its Purwakarta hospital in June 2014. Management noted the catchment area for
the hospital includes Indramayu and Subang. This hospital is also registered to
treat patients covered by the National Health Insurance program (JKN). We think
this could help drive a faster revenue ramp-up at this hospital, although margins
may be slightly lower than in Siloam’s non-JKN eligible hospitals.
31 July 2014
3
Equity Research l Siloam Hospital Internasional
Reiterate In-Line
Our DCF-derived price target of IDR 15,100 (from IDR 15,137) translates into 23x
2015E EV/EBITDA and offers a 6% upside potential.
DCF valuation
We value Siloam based on DCF methodology, given its relatively predictable cash
flows from the hospital services business. Our DCF-derived price target assumes a
risk-free rate of 8.5%, cost of debt of 11.5%, equity risk premium of 6%, beta of 1.0x,
target debt to firm value of 0% and implied weighted average cost of capital of 14.5%.
Figure 4: DCF valuation
Stage 1: Explicit 2013-23E
2015E
2016E
2017E
2018E
2019E
2020E
2021E
2022E
2023E
79
192
338
606
950
1,562
2,128
2,949
3,664
4,414
5,422
Change YoY
-14%
144%
76%
80%
57%
64%
36%
39%
24%
20%
23%
EBIT margin
3%
5%
6.5%
8.2%
9.4%
11.4%
12.8%
14.1%
15.1%
15.7%
16.9%
59
144
253
455
712
1,171
1,596
2,212
2,748
3,311
4,067
233
303
446
588
737
854
945
1,022
1,077
1,128
987
EBIT
EBIT (1-tax)
(+) Depreciation and amortisation
(-) Change in working capital
2013 2014E
(67)
(97)
(120)
(165)
(196)
(267)
(226)
(315)
(265)
(287)
(316)
(-) Capital expenditure
(598)
(829)
(1,124)
(1,139)
(1,192)
(1,110)
(1,004)
(1,041)
(1,061)
(1,188)
(1,228)
Unleveraged free cash flow
(373)
(480)
(545)
(261)
62
648
1,310
1,878
2,499
2,963
3,509
0.95
0.83
0.72
0.63
0.55
0.48
0.42
0.37
0.32
0.28
(453)
(450)
(188)
39
356
629
788
916
949
981
2024E
2025E
2026E
2027E
2028E
2029E
2030E
2031E
2032E
2033E
3,808
4,131
4,482
4,863
5,277
5,725
6,212
6,740
7,313
7,934
Discount factor
0.24
0.21
0.19
0.16
0.14
0.12
0.11
0.09
0.08
0.07
Present value of FCFs
930
881
835
792
750
711
674
638
605
573
Discount factor
Present value of FCFs
Stage 2: 2023-33E
Unleveraged free cash flow
Stage 3: Terminal
Terminal value
98,948
Discount factor
0.07
Present value of terminal value
7,152
Equity value
Growth rates assumptions
WACC assumptions
DCF of operations: Stage 1
3,568
Stage 1: 2013-23E
NM
DCF of operations: Stage 2
7,391
Stage 2: 2024-33E
8.5%
Cost of debt
7,152
Stage 3: Terminal
6.0%
Equity risk premium
NPV of the terminal value
Enterprise value (IDR bn)
Net cash (debt)
Minorities
Equity value (IDR bn)
Number of shares outstanding (bn)
18,111
(640)
(33)
17,437
1.156
Fair value per share (IDR)
15,100
Current price (IDR)
14,300
Upside/(downside)
6%
Current 2015E PER
97
Target 2015E PER
102
EBITDA 2015E
783
Target EV/EBITDA 2015E
Risk-free rate
Tax rate
Target debt to firm value
Equity beta
Cost of debt (after tax)
8.5%
11.5%
6.0%
25.0%
0.0%
1.00
8.6%
Cost of equity
14.5%
WACC
14.5%
23
Note: Share price as of 25 July 2014
Source: Bloomberg, Standard Chartered Research estimates
31 July 2014
4
Equity Research l Siloam Hospital Internasional
Relative valuation
Siloam is trading at 22x 2015E EV/EBITDA, at a 23% premium to its regional peers.
We believe the stock deserves to trade at a premium, given the company’s strong
growth pipeline and its EBITDA CAGR of 62% in 2013-16E.
Figure 5: Peer comparison
Name
Ticker
Siloam Intl. Hospitals SILO IJ
Price
target
Rating (LCY)
IL
3M avg.
PER (x)
EV/EBITDA (x)
Div.
value
2Y
Price/
yield ROCE
Price Mkt. cap traded Last
EPS 2Y sales
(%) (%)
(LCY) (USD mn)(USD mn) FYE 2013 2014 2015CAGR PEG 2014 2013 2014 2015 2014 2014
15,100 14,300
1,428
10.49 12/13 300.3 151.9 96.6 76%
1.3
4.2 50.0 34.0 22.4
0.1
7.7
16.9
Regional hospitals
Raffles Medical Group RFMD SP OP
4.47
3.91
1,768
1.21 12/13 34.5 30.0 26.5 14%
1.9
5.8 24.0 22.2 18.7
1.5
KPJ Healthcare
4.14
3.54
1,130
1.49 12/13 35.1 33.9 29.6
9%
3.4
1.4 20.5 18.4 16.6
1.5
7.6
NR
119.50
2,729
5.34 12/13 34.5 33.9 28.5 10%
2.8
5.6 22.6 19.8 17.0
1.6
19.0
Bangkok Dusit Med.
BGH TB NR
16.90
8,205
23.92 12/13 41.7 36.4 30.6 17%
1.8
4.6 26.1 22.4 19.4
1.3
20.6
IHH Healthcare
IHH SP
NR
1.81
11,898
0.34 12/13 59.5 48.8 40.3 22%
1.9
4.9 27.7 21.7 18.8
0.4
6.6
IHH Healthcare
IHH MK
NR
4.71
12,097
6.64 12/13 60.5 49.6 41.0 22%
1.9
5.0 28.1 22.0 19.1
0.4
6.6
44.3 38.8 32.7 15%
2.3
4.5 24.8 21.1 18.3
1.1
12.9
KPJ MK OP
Bumrungrad Hospital BH TB
Note: Share price as of 25 July 2014 for Siloam, as Indonesian market is closed this week, and 30 July 2014 for its regional peers; Bloomberg consensus for NR companies.
Source: Bloomberg, Standard Chartered Research estimates
31 July 2014
5
Equity Research l Siloam Hospital 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
3,548
958
(766)
9
0
192
(27)
0
(11)
0
155
(43)
(3)
0
109
2015E
5,186
1,426
(1,089)
13
0
338
(79)
0
(16)
0
243
(67)
(5)
0
171
2016E
7,434
2,081
(1,475)
19
0
606
(145)
0
(22)
0
439
(121)
(9)
0
309
50
212
50
281
109
495
171
783
309
1,194
50
50
0
1,000
48
48
5
1,047
94
94
9
1,156
148
148
22
1,156
267
267
53
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
293
0
389
142
52
876
2015E
46
0
568
206
74
894
2016E
36
0
815
293
105
1,249
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
1,933
184
0
103
2,220
2,616
179
0
103
2,898
3,171
175
0
103
3,449
Total assets
1,586
2,601
3,095
3,792
4,698
16
156
96
268
17
164
115
296
17
230
142
389
17
334
185
536
17
476
242
735
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
1,355
1,901
2,551
Shareholders’ funds
Minority interests
245
0
1,639
0
1,740
0
1,891
0
2,147
0
Total equity
245
1,639
1,740
1,891
2,147
Total liabilities and equity
1,586
2,601
3,095
3,792
4,698
Net debt (cash)
Year-end shares (mn)
(98)
1,000
(456)
1,047
267
1,156
1,014
1,156
1,523
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
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
192
303
(27)
(43)
(97)
(11)
317
2015E
338
446
(79)
(67)
(120)
(16)
502
2016E
606
588
(145)
(121)
(165)
(22)
741
Capex
Acquisitions & Investments
Disposals
Others
Cash flow from investing
(523)
(53)
0
61
(515)
(598)
(163)
1
0
(761)
(829)
0
0
0
(829)
(1,124)
0
0
0
(1,124)
(1,139)
0
0
0
(1,139)
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
(11)
0
500
(200)
289
(26)
0
500
(100)
374
(62)
0
500
(50)
388
9
0
(320)
333
0
(409)
(222)
0
(512)
(248)
0
(622)
(9)
0
(397)
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
13.9
5.4
3.1
27.5
41.7
118.3
97.7
97.7
97.7
27.5
15.1
6.5
3.3
27.5
46.2
57.2
57.2
57.2
135.8
28.0
16.1
8.2
4.2
27.5
43.3
80.8
80.8
80.8
141.0
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
6.4
7.7
1.2
1.7
0.4
16.7
33.9
27.8
9.4
11.3
1.5
1.5
0.4
16.9
33.7
27.4
15.3
16.8
1.8
1.2
0.5
17.0
34.0
27.6
-40.0
5.4
10.7
0.4
1.7
-27.8
2.6
6.5
0.2
3.1
15.3
20.7
5.0
0.6
2.2
53.6
32.5
3.6
1.0
1.7
70.9
39.4
4.0
1.1
1.7
-
4.1
36.1
129.0
209.2
209.2
6.1
0.0
4.7
34.0
87.5
151.9
151.9
9.5
0.1
3.4
22.4
52.0
96.6
96.6
8.7
0.2
2.4
15.1
29.8
53.5
53.5
7.7
0.4
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 (%)
Source: Company, Standard Chartered Research estimates
31 July 2014
6
Equity Research l Siloam Hospital Internasional
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
15,137
2
1
13,990
12,842
11,695
10,547
9,400
Oct-13
Date
1 8 Apr 14
Jan-14
Recommendation
OUTPERFORM
Price target
13,982
Date
2 25 Jun 14
Apr-14
Recommendation
IN-LINE
Price target
Jul-14
Date
Recommendation
Price target
15,137
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
55.8%
10.4%
IN-LINE
33.0%
10.1%
UNDERPERFORM
As of 30 June 2014
11.2%
8.1%
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
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
and income of any of the securities or financial instruments mentioned in this document can fall as well as rise and an investor may get back less than invested.
Future returns are not guaranteed, and a loss of original capital may be incurred. Foreign-currency denominated securities and financial instruments are subject to
fluctuation in exchange rates that could have a positive or adverse effect on the value, price or income of such securities and financial instruments. Past
performance is not indicative of comparable future results and no representation or warranty is made regarding future performance. While we endeavour to update
on a reasonable basis the information and opinions contained herein, there may be regulatory, compliance or other reasons that prevent us from doing so.
Accordingly, information may be available to us which is not reflected in this material, and we may have acted upon or used the information prior to or immediately
following its publication. SCB is not a legal or tax adviser, and is not purporting to provide legal or tax advice. Independent legal and/or tax advice should be sought
for any queries relating to the legal or tax implications of any investment. SCB and/or its affiliates may have a position in any of the securities, instruments or
currencies mentioned in this document. SCB and/or its affiliates or its respective officers, directors, employee benefit programmes or employees, including persons
involved in the preparation or issuance of this document may at any time, to the extent permitted by applicable law and/or regulation, be long or short any securities
or financial instruments referred to in this document and on the SCB Research website or have a material interest in any such securities or related investments, or
may be the only market maker in relation to such investments, or provide, or have provided advice, investment banking or other services, to issuers of such
investments. SCB has in place policies and procedures and physical information walls between its Research Department and differing public and private business
functions to help ensure confidential information, including ‘inside’ information is not disclosed unless in line with its policies and procedures and the rules of its
31 July 2014
7
Equity Research l Siloam Hospital Internasional
regulators. Data, opinions and other information appearing herein may have been obtained from public sources. SCB makes no representation or warranty as to the
accuracy or completeness of such information obtained from public sources. SCB also makes no representation or warranty as to the accuracy nor responsible for
any information or data contains on any third party’s website. You are advised to make your own independent judgment (with the advice of your professional advisers
as necessary) with respect to any matter contained herein and not rely on this document as the basis for making any trading, hedging or investment decision. SCB
accepts no liability and will not be liable for any loss or damage arising directly or indirectly (including special, incidental, consequential, punitive or exemplary
damages) from the use of this document, howsoever arising, and including any loss, damage or expense arising from, but not limited to, any defect, error,
imperfection, fault, mistake or inaccuracy with this document, its contents or associated services, or due to any unavailability of the document or any part thereof or
any contents or associated services. This material is for the use of intended recipients only and in any jurisdiction in which distribution to private/retail customers
would require registration or licensing of the distributor which the distributor does not currently have, this document is intended solely for distribution to professional
and institutional investors.
Country-Specific Disclosures - If you are receiving this document in any of the countries listed below, please note the following:
United Kingdom and European Economic Area: SCB is authorised in the United Kingdom by the Prudential Regulation Authority and regulated by the Financial
Conduct Authority and the Prudential Regulation Authority. This communication is not directed at Retail Clients in the European Economic Area as defined by
Directive 2004/39/EC. Nothing in this document constitutes a personal recommendation or investment advice as defined by Directive 2004/39/EC. Australia: The
Australian Financial Services Licence for Standard Chartered Bank is Licence No: 246833 with the following Australian Registered Business Number (ARBN:
097571778). Australian investors should note that this communication was prepared for “wholesale clients” only and is not directed at persons who are “retail clients”
as those terms are defined in sections 761G and 761GA of the Corporations Act 2001 (Cth). Bangladesh: This research has not been produced in Bangladesh. The
report has been prepared by the research analyst(s) in an autonomous and independent way, including in relation to SCB. THE SECURITIES MENTIONED IN THIS
REPORT HAVE NOT BEEN AND WILL NOT BE REGISTERED IN BANGLADESH AND MAY NOT BE OFFERED OR SOLD IN BANGLADESH WITHOUT PRIOR
APPROVAL OF THE REGULATORY AUTHORITIES IN BANGLADESH. Botswana: This document is being distributed in Botswana by, and is attributable to,
Standard Chartered Bank Botswana Limited which is a financial institution licensed under the Section 6 of the Banking Act CAP 46.04 and is listed in the Botswana
Stock Exchange. Brazil: SCB disclosures pursuant to the Securities and Exchange Commission of Brazil (“CVM”) Instruction 483/10: This research has not been
produced in Brazil. The report has been prepared by the research analyst(s) in an autonomous and independent way, including in relation to SCB. THE
SECURITIES MENTIONED IN THIS DOCUMENT HAVE NOT BEEN AND WILL NOT BE REGISTERED PURSUANT TO THE REQUIREMENTS OF THE
SECURITIES AND EXCHANGE COMMISSION OF BRAZIL AND MAY NOT BE OFFERED OR SOLD IN BRAZIL EXCEPT PURSUANT TO AN APPLICAB LE
EXEMPTION FROM THE REGISTRATION REQUIREMENTS AND IN COMPLIANCE WITH THE SECURITIES LAWS OF BRAZIL. Germany: In Germany, this
document is being distributed by Standard Chartered Bank Germany Branch which is also regulated by the Bundesanstalt für Finanzdienstleistungsaufsicht (BaFin).
Hong Kong: This document, except for any portion advising on or facilitating any decision on futures contracts trading, is being distributed in Hong Kong by, and is
attributable to, Standard Chartered Bank (Hong Kong) Limited 渣打銀行 香港 有限公司 which is regulated by the Hong Kong Monetary Authority. India: This
document is being distributed in India by Standard Chartered Securities (India) Limited, which is a SEBI-registered broker and a member of the Bombay Stock
Exchange Limited and The National Stock Exchange of India Limited. Registered Address: 2nd Floor, 23-25 M. G. Road, Fort, Mumbai - 400 001. India | Telephone
No: 022 - 6135 5999 | Fax No: 022 - 6135 5900| http://www.standardcharteredtrade.co.in | Email: mitesh.thakkar1@sc.com. | CIN: U65990MH1994PLC079263.
Indonesia: 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. Kenya: Standard Chartered Bank Kenya Limited is regulated by the
Central Bank of Kenya. This document is intended for use only by Professional Clients and should not be relied upon by or be distributed to Retail Clients. Korea:
This document is being distributed in Korea by, and is attributable to, Standard Chartered Securities Korea Limited which is regulated by the Financial Supervisory
Service. Macau: This document is being distributed in Macau Special Administrative Region of the Peoples' Republic of China, and is attributable to, Standard
Chartered Bank (Macau Branch) which is regulated by Macau Monetary Authority. New Zealand: New Zealand Investors should note that this document was
prepared for "wholesale clients" only within the meaning of section 5C of the Financial Advisers Act 2008. This document is not directed at persons who are “retail
clients” as defined in the Financial Advisers Act 2008. This document does not form part of any offer to the public in New Zealand. Philippines: This document may
be distributed in the Philippines by, and is attributable to, Standard Chartered Bank (Philippines) which is regulated by the Bangko Sentral ng Pilipinas. This
document is for information purposes only and does not offer, sell, offer to sell or distribute securities in the Philippines that are not registered with the Securities and
Exchange Commission unless such offer or sale qualifies as an exempt transaction under Section 10 of the Securities Regulation Code. Singapore: This document
is being distributed in Singapore by Standard Chartered Bank Singapore Branch only to accredited investors, expert investors or institutional investors, as defined in
the Securities and Futures Act, Chapter 289 of Singapore. Recipients in Singapore should contact Standard Chartered Bank Singapore Branch in relation to any
matters arising from, or in connection with, this document. South Africa: SCB is licensed as a Financial Services Provider in terms of Section 8 of the Financial
Advisory and Intermediary Services Act 37 of 2002. SCB is a Registered Credit Provider in terms of the National Credit Act 34 of 2005 under registration number
NCRCP4. Thailand: This document is intended to circulate only general information and prepare exclusively for the benefit of Institutional Investors with the
conditions and as defined in the Notifications of the Office of the Securities and Exchange Commission relating to the exemption of investment advisory service, as
amended and supplemented from time to time. It is not intended to provide for the public. United States: Except for any documents relating to foreign exchange, FX
or global FX, Rates or Commodities, distribution of this document in the United States or to US persons is intended to be solely to major institutional investors as
defined in Rule 15a-6(a)(2) under the US Securities Exchange Act of 1934. All US persons that receive this document by their acceptance thereof represent and
agree that they are a major institutional investor and understand the risks involved in executing transactions in securities. Any US recipient of this document wanting
additional information or to effect any transaction in any security or financial instrument mentioned herein, must do so by contacting a registered representative of
Standard Chartered Securities (North America) Inc., 1095 Avenue of the Americas, New York, N.Y. 10036, US, tel +1 212 667 0700. WE DO NOT OFFER OR SELL
SECURITIES TO U.S. PERSONS UNLESS EITHER (A) THOSE SECURITIES ARE REGISTERED FOR SALE WITH THE U.S. SECURITIES AND EXCHANGE
COMMISSION AND WITH ALL APPROPRIATE U.S. STATE AUTHORITIES; OR (B) THE SECURITIES OR THE SPECIFIC TRANSACTION QUALIFY FOR AN
EXEMPTION UNDER THE U.S. FEDERAL AND STATE SECURITIES LAWS NOR DO WE OFFER OR SELL SECURITIES TO U.S. PERSONS UNLESS (i) WE,
OUR AFFILIATED COMPANY AND THE APPROPRIATE PERSONNEL ARE PROPERLY REGISTERED OR LICENSED TO CONDUCT BUSINESS; OR (ii) WE,
OUR AFFILIATED COMPANY AND THE APPROPRIATE PERSONNEL QUALIFY FOR EXEMPTIONS UNDER APPLICABLE U.S. FEDERAL AND STATE LAWS.
© Copyright 2014 Standard Chartered Bank and its affiliates. All rights reserved. All copyrights subsisting and arising out of all materials, text, articles and
information contained herein is the property of Standard Chartered Bank and/or its affiliates, and may not be reproduced, redistributed, amended, modified, adapted,
transmitted in any form, or translated in any way without the prior written permission of Standard Chartered Bank.
31 July 2014
8