Staying in Positive Trajectory

1Q23 results. The three healthcare companies under our coverage (SILO, MIKA, HEAL) cumulatively reported revenue and net profit growth in 1Q23, supported by higher patient traffic, even as the Covid-19 pandemic continued to subside (the average contribution of Covid-19 cases fell below ~1% in 1Q23, vs. ~10% in 1Q22), and more complex base cases. Cumulatively, the three companies reported revenue growth of +11.3% YoY (+3.3% QoQ), thanks to patient traffic and ASP growth; outpatients and inpatient admissions went up to 3.5 million (+20.8% vs. 1Q19; +4.6% QoQ) (5-year average: 2.9 million) and 280 thousand (+31.1% vs. 1Q19; +2.1% QoQ) (5-year average: 220 thousand), respectively, while revenue per inpatient days rose to 3.7 million in 1Q23 (+13.0% vs. 1Q19). In general, the three companies’ 1Q23 revenue performance was in line with ours and cons (MIKA: SSI 22.1%, Cons: 21.9%, SILO: SSI 24.7%, Cons: 26.2%, HEAL: SSI 23.1%, Cons 23.4%). Regarding their margins, carrying on the trend from 4Q22, the three companies’ margins mostly normalized in 1Q23; MIKA booked an EBITDA margin of 35.1% in 1Q23 (1Q22: 39.4%), HEAL posted 24.7% (1Q22: 27.5%), while SILO actually reported a better EBITDA margin than 1Q22 (29.5% vs 1Q22: 22.4%), supported by the increase of more complex base cases. On the bottom line, the three companies’ cumulative net profit went up +12.3% YoY (+4.4% QoQ) in 1Q23; MIKA and SILO’s net profit performance was in line with ours (MIKA: SSI 20.7%, Cons: 20.2%; SILO: SSI: 29.2%, Cons: 34.1%), while HEAL fell short of estimates  (SSI: 17.4%; Cons: 19.1%), mainly due to one-off IT expense booked in 1Q23 (which will normalize in 2Q23).

Guidance revision. Following its rather soft 1Q23 performance, MIKA decided to revise its top-line growth guidance for 2023F to +8-10% YoY (Prev: +13-15) with a conservative EBITDA margin projection ~36-37% (previous: 36-38%) due to several reasons: 1)massive decline in COVID-19 cases, 2) higher contribution from BPJS due to challenging economic situation (Indonesia’s 2023F inflation forecast: 4.0%, 5-year average: ~3%), and 3) new hospital openings in 1Q23 (Slawi and Pamulang), which dragged down the company’s margins. Meanwhile, SILO and HEAL decided to maintain their guidance, with SILO forecasting low to mid-double-digit top-line growth and an EBITDA margin of ~25% (However, the company expects its EBITDA margin to reach ~29% in 2H23, in line with our projection for its 2023F net EBITDA margin of ~29%). Regarding HEAL, it maintained its top-line guidance at IDR 5.7-5.9tn (+16-20% YoY), with an EBITDA margin of ~28-30% in 2023F, as the company believes that it will record better performance in 2H23, supported by the normalization of its IT expense and better revenue per patient (following the adjustments of BPJS tariffs and the company’s ASP in 1Q23).

Neutral stance. We revised our FY projections for MIKA and HEAL, as we anticipate softer than expected performance in FY23; we revised down MIKA and HEAL bottom-line projections by –10,3%/ -8,7%, and cut our TP for MIKA to IDR 2.800/share (previous: IDR 3.000/share) and HEAL to IDR 1.600/share (previous: IDR 1.700/share, Implying 14,5x FY23F EV/EBITDA. We keep HEAL as our top pick as we believe that the new INA-CBG rates and CoB scheme will benefit those with larger share of JKN patients, giving them more flexibility to adjust their ASP in the long term. Also, considering the possibly challenging economic situation in 2023 (2023F inflation forecast: ~4%; 5-year average: ~3%), we expect to see positive growth in JKN patient traffic. Upside: (1) Better-than-expected patient traffic, (2) more complex base cases. Risks: (1) Economic slowdown (2) worse-than-expected decline in revenue per patient.