Traffic is Key
Positive traffic trend in 4Q22. The three healthcare companies under our coverage (SILO. MIKA. HEAL) booked cumulative revenue growth in 4Q22 (+10.1% YoY, +1.9% QoQ), driven mainly by recovery in patient traffic as the Covid-19 pandemic continues to subside (contribution of Covid-19 cases fell below ~5% in 12M22, vs. ~20% in 12M21). Outpatient traffic went up to 3.4 million (+12% higher than in 4Q19) while inpatient admissions rose to ~274 thousand (+29.9% higher than in 4Q19). Cumulatively. the three companies recorded outpatient traffic of 10.6 million (+17.3% YoY; 5-year average: 9.2 million) and inpatient admissions of 990 thousand in FY22 (+35% YoY; 5-year average: 783 thousand), in line with our estimates: MIKA (SSI: 98.0%; Cons: 97.4%). SILO (SSI: 99.7%; Cons: 113.4%). HEAL (SSI: 96.0%; Cons: 96.4%).
Margins continue to normalize. As the pandemic continues to normalize, the margins of healthcare companies under our coverage have started to normalize as well; MIKA’s EBITDA margin slumped in FY22 (37.1%, FY21: 41.1%), as did HEAL’s (23.2%, FY21: 37.9%), while SILO managed to improve its EBITDA margin to 26.8% (FY21: 25.7%), supported by the increase in more complex cases. Regarding their bottom line, the three healthcare companies under our coverage reported mixed performance; MIKA’s 4Q22 net profit was in line with ours and cons (SSI: 99.31%; Cons: 101.6%), while SILO managed to beat both (SSI: 126.4%; Cons: 119.5%) and HEAL fell short of both (SSI: 93.0%; Cons: 63.0%), mainly due to one-off IT expense (which should normalize in 2Q23). This year, we expect healthcare companies under our coverage to book low-to-mid double-digit revenue growth, driven mainly by patient traffic and revenue per patient. Given the upward trend of complexity from base cases in 4Q22 (cumulative ALOS 4Q22: ~2.84 days vs. ALOS 4Q19 ~2.80 days), we expect ALOS to remain stable at ~2.9 days in 2023F.
Impact of INACBG rate hike. The Ministry of Health raised the INACBG rate by ~9.5% (blended) in 1Q23 (its first adjustment since 2017), below our initial estimate (~15%). However, the impact of the new rate might be less significant than our initial estimates; SILO indicates that the impact of the new rate on its bottom line is projected to reach ~IDR 75-100 bn (our initial estimate: +~ IDR113 bn), while MIKA and HEAL provide EBITDA margin guidance of ~36-38% (estimate: ~39%) and ~28 -30% (estimate: ~31.1%). However, we expect to see positive impacts from the new co-payment scheme (CoB Scheme) and the new regulation that allows class 2 patients to upgrade to the VIP class (previously, only one-class upgrade was allowed). It should be noted that the contribution of the CoB scheme is still relatively insignificant (less than ~5% of total revenue).
NEUTRAL rating for the sector. We reiterate our NEUTRAL rating for the healthcare sector and pick HEAL as our top pick, with a BUY recommendation and a TP of IDR 1,700 (15.1x 23F EV-to EBITDA), We believe that the new INACBG rate and CoB scheme will benefit those with larger share of JKN users, giving them more flexibility to adjust their ASP in the long term. 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.