Insights Universal Healthcare Boon For Hospitals PDF

Indonesia Industry Focus
Indonesia Healthcare Sector

Refer to important disclosures at the end of this report
DBS Group Research . Equity 26 Nov 2015
JCI : 4,585.55
The pulse is on for hospitals
 Grand entrance of COB scheme?
 Further upside from strong healthcare spending
 Universal healthcare coverage – a game changer for Analyst
the industry Edward Ariadi Tanuwijaya +6221 3003 4932
edward.tanuwijaya@id.dbsvickers.com
 Prefer hospitals over pharmaceutical players
Coordination of Benefits (COB) scheme – a grand Maynard P. Arif +6221 3003 4930
entrance? BPJS Health finally issued the long awaited maynard.arif@id.dbsvickers.com
circular to roll-out the COB scheme pilot project in Aug
2015, which allows private insurance companies to
supplement JKN using a top-up scheme. This (if
STOCKS
implemented successfully) will be the catalyst for both
non-BPJS-affiliated hospitals (boost in patient volumes) Price Mkt Cap Target Price Performance (%)
and BPJS-affiliated hospitals (margin improvement given Rp US$m Rp 3 mth 12 mth Rating
the higher segment target). Mitra Keluarga 2,505 2,666 2,900 (8.4) N.A BUY
Healthcare spending to continue to grow. Siloam International 9,775 827 10,000 (29.1) (31.3) HOLD
Kalbe Farma 1,350 4,628 1,600 (15.7) (24.6) BUY
According to the recent 2016 state budget plan,
healthcare budget is expected to increase by 43% y-o-y Source: DBS Vickers
to Rp106.1tn (or 5% of total budget). This allocation is Mitra Keluarga Karyasehat : MIKA is Indonesia's largest private
the highest ever and includes coverage of 92m “poor & hospital operator by market cap with 12 hospitals in both Greater
near-poor” population under the JKN programme. Jakarta and Surabaya under its portfolio
Overall, Indonesia’s healthcare expenditure is expected Siloam International Hospitals : SILO is Indonesia's largest private
hospital operator with 20 hospitals nationwide and many new
to grow at a 12% CAGR for the next five years due to hospitals in the pipeline for the next five years.
current low-base spending (lowest in the region),
Kalbe Farma : Kalbe Farma manufactures and distributes
universal coverage and rising middle class. pharmaceutical, consumer health, and nutritional products. It
commands the highest market share within Indonesian pharmaceutical
Universal healthcare coverage - the game changer. and OTC drugs market.
As of Nov 2015, there were c.155m BPJS Health
members, equivalent to 65% of the total population, Universal Healthcare Coverage (JKN) roadmap
from 142m at the end of 2014. In terms of membership,
the progress has been good so far, but this programme
remains underfunded (with Rp6tn deficit expected in
2015) as we had predicted. Therefore, we can expect
some tweaking to the programmes which will have an
impact to the hospital and pharmaceutical industries.
(2019)
Switching preference to hospitals. Considering the (Aug2015) 270m
progress of the JKN programme, we now prefer the 150m 100% coverage
(2014) 63% coverage
hospital players over pharmaceuticals' due to more
142m
stable earnings outlook despite their rich valuations. The
(2012) 56% coverage
volatility in USD/IDR and regulatory issues are the current
76.4m
major risks for the pharmaceutical sector. Our preferred
30% coverage
pick in this sector is Mitra Keluarga Karyasehat (MIKA IJ).
Source: Roadmap to National Health Insurance 2012-2019, DBS
We also upgraded Kalbe Farma (KLBF IJ) to BUY mainly
Vickers
on valuation and potential recovery in its stock price.
www.dbsvickers.com
ed-JS / sa- MA
Industry Focus
The healthcare reform - fair progress with more Regular vs informal employees in working population
challenges ahead 120 m population Regular employees Informal employees
BPJS Health (or BPJS Kesehatan) is the social security agency
100
acting as facilitator with main functions of pooling members’
premiums and making payments to healthcare providers for 80
services provided to members under the universal healthcare 62.4 60.4 60.4 59.7
scheme (JKN). 60
40
The progress towards full coverage by 2019 is encouraging
(refer to the chart on page 1). According to some sources, as of 20 37.8 40.9 41.1 43.4
Nov 2015, there were c.155m BPJS Health members, equivalent
to 65% of the total population vs. 142m in 2014. 0
2011 2012 2013 2014
Source: Statistics Indonesia (BPS), DBS Vickers
Monitoring the membership growth
Note: Informal employees include casual employees.
Despite the encouraging growth in BPJS Health memberships,
we will continue to monitor the progress of membership growth
Indonesia’s labour force - latest breakdown
next year. We believe that the current surge in memberships
was mostly due to “low hanging fruit” memberships : 1) Unemployed
5.9%
conversion from previous scheme (i.e. ASKES – public sector
workers); and 2) participation from formal/regular employees. Regular
employees
Going forward, it would be a challenge to secure more 35.6%
membership from “difficult-to-track” informal employees
(including casual employees), which form 62% of the total Informal
employees
working employment in Indonesia. 49.0%
Casual
On the funding side, as we had predicted in our previous report employees
9.4%
on 24 Jun 2014 titled Long road to good health, JKN is
underfunded. BPJS Health experienced a Rp3.3tn deficit in 2014
and according to estimates by BPJS officials, the deficit in 2016 Source: Statistics Indonesia (BPS), DBS Vickers
may widen to about three times the amount in 2014.
In order to prevent the deficit from ballooning in the future, the
Indonesia’s working population and unemployment government issued regulation no. 48/2015, and will inject
rate Rp3.46tn into BPJS Health, to be taken from the state budget
116 m population Working population (LHS) 7.5% 2015. In addition, the premium for BPJS is reviewed once every
Unemployment rate (RHS) two years, according to Presidential decree no. 111/2013. The
114
premium payable is up for evaluation in 2016 and careful
7.0%
112
consideration may improve the underfunded status.
110 6.5% Is the long-awaited Coordination of Benefits (COB)

scheme here and running?
108
BPJS Health has issued a circular for rolling-out the Coordination
6.0%
106
of Benefits (COB) scheme pilot project in Aug 2015. This is a co-
payment scheme that allows private insurance companies to
104 5.5% supplement JKN.
2010 2011 2012 2013 2014
Source: Statistics Indonesia (BPS), DBS Vickers
Page 2
Industry Focus
The implications from the effective roll-out of the pilot COB

scheme are: Indonesia is among the lowest healthcare spender
10%
 Improvement in patient volumes for hospitals that are 9%
% of GDP
not BPJS-affiliated like Mitra Keluarga (MIKA IJ). 8%

Without the COB scheme, patients (who want to tap 7%
6%
on the JKN programme) are restricted to public 5%
hospitals and BPJS-affiliated private hospitals. 4%
2.9%
3%
 Margin improvement for BPJS-affiliated private 2%
hospitals such as Siloam Hospitals (SILO IJ), mainly from 1%
0%
upgrades from standard JKN fees and services.
Cambodia
Singapore
Japan
Brunei
Indonesia
Philippines
ASEAN
Laos
Vietnam
Myanmar
South Korea
China
Malaysia
Thailand
India
 More subscribers for private insurance companies. The
industry is still very much underpenetrated, with only
an estimated 8m subscribers or just around 3% of total
Source: CIA World Factbook
population.
Private remains the driver of healthcare expenditure
However, despite the issue of the circular and the expanded list 400 Rptr Government Private
of private insurers and non-BPJS hospitals participating in this 350
COB scheme, we have not seen the finer details on the
300
implementation of COB, which has been the main issue
between BPJS and private insurers for the past few years. 250
216
170 192
200
151 14.8%
Growing healthcare spending – starting from low base... 150 132 CAGR
Indonesia’s healthcare expenditure at 2.9% of GDP is one of the 96
117
100
lowest in the region and below ASEAN countries’ average of 109 131
50 99 13.3% 119
4%, despite growing at 14% CAGR for the last five years. 64 66 81
CAGR
According to Business Monitor International, Indonesia’s -
2009 2010 2011 2012 2013 2014 2015F
healthcare expenditure is expected to continue to grow at 12%
Source: WHO, DBS Vickers.
CAGR for the next five years (slightly higher-than-expected
nominal GDP growth), primarily driven by private expenditure
... with increasing commitment from government
(which currently contributes c.62% of total healthcare
Recent 2016 state budget draft has allocated Rp106.1tn
expenditure) rather than government spending; despite the
healthcare budget (or 5% of total budget), a staggering 43% y-
progress on much heralded JKN implementation.
o-y increase. This allocation on healthcare matters is the highest
ever and includes coverage of 92m “poor & near-poor”
Indonesia’s healthcare spending
population under the JKN programme.
350 Rp tr
311
300 14.2% CAGR 279 Healthcare budget trend
250 120 5.5%
250 Rp tr
Healthcare budget (LHS)
212
As % of total budget (RHS)
200 183 100 5.0% 5.0%
160
150 4.5%
80
100 4.0%
60
50 106.1 3.5%
40
- 3.0%
2009 2010 2011 2012 2013 2014
20 2.5%
Source: WHO, Business Monitor International (BMI)
0 2.0%
2010 2011 2012 2013 2014 2015 2016
Source: Ministry of Finance, State-budget (APBN), DBS Vickers
Page 3
Industry Focus
HOSPITAL SECTORS
Stronger growth in private hospitals to serve healthcare

There has been a staggering increase in the number of hospital
needs
beds (20.6% CAGR in the past four years) into the healthcare
According to data from the Ministry of Health, there are a total
sector in Indonesia. Investment into this sector is seen as
of 2,457 hospitals in Indonesia currently. The increase in private
attractive, given that the number of beds of 12.2 per 10,000
hospitals; both profit and non-profit; (19.1% CAGR in the past
population is still below ASEAN’s average of 15.8 per 10,000
three years) has grown faster and now outnumber the number
population.
of public hospitals with 61% market share.
Number of hospitals (private vs public) Hospitals beds grew at 20.6% CAGR (in four years)
3,000 Public Private 350,000 Beds (LHS) Beds / 10,000 population (RHS) 13.0
12.2 12.0
2,457
2,500 2,244 300,000 11.0
2,083 10.9
2,000 10.0
1,721 9.7
250,000
1,510 9.0
1,500 1,337
1,195 305,744
8.0
893 200,000
1,000 19.1% CAGR 7.0 7.0
273,762
6.0 238,373 6.0
150,000
500 888 907 947
828 170,656 5.0
4.6% CAGR 144,410
0 100,000 4.0
2012 2013 2014 2015-YTD 2010 2011 2012 2013 2014
Source: Ministry of Health, DBS Vickers Source: Ministry of Health, DBS Vickers
Breakdown of public and private hospitals Beds per 10,000 population – regional comparison
100% 30 28 27
90%
25
80% 22 21
52% 57%
70% 60% 61% 20 18
15.8
60%
15 12.2
50%
10
40% 10
7 7 6
30%
5
48% 43%
20% 40% 39%
10% 0
0%
2012 2013 2014 2015-YTD
Public Private
Source: Ministry of Health, DBS Vickers Source: Ministry of Health, DBS Vickers
Indonesia hospitals - breakdown by ownership Out-of-pocket expenditure is the highest portion

Ministry of
Health & other
Government Private - out of pocket Private - other source
ministries 100%
1.7%
90% 17% 16% 16% 14% 13% 12% 11% 12% 15% 16% 15% 15% 15%
80%
Gov't
(provincial, 70%
48% 48%
district, 60% 45% 44% 45% 54% 52% 49% 48% 50% 45% 46% 46%
municipal) 50%
28.7%
40%
Private 30%
61.4%
20% 38% 40% 40% 32% 35% 40% 40% 40% 36% 34% 40% 39% 38%
Military & Police
6.8% 10%
0%
2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
State-owned
2.6%
Source: Worldbank data, DBS Vickers
Source: Ministry of Health, DBS Vickers
Page 4
Industry Focus
PHARMACEUTICAL SECTOR
According IMS Health, generic drug sales in Indonesia grew by
Prescription drugs remain the driver for pharmaceuticals
11.2% CAGR from 2011 to 2015 and reached Rp60.5tn in
Pharmaceutical sales rose by respectable 9% CAGR in the past
2015. The growth is pretty much driven by volume given that
five years to Rp70.4tn and contributed 23% of total healthcare
there have been no price adjustments on generic drugs since
expenditure. The strong growth is mainly driven by prescription
2012.
drugs, including patented and generic drugs with 11.8% and
11.2% CAGR, respectively for the same period; offset by slower
Pharmaceutical companies must adapt to changing
growth in OTC market (only 5.8% CAGR in past five years).
landscape.
OTC products are regarded as “preventive” medicines. While the roll-out of JKN provides volume growth opportunities,
Therefore, these are popular in Indonesia given the low pharmaceutical companies must cope with the changing
purchasing power and limited availability of prescription drugs. landscape on the industry, i.e. the shift toward more generic
However, the roll-out of JKN programme could further increase drugs (especially unbranded generic ones).
the contribution of prescription drugs especially generic ones
when all Indonesians are covered in 2019. Major impact on pharmaceutical sector from the roll-out of JKN
programme:
Declining contribution from OTC drug sales
Patented drug Generic drug OTC  Compulsory use of generic drugs, whenever possible.
100% Patients under the JKN scheme (including COB) do not
90%
37.5%
have much choice, otherwise they will not be
80% 44.8% 43.1% 42.1% 41.1% 39.7% 38.5%
70% reimbursed by the scheme.
60%  The cap on ceiling prices of generic medicines have
50% been set under Ministry of Health Decree no.
41.6% 42.1%
40%
37.7% 39.4% 40.0% 40.5% 41.1% 092/MENKES/SK/11/2012, which means that
30%
pharmaceutical companies’ margins are dependent on
20%
10% 17.5% 17.5% 17.9% 18.4% 19.3% 19.9% 20.4% government’s pricing policies.
0%  Shift in distribution channel, as registered hospitals and
2009 2010 2011 2012 2013 2014 2015F
clinics slowly take over as the main distribution
Source: Roadmap to National Health Insurance 2012-2019 channels from physicians and pharmacies. In addition,
the introduction of e-procurement for generic drugs by
JKN to drive growth especially generic drugs The the government will aid this apparent shift too.
progressive roll-out of JKN is expected to further boost the sales
volume of generic drugs (albeit lower sales value) from 2015 As such, pharmaceutical companies with large production
onwards as the coverage is expected to expand from c.155m capacities and networks hold advantages as benefits from
now (65% of total population) to full coverage of over 250m economies of scale would enable them to have better control
population in 2019. over costs, and hence be in a better position to win
procurement tenders conducted by the government for the
Growth in generic drug market
70
supply of generic medicines.
Rptr Unbranded Ethical Free sales
60
11.2% CAGR
Furthermore, pharmaceutical companies have to look for
50 opportunities in niche markets, where there are no generic
24.3
22.8 substitutes. For example, branded drugs used in oncology. This
40 21.0
18.3 niche market opportunity should offer a platform for
30 15.7 pharmaceutical companies to maintain their high profitability
30.6
going forward.
20 27.9
23.6 26.0
21.1
10
2.7 3.4 4.1 4.8 5.6

0
2011 2012 2013 2014 2015
Source: IMS Health, Kimia Farma presentation, DBS Vickers
Page 5
Industry Focus
What to look out for in the pharmaceutical sector in 2016:
 Price adjustments on generic drugs. The cap on ceiling

prices has not been revised since 2012 despite the increase
in raw material costs (due to US$ appreciation). The
International Pharmaceutical Manufacturing Group (IPMG)
has been pressuring the government to revise the Ministry
of Health Decree and there is a possibility that this issue will
be discussed and revised next year.
 Impact on USD/IDR rate volatility. Note that the basic

chemical industry is still inadequate and very
underdeveloped in Indonesia. Hence, 90% of raw materials
for medicines in Indonesia are imported. Between the end
of 2012 and now, the IDR has depreciated by a staggering
40%.
IDR has been weakening against the USD

15,000
14,000
13,000
12,000
11,000
10,000
9,000
8,000
Jan-12 Jul-12 Jan-13 Jul-13 Jan-14 Jul-14 Jan-15 Jul-15
Source: Bloomberg Finance L.P
 Government policies. Changes in regulations such as

negative investment lists, patents, price ceilings and anti-
trusts should impact the pharmaceutical industry as a
whole.
Another risk to highlight for pharmaceutical players is the

impact from Law no. 33/2014 (effective since 17 Oct 2014) on
Halal Product assurance. This law requires all pharmaceutical
products to be halal certified by 2019. Given the nature of the
pharmaceutical industry, in which 90% of raw materials are
imported, it is virtually impossible for pharmaceutical companies
to obtain the certification. IPMG (International Pharmaceutical
Manufacturers Group) has since tried to negotiate with the
government to exempt pharmaceutical products.
Page 6
Industry Focus
Valuations are not cheap due to scarcity and liquidity its existing hospitals and new hospital in the pipeline, implying
There are only a limited number of listed companies in Indonesia 45x EV/EBITDA on 2016 forecast. Potential upside to our
in these two sectors. Hence, the stocks are trading at premium valuation will be from better-than-expected growth in the
valuations due to scarcity of options (please refer to valuation number of patients and exceptional operational performance
table on APPENDIX). from its existing and new hospitals. MIKA is an established
private hospital franchise with a track record exceeding 25
 Pharmaceuticals: Kalbe Farma (KLBF IJ), Kimia Farma years. MIKA is focusing on building hospitals in good population
(KAEF IJ), Indofarma (INAF IJ), Tempo Scan Pacific catchment areas to serve the surrounding communities. MIKA
(TSPC IJ) and Sido Muncul (SIDO IJ). prefers to grow organically and at a conservative pace and thus
 Hospitals: Mitra Keluarga Karyasehat (MIKA IJ), Siloam maintain its profitability despite being in a great position to tap
Hospitals (SILO IJ), Sarana Meditama Metropolitan – into Indonesia’s underpenetrated healthcare sector and the
Omni Hospital (SAME IJ) and Sejahteraraya country’s rising healthcare needs.
Anugrahjaya - Mayapada Hospitals (SRAJ IJ).
We also upgraded KLBF to BUY from HOLD with Rp1,600 TP
Pharmaceutical companies are trading at 15-27x FY16 PE with (implying 18% upside from current price). Our upgrade is mainly
KLBF at the high end of the range due to its market leadership due to valuation as KLBF's stocks are now trading close to its 5-
and great execution history. Hospital stocks are also trading at year mean PE (at 26x FY16 EPS) with potential stock recovery.
sky-high valuations and by far, Indonesia's hospitals are the Volatility in USD/IDR will still be a concern in 2016. However, we
most expensive in the region due to growth prospects as well as believe it is largely priced-in, given that the stock has
scarcity and liquidity issues. underperformed the consumer space and the operational
suspension on some parts of its manufacturing line should be
Switch preference to hospitals despite rich valuations over by 2016.
Both health services and pharmaceuticals are direct beneficiaries

of the successful implementation of the JKN programme. With
the roll-out of the JKN programme and the volatility in USD/IDR
movements, we believe hospital players with conservative
growth strategy and sustainable earnings have better
risk/reward potential than pharmaceuticals despite their lofty
valuations.
Hospital developers and operators (both BPJS-affiliated and non-

BPJS-affiliated) have positioned themselves well to rake in extra
revenue from the JKN programme and the COB scheme pilot
project. Hospital players face risks such as the capital intensive
nature of their business and shortage of relevant human
resources that can limit their future growth.
On the other hand, pharmaceutical players should see a boost in

volume sales from the generic drugs segment. However, margin
pressure is inevitable as generic drugs generate low margins and
have price ceiling caps (regulated by Ministry Health Decree). In
addition, the current weakness in IDR has made it tougher for
these companies to maintain margins as raw material costs have
increased.
Our pick is MIKA over SILO for its more conservative growth,
solid margin and strong balance sheet. Together with this
report, we initiate coverage on MIKA with a BUY
recommendation and Rp2,900 TP, based on DCF valuations on
Page 7
Industry Focus
A lesson from Thailand’s Universal Coverage Scheme been improving but was relatively stable because of steady
(UCS) growth in Thailand’s GDP as well (at 9% CAGR).
There is no blueprint available on how to achieve successful
implementation of the universal healthcare coverage, however, Healthcare expenditure as % of GDP
Thailand’s universal coverage experience should provide valuable 300 THB Healthcare expenditure per capita - LHS % 5
lessons for Indonesia. Healthcare expenditure (as % of GDP) - RHS

250
Thailand launched the UCS programme in 2001 (funded with 200

general tax revenues) and achieved universal coverage in such
150 4
short period of time in 2002. The scheme was expanded rapidly,
by succesfully registering 47m people (75% of population) in 100
the new scheme and finding public resources to cover the 18m
who were previously uninsured and members of two existing 50
publicly subsidised schemes (i.e. Social Security Scheme and Civil

0 3
Servant Medical Benefit Scheme). 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
Source: data.worldbank.org, DBS Vickers

Government spending made up more than 80% of
healthcare spending The number of UCS members has remained stable at 47m over
100%
9.3 9.3 9.0 8.4 9.2 8.9 8.6
10 years since 2002, but UCS’s capitation per capita budget has
9.9 9.4 10.4 11.2 9.9
90%
12.4 11.6 11.3 more than doubled from THB 1,201.4 in 2002 to THB 2,693.5 in
17.4 14.5 14.7 15.4 14.2
80%
27.2 26.9 26.1 27.2 2011. The increase was mainly due to rising labour and material
70%
costs of providing medical and health services.
60%
50%
40% 76.3 77.7 79.5 80.1 Thailand’s UCS capitation budget per capita
72.7 75.9 74.2 74.6
30% 63.5 63.8 64.9 64.4 3,000 THB per capita
20%
10% 2,500
0%
2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2,000
Gov't Private - out of pocket Private - others

1,500
Source: data.worldbank.org, DBS Vickers
1,000
According to Health Insurance System Research Office report for 500

independent assessment of the first 10 years (2001-2010), the
three features that defined Thailand’s UCS are: 1) A tax- 0
2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
financed scheme free at the point of service (initial co-payment
Source: NHSO, Health Insurance System Research Online (an
of just THB 30 per visit or admission; terminated in November
independent assessment of the first 10 years)
2006 due to budget constraint); 2) A comprehensive benefits
package with a focus on primary care; and 3) A fixed annual
According to the same report by Health Insurance System
budget with a cap on provider payments.
Research Office, there are a few challenges that need to be
sorted out for the betterment of UCS programme such as
The government’s commitment to support the UCS is critical
segregation duties between NHSO and Ministry of Publich
with steady increase in budget allocation. Thailand’s general
Health (MOPH), harmonisation between UCS & two existing
government expenditure on health increased from THB 84.5bn
public health insurances schemes and inequitable
in 2001 (when UCS was launched) to THB 116.3bn in 2002 (the
redistribution of healthcare professionals (which are highly
1st full year of UCS implementation) and THB 247.7bn in 2008.
concentrated in central region and large urban centres).
The commitment is further evidenced in 2009 when GDP fell
2%, but the Thai government found a way to obtain resources
to continue funding the scheme by cutting spending at all
ministries. Total health expenditure as a percentage of GDP has
Page 8
Industry Focus
APPENDIX
Pharmaceutical valuations - comparison among domestic peers

Market
PE(x) PB(x) Div. Yield ROE
BB Ticker Company name cap
US$m 14A 15F 16F 14A 15F 16F % %
KLBF IJ Kalbe Farma 4,509.2 30.0 29.5 26.5 7.6 6.6 5.8 1.3 25.3
KAEF IJ Kimia Farma 402.7 22.9 21.2 17.8 3.3 NA NA NA 14.6
TSPC IJ Tempo Scan Pacific 550.9 13.7 13.6 12.4 1.7 1.7 1.6 3.6 13.2
SIDO IJ Sido Muncul 612.2 19.7 17.1 14.9 3.2 2.9 2.7 3.1 16.6
Weighted average 27.0 26.3 23.5 6.4 5.3 4.7 1.6
Source: DBS Vickers, Bloomberg Finance L.P.

Note: Price as of 23 Nov 2015 close
Hospital valuations - comparison among regional peers

Market cap EV/EBITDA(x) PE(x) PB(x) Div. Yield ROE
BB Ticker Company name
US$m FY15F FY16F FY15F FY16F FY15F FY16F % %
Mitra Keluarga
MIKA IJ Equity 2,746.4 48.4 40.2 64.8 52.4 11.7 10.5 0.8 30.1
Karyasehat
Siloam International
SILO IJ Equity 798.3 16.8 12.1 99.4 77.6 6.2 5.8 n/a 3.8
Hospitals
Sarana Meditama
SAME IJ Equity 213.3 20.8 17.0 51.8 56.6 12.1 10.6 0.3 26.5
Metropolitan
Sejahteraraya
SRAJ IJ Equity 137.5 n/a n/a n/a n/a n/a n/a n/a n/a
Anugrahjaya
BH TB Equity Bumrungrad Hospital 4,406.7 28.1 25.1 44.8 38.9 12.4 10.5 1.1 26.2
BCH TB Equity Bangkok Chain 566.4 18.5 16.3 42.4 36.1 4.5 4.2 1.4 11.4
RFMD SP Equity Raffles Medical 1,696.6 24.6 23.1 33.8 31.3 4.1 3.8 1.4 13.4
IHH SP Equity IHH Healthcare 11,821.2 24.8 21.4 56.0 46.0 2.5 2.4 0.6 4.0
KPJ MK Equity KPJ Healthcare 1,026.0 15.3 13.6 30.1 27.4 3.2 3.0 1.7 11.2
Apollo Hospitals
APHS IN Equity 2,823.7 23.3 19.3 47.2 37.6 5.4 4.8 0.5 11.1
Enterprise
FORH IN Equity Fortis Healthcare 1,122.0 28.2 18.0 66.6 32.5 1.7 1.6 n/a -3.5
RHC AU Equity Ramsay Healthcare 19,116.4 13.2 12.1 29.5 25.8 6.9 6.2 1.8 24.3
SHL AU Equity Sonic Healthcare 11,632.2 11.9 11.0 17.9 16.6 2.4 2.3 4.0 10.9
PRY AU Equity Primary Healthcare 2,366.8 7.3 7.0 13.9 12.7 0.7 0.7 5.2 5.7
Market weighted average

Indonesia 38.7 31.8 68.9 55.9 10.2 9.2 0.6 23.5
Thailand 27.0 24.1 44.5 38.6 11.5 9.8 1.1 24.5
Singapore 24.7 21.6 53.2 44.2 2.7 2.6 0.7 5.2
Malaysia 15.3 13.6 30.1 27.4 3.2 3.0 1.7 11.2
India 24.7 18.9 52.7 36.2 4.3 3.9 0.3 6.9
Australia 12.3 11.3 24.3 21.6 4.9 4.4 2.8 18.3

Source: DBS Vickers, Bloomberg Finance L.P.
Note: * Bloomberg consensus estimate. Price as of 23 Nov 2015 close
Page 9
Industry Focus
List of non-BPJS-affiliated private hospitals participating in COB scheme

No. Hospital Name Region
1 Mitra Keluarga Bekasi Hospital Bekasi - East Jakarta suburb
2 Puri Cinere Public Hospital Depok - South Jakarta suburb
3 Siloam Kebon Jeruk Hospital West Jakarta
4 Mitra Kemayoran Hospital Central Jakarta
5 Pondok Indah Hospital South Jakarta
6 MMC Hospital South Jakarta
7 Mitra International Hospital East Jakarta
8 Pantai Indah Kapuk Hospital North Jakarta
9 JIH Hospital Sleman - Central Java
10 Premier Surabaya Hospital Surabaya - East Java
11 Premier Bintaro Hospital South Tangerang - West Jakarta suburb
Addition as of 1 July 2015
12 Meilia Hospital East Jakarta
13 Awal Bros Bekasi Hospital Bekasi - East Jakarta suburb
14 Mitra Kelaurga Depok Hospital Depok - South Jakarta suburb
15 St. Antonius Hospital Pontianak - West Kalimantan
16 Santa Maria Hospital Pekanbaru - Riau
17 Catherine Booth Hospital Makassar - Southeast Sulawesi
18 Columbia Asia Medan Hospital Medan - North Sumatra
19 Ciputra Hospital Tangerang - West Jakarta suburb
20 Eka Hospital Tangerang - West Jakarta suburb
21 JEC Menteng Hospital Central Jakarta
22 Mata AINI Hospital South Jakarta
23 Mayapada Hospital South Jakarta
24 Pusat Pertamina Hospital South Jakarta
Source: BPJS, Ministry of Health
Page 10
Industry Focus
List of insurance companies cooperating with BPJS Health as of May 2015

No Name of Insurance Companies No Name of Insurance Companies
1 PT Asuransi Sinar Mas 27 PT Asuransi Jiwa Inhealth Indonesia
2 PT Asuransi Mitra Maparya Tbk 28 PT Asuransi Jiwa Tugu Mandiri
3 PT Lippo General Insurance 29 PT AXA Financial Indonesia
4 PT Arthagraha General Insurance 30 PT AXA Mandiri Financial Service
5 PT Asuransi Astra Buana 31 PT Avrist Assurance
6 PT Asuransi Umum Mega 32 PT Asuransi Jiwa Central Asia Raya
7 PT Asuransi Bina Dana Arta Tbk 33 PT Asuransi Takaful Keluarga
8 PT Tugu Pratama Indonesia 34 PT Asuransi Jiwasraya (Persero)
9 PT Asuransi Multi Artha Guna Tbk 35 PT Asuransi Jiwa Sinarmas MSIG
10 PT Asuransi Central Asia 36 PT Asuransi Jiwa Generali Indonesia
11 PT Bosowa Asuransi 37 PT AIA Financial
12 PT Asuransi Indraputra 38 PT Asuransi Jiwa Recapital
13 PT Asuransi Bintang Tbk 39 PT Asuransi Allianz Life Indonesia
14 PT Asuransi Jasa Indonesia (Persero) 40 PT Astra Aviva Life
15 PT Asuransi Bangun Askrida 41 Pt Asuransi Jiwa Bringin Jiwa Sejahtera
16 PT Asuransi Axa Indonesia 42 PT Equity Life Indonesia
17 PT Citra International Underwriters 43 PT Great Eastern Life Indonesia
18 PT Asuransi Reliance Indonesia 44 PT MNC Life Assurance
19 PT Asuransi Dayin Mitra Tbk 45 PT Asuransi Jiwa Adisarana Wanaartha
20 PT Asuransi Adira Dinamika 46 PT Tokio Marine Life Insurance Indonesia
21 PT Pan Pacific Insurance 47 PT Asuransi Jiwa Manulife Indonesia
22 PT Asuransi Samsung Tugu 48 PT ACE Life Insurance
23 PT Asuransi Umum Bumi Putera Muda 1967 49 PT Hanwa Life Insurance Indonesia
24 PT Victoria Insurance 50 PT Kresna Life
25 PT Asuransi Ramayana 51 PT BNI Life Insurance
26 PT AJB Bumi Putera 1912 52 PT Asuransi Jiwa Sequis Financial
Source: BPJS, Ministry of Health
Page 11
Industry Focus
Regulations for pharmaceutical sector

Regulation Regarding Important points Remarks
1. Pharmaceutical company has to obtain license from Health

Minister to produce drugs and/or drug ingredients.
2. Pharmaceutical company has the following functions:
manufacturing; educating and training; research and
development.
Health Ministry regulation no.
1 Pharmacy Industry 3. A licensed pharmaceutical company has to be a limited
1799/MENKES/PER/XII/2010
company and have at least 3 pharmacists (Indonesia citizens)
for quality assurance, production and quality control.
4. A licensed pharmaceutical company must produce report
activities (including production volume and value) every 6
months.
1. Every drug circulated in Indonesia must be registered and

licensed for marketing (valid and renewable every 5 years).
2. Locally produced drug can only be registered by a licensed
pharmaceutical company. (Pharmaceutical company is
licensed by Health Minister) Revision of Health Ministry
Health Ministry regulation no.
2 Drug registration 3. Imported drug registration can be registered by local regulation no.
1120/MENKES/PER/XI/2008
pharmaceutical company which has written approval from 1010/MENKES/PER/XI/2008
foreign pharmaceutical.
4. Pharmaceutical company has to market the registered
drugs within 1 year of approval date.
5. Penalties & suspensions for violating regulations.
Revision of Health Ministry

Health Ministry decree no. National essential Contains a list of national essential drugs with guidance on
3 decree no.
312/MENKES/SK/IX/2013 drugs list usage and management
2500/MENKES/SK/XII/2011
Revision of Health Ministry
Health Ministry decree no. Contains a list of generic drug in Indonesia together with
4 Generic drug price decree no.
436/MENKES/SK/XI/2013 retail price ceiling
092/MENKES/SK/II/2012
Negative investment Maximum foreign ownership increased to 85% from 75% Revision of Presidential decree
5 Presidential decree no. 39/2014
list (DNI) previously no. 36/2010
Halal Product
6 Law no 33/2014 Pharmaceutical products must be Halal certified by 2019
Assurance
Page 12
Industry Focus
Regulations for hospital sector

Regulation Regarding Important points
1. Defining hospitals duties and functions.
2. Infrastructure and facility requirements of operational hospitals.
1 Law no. 44 / 2009 Hospital operation 3. Classification of hospitals based on type of services and management. (Refer to
previous table of hospital classification).
4. Each hospital has to have construction permit (for a period of 2 years and
extendable for another 1 year) and operational license (valid & renewable every 5
Health Ministry regulation no. years). Both can be revoked during period of validity.
2 Hospital license
147/MENKES/PER/I/2010 5. National tariff scheme is set by Health Ministry.
6. Penalties for violating regulations
1. Valid registration for medical practice is issued by Indonesia medical council.

3 Law no. 29 / 2004 Medical practitioner 2. Doctor and dentist registration letter and license to practice is valid, renewable
every 5 years and can be revoked during period of validity.
3. Each doctor and dentist is granted licenses to practice maximum in three places
(including gov't, private and individual practice).
Health Ministry regulation no. 4. Defining medical practitioner obligations, patient rights and obligations
4 Medical practitioner license 5. Foreign graduates who intend to have medical practice in Indonesia should possess
2052/MENKES/PER/X/2011
work permit, proficient in Bahasa Indonesia and passed Indonesia medical council
evaluation.
6. Foreign medical practitioner can only practice as a means of knowledge and
technology transfer and is prohibited to practice independently.
Health Ministry regulation no. Foreign nationals health 7. Foreign medical practitioner license to practice is valid, renewable every 1 year and
5 can be revoked during period of validity.
317/MENKES/PER/III/2010 personnels
8. Foreign medical practitioner can only practice on either class A or B hospitals.
9. Penalties for violating regulations
Standard tariff rates for

Health Ministry regulation no. healthcare services (first-level
6 List of standard tariff for each category of healthcare service
69/2013 and advanced) in national
health insurance program
1. Maximum foreign ownership is 67% for all over Indonesia.

7 Presidential decree no. 39/2014 Negative investment list (DNI) 2. Maximum foreign (only ASEAN countries) ownership is 70% for investment in East
Indonesia capital cities, except for Makassar and Manado.
Page 13
Industry Focus
Stock Profiles
Page 14
Indonesia Company Guide
Mitra Keluarga Karyasehat
Edition 1 Version 1 | Bloomberg: MIKA | Reuters: MIKA.JK Refer to important disclosures at the end of this report
BUY Steady And Reliable In the Long Run

Last Traded Price: Rp2,505 (JCI : 4,585.55)
Price Target : Rp2,900 (16% upside) Initiate coverage with BUY call and Rp2,900 TP. Our TP is based
on DCF valuation of existing and new hospitals in the pipeline
Potential Catalyst: Potential higher patient volume from Coordination of and implies 45x EV/EBITDA (expensive as compared to regional
Benefits (COB) scheme implementation peers), mostly due to commanding scarcity premium. Potential
Where we differ: Premium valuation and better earnings growth than upside to our valuation will be from the better-than-expected
company guidance patient volume growth and exceptional operational
performance from its existing and new hospitals.
Analyst
Edward Ariadi Tanuwijaya +6221 3003 4932 Largest private hospital operator by market cap with sustainable
edward.tanuwijaya@id.dbsvickers.com growth. MIKA currently operates 12 hospitals (with 1,726
operational beds out of c.2,100 bed capacity) under its portfolio
and plans to grow organically and steadily with six new
Price Relative hospitals in the pipeline until 2020. MIKA has a market cap of
Rp Relative Index Rp36tn, more than triple the 2nd largest listed private hospital
chain in Indonesia.
249
3,130.0
229
2,930.0
2,730.0
209
189
Solid business model with focus on profitability . MIKA will
2,530.0
2,330.0
169 continue to concentrate on Greater Jakarta and Surabaya cities
149
2,130.0
1,930.0 129 for further expansion. In addition, its emphasis on cost
1,730.0 109
efficiency rather than aggressive expansion going forward
1,530.0 89
Mar-15 Jun-15 Sep-15
should see MIKA maintain and even improve on its operational
Mitra Keluarga Karyasehat (LHS) Relative JCI INDEX (RHS) margins, already one of the highest among peers.
Forecasts and Valuation
FY Dec (Rp bn) 2014A 2015F 2016F 2017F Valuation:
Revenue 1,946 2,280 2,667 3,155 MIKA is currently trading at 40x 2016 EV/EBITDA (expensive vs
EBITDA 615 731 881 1,046 regional peers’ average). We value the company using DCF
Pre-tax Profit 667 844 1,031 1,172 valuation for each of its existing and new hospitals and WACC
Net Profit 517 582 719 812
Net Pft (Pre Ex.) 517 582 719 812
assumption of 10.5% to arrive at our Rp2,900 TP.
Net Pft (ex. BA gains) N/A N/A N/A N/A
EPS (Rp) 37 40 49 56 Key Risks to Our View:
EPS Pre Ex. (Rp) 37 40 49 56 Slower expansion than expected. The availability of land in
EPS Gth (%) (87) 7 24 13
good locations is getting limited (especially in big cities like
EPS Gth Pre Ex (%) (87) 7 24 13
Diluted EPS (Rp) 37 40 49 56 Greater Jakarta and Surabaya). In addition, dearth of medical
Net DPS (Rp) 34 21 24 30 human resources in this industry (at just 0.2% of the total
BV Per Share (Rp) 126 222 247 273 population) may impact MIKA’s ability to recruit and retain
PE (X) 67.0 62.7 50.7 44.9
PE Pre Ex. (X) 67.0 62.7 50.7 44.9 medical professionals and execute its expansion plan.
P/Cash Flow (X) 52.9 49.5 53.5 39.3
EV/EBITDA (X) 54.9 46.7 38.8 32.7 At A Glance
Net Div Yield (%) 1.4 0.9 1.0 1.2 Issued Capital (m shrs) 14,551
P/Book Value (X) 19.9 11.3 10.1 9.2 Mkt. Cap (Rpbn/US$m) 36,450 / 2,666
Net Debt/Equity (X) CASH CASH CASH CASH Major Shareholders
ROAE (%) 30.1 23.4 21.1 21.5 Lion Investments (%) 49.7
Earnings Rev (%): - - - Griyainsani Cakrasad (%) 32.3
Consensus EPS (Rp): N/A N/A N/A Free Float (%) 18.0
Other Broker Recs: B: 6 S: 0 H: 2 3m Avg. Daily Val (US$m) 5.5
ICB Industry : Health Care / Health Care Equipment & Services
Source of all data: Company, DBS Vickers, Bloomberg Finance L.P
ASIAN INSIGHTS VICKERS SECURITIES

www.dbsvickers.com
ed: TH / sa: MA
Company Guide
Hospital expansion projection

20 no. of hospitals
CRITICAL DATA POINTS TO WATCH 18
18 17
16 15
Earnings Drivers: 14 13
14
Steady and sustainable growth in Net Operating Revenue 12 11

12
Sold equity interest
MIKA now operates 12 hospitals concentrated in both 10 in 2 hospitals 9
10
8
Greater Jakarta and Surabaya with a bed capacity of c.2,100. 8
6
MIKA is set to add six hospitals in the next five years and has 6
4
5
4
5
so far secured four sites for its new hospitals. 4

2
3
2 1
0
We project existing hospitals' in-patient and out-patient
admissions to grow at 6.6% and 4.8% CAGR respectively
between 2014 and 2019, and average revenue to grow at Operational beds and bed capacity
3,000
8.1% and 9.4% CAGR within the same period. Operational beds Bed capacity
2,500
Considering that and new hospital rollouts, we project Net
2,000
Operating Revenue (NOR) to increase by a 17.1% CAGR
between 2014 and 2019. Revenue contribution from existing 1,500
hospitals is still high at more than 90%.
1,000
Stable and improving EBITDA margins
500
MIKA’s EBITDA margins of 27-31% between 2011 and 2014
were among the highest in the region. As MIKA still focuses -
on cost efficiency, we believe that EBITDA margin is 2011 2012 2013 2014 2015F 2016F 2017F 2018F
sustainable and has room for further improvement going Net Operating Revenue Trend
Rp m
forward. 30.0%
3,000,000
2,500,000
MIKA’s new typical greenfield hospital has a 200-bed 25.0%
capacity, in which the number of operational beds will be 2,000,000

20.0%
increased gradually and require an initial capex of US$15m. It 1,500,000
is expected to generate positive EBITDA after six months of 1,000,000

15.0%
operation and generate an estimated 21.3% IRR. 500,000
0 10.0%
Strong free cash flow enables internally funded capex 2013A 2014A 2015F 2016F 2017F
expansion Total Revenue Revenue Growth (%) (YoY)
Given the mature hospitals in its portfolio and efficient Profitability Trend
operational management, MIKA has consistently and will Rp m
continue to generate high free cash flows despite its 1,098,596
expansion plan (i.e. one additional new hospital annually). 998,596
898,596
798,596
COMPANY BACKGROUND 698,596
Largest private hospital chain by market cap in Indonesia. 598,596
Mitra Keluarga Karyasehat (MIKA) currently operates 12 498,596
private hospitals in Indonesia with a total bed capacity of 398,596

2,100 as of Oct 2015. MIKA focuses its operations on 2013A 2014A 2015F 2016F 2017F
Greater Jakarta and Surabaya. The company began Operating EBIT Pre tax Profit Net Profit
operating its first hospital in 1989 and has expanded Margins Trend
organically with consistent and sustainable growth. MIKA 31.0%
was listed on the Indonesia Stock Exchange (IDX) on 24 Mar
29.0%
2015 and is currently the largest listed private hospital
company in Indonesia by market cap. 27.0%
25.0%
23.0%
21.0%
2013A 2014A 2015F 2016F 2017F
Operating Margin % Net Income Margin %
Source: Company, DBS Vickers

Page 16
Company Guide
Leverage & Asset Turnover (x)

Balance Sheet: 1.0
Healthy balance sheet 0.14
1.0
MIKA is expected to have zero interest-bearing debt and a 0.12

0.9
significant cash position. The company's strong free cash flow 0.10
0.9
generation should allow it to internally fund its expansion 0.08

0.8
capex. 0.06 0.8

0.04 0.7
Expansion capex to ramp up in the next few years 0.02 0.7
We forecast an average annual capex of Rp368bn between 0.00

2013A 2014A 2015F 2016F 2017F
0.6
2015 and 2018 for four new hospitals. Gross Debt to Equity (LHS) Asset Turnover (RHS)
Capital Expenditure
Share Price Drivers: Rp
600,000.0
Execution of expansion plan for both existing and new
500,000.0
hospitals
400,000.0
MIKA generates stable and sustainable earnings from the
mature hospitals in its portfolio, while leaning on new 300,000.0
hospitals for additional growth going forward. Better 200,000.0
performance from both maturing and new hospitals should 100,000.0
accelerate earnings growth and subsequently its share price. 0.0

2013A 2014A 2015F 2016F 2017F
Capital Expenditure (-)

Successful implementation of Coordination of Benefits (COB) ROE (%)
scheme. 30.0%
This will allow private insurance and corporates to top up the

25.0%
price difference from standardised INA-CBG prices and could
potentially improve overall patient volumes. 20.0%
15.0%
Key Risks:
10.0%
Shortage of medical professionals. Dearth of medical human
resources in this industry (at just 0.2% of the total 5.0%
population) may impact MIKA’s ability to recruit and retain 0.0%

2013A 2014A 2015F 2016F 2017F
medical professionals and execute its expansion plan.
Forward PE Band (x)
(x)
Extensively regulated industry. The healthcare sector is
subjected to extensive and dynamic government laws and 66.3
+2sd: 63.2x
regulations. Material changes in current laws and 61.3
+1sd: 60x
regulations may have adverse impacts on MIKA’s business. 56.3 Avg: 56.7x
‐1sd: 53.5x
51.3
‐2sd: 50.3x
Litigation risk from medical and legal claims. By nature, the 46.3
hospital business is exposed to medical and legal claims.
41.3
36.3
Ability to secure sites for future growth. The availability of Mar-15 Jun-15 Sep-15
land in good locations is becoming limited (especially in big PB Band (x)

cities like Greater Jakarta and Surabaya). This may restrict (x)
18.3
MIKA’s ability to expand further in the future.
17.3
16.3 +2sd: 16.44x
Potential decline in patient volume. The lower-cost 15.3 +1sd: 15.42x
alternatives for healthcare services as laid out by the much- 14.3 Avg: 14.39x
heralded universal healthcare programme (JKN) may result in 13.3 ‐1sd: 13.37x
lower-than-expected patient volumes in MIKA’s hospitals. 12.3 ‐2sd: 12.35x
11.3
10.3
Mar-15 Jun-15 Sep-15

Page 17
Company Guide
Segmental Breakdown
FY Dec 2013A 2014A 2015F 2016F 2017F
Revenues (Rp bn)
IP-Medical services 417 474 547 640 757
IP-Medical supplies 558 585 684 800 947
IP-Room 198 222 251 293 347
OP-Medical services 319 375 456 533 631
OP-Medical supplies 250 290 342 400 473
Total 1,742 1,946 2,280 2,667 3,155

Gross profit (Rp bn)
IP-Room 82 106 94 131 145
OP-Medical services 215 247 294 344 407 Sustainable and high
OP-Medical supplies 99 138 182 213 252 margins
Total 737 865 1,018 1,212 1,425

Gross profit Margins (%)
IP-Medical services 43.6 44.4 44.4 44.4 44.4
IP-Medical supplies 28.6 27.9 30.0 30.0 30.0
IP-Room 41.4 47.8 37.4 44.5 41.7
OP-Medical services 67.4 65.7 64.5 64.5 64.5
OP-Medical supplies 39.4 47.7 53.3 53.3 53.3
Total 42.3 44.4 44.7 45.5 45.2
Income Statement (Rp bn)

FY Dec 2013A 2014A 2015F 2016F 2017F
Revenue 1,742 1,946 2,280 2,667 3,155
Cost of Goods Sold (1,005) (1,081) (1,261) (1,455) (1,731)
Gross Profit 737 865 1,018 1,212 1,425
Other Opng (Exp)/Inc (267) (319) (360) (419) (488)
Operating Profit 470 545 658 793 937
Other Non Opg (Exp)/Inc 12 41 59 67 78
Associates & JV Inc 0 0 0 0 0
Net Interest (Exp)/Inc 48 80 127 170 158
Exceptional Gain/(Loss) 0 0 0 0 0
Pre-tax Profit 530 667 844 1,031 1,172
Tax (118) (133) (235) (278) (323)
Minority Interest (13) (17) (27) (33) (38)
Preference Dividend 0 0 0 0 0
Net Profit 399 517 582 719 812
Net Profit before Except. 399 517 582 719 812
EBITDA 543 615 731 881 1,046
Decent and sustainable
Growth
revenue growth
Revenue Gth (%) 18.1 11.7 17.2 17.0 18.3
EBITDA Gth (%) 26.5 13.3 18.9 20.5 18.8
Opg Profit Gth (%) 29.3 15.9 20.7 20.5 18.1
Net Profit Gth (%) 38.1 29.7 12.5 23.6 12.9
Margins & Ratio
Gross Margins (%) 42.3 44.4 44.7 45.5 45.2
Opg Profit Margin (%) 27.0 28.0 28.9 29.7 29.7
Net Profit Margin (%) 22.9 26.6 25.5 27.0 25.7
ROAE (%) 26.7 30.1 23.4 21.1 21.5
ROA (%) 20.9 24.1 19.6 18.0 18.1
ROCE (%) 21.6 22.7 17.5 15.6 16.3
Div Payout Ratio (%) 3.8 90.9 53.3 48.5 53.1

Page 18
Company Guide
Quarterly / Interim Income Statement (Rpbn)

FY Dec 3Q2014 4Q2014 1Q2015 2Q2015 3Q2015
Revenue 467 478 541 561 500

Cost of Goods Sold (275) (253) (294) (302) (277)
Gross Profit 192 225 248 258 223
Other Oper. (Exp)/Inc (74) (82) (82) (90) (93)
Other Non Opg (Exp)/Inc 2 3 5 4 4
Associates & JV Inc 0 0 0 0 0
Net Interest (Exp)/Inc 29 15 23 36 36
Exceptional Gain/(Loss) 0 0 0 0 0
Pre-tax Profit 148 161 193 209 171
Tax (20) (33) (42) (38) (37)
Minority Interest (3) (5) (6) (6) (5)
Net Profit 125 124 145 165 130
Net profit bef Except. 125 124 145 165 130
EBITDA 117 143 166 168 130
Growth
Revenue Gth (%) (7.9) 2.4 13.2 3.6 (10.8)
EBITDA Gth (%) (11.8) 21.8 15.8 1.7 (22.6)
Opg Profit Gth (%) (11.8) 21.8 15.8 1.7 (22.6)
Net Profit Gth (%) (12.0) (1.3) 17.4 13.5 (21.2)
Margins
Gross Margins (%) 41.0 47.1 45.7 46.0 44.6
Opg Margins (%) 25.1 29.9 30.6 30.0 26.1
Net Profit Margins (%) 26.8 25.8 26.8 29.4 26.0
Balance Sheet (Rp bn)

FY Dec 2013A 2014A 2015F 2016F 2017F
Net Fixed Assets 598 771 914 1,202 1,596

Invts in Associates & JVs 0 0 0 0 0
Other LT Assets 125 196 190 288 370
Cash & ST Invts 1,108 970 2,419 2,407 2,439
Inventory 40 39 53 53 73
Debtors 114 131 157 180 218
Other Current Assets 149 50 57 71 83
Total Assets 2,134 2,157 3,790 4,200 4,780
Zero interest-bearing debt
ST Debt 50 0 0 0 0
Creditor 56 47 73 66 99
Other Current Liab 175 158 228 208 293
LT Debt 0 0 0 0 0
Other LT Liabilities 118 145 174 209 251
Shareholder’s Equity 1,689 1,743 3,224 3,595 3,975
Minority Interests 45 63 91 124 162
Total Cap. & Liab. 2,134 2,157 3,790 4,200 4,780
Non-Cash Wkg. Capital 72 14 (34) 31 (18)

Significant net cash
Net Cash/(Debt) 1,058 970 2,419 2,407 2,439
position
Debtors Turn (avg days) 24.3 23.1 23.1 23.1 23.1
Creditors Turn (avg days) 21.1 18.5 18.4 18.4 18.5
Inventory Turn (avg days) 16.1 14.2 14.1 14.1 14.2
Asset Turnover (x) 0.9 0.9 0.8 0.7 0.7
Current Ratio (x) 5.0 5.8 8.9 9.9 7.2
Quick Ratio (x) 4.4 5.4 8.6 9.5 6.8
Net Debt/Equity (X) CASH CASH CASH CASH CASH
Net Debt/Equity ex MI (X) CASH CASH CASH CASH CASH
Capex to Debt (%) 320.4 N/A N/A N/A N/A

Page 19
Company Guide
Cash Flow Statement (Rp bn)

FY Dec 2013A 2014A 2015F 2016F 2017F
Pre-Tax Profit 530 667 844 1,031 1,172

Dep. & Amort. 73 70 73 87 109
Tax Paid (118) (133) (235) (278) (323)
Assoc. & JV Inc/(loss) 0 0 0 0 0
Chg in Wkg.Cap. (32) 58 81 (125) 7
Other Operating CF (5) (7) (27) (33) (38)
Net Operating CF 447 655 736 682 929
Capital Exp.(net) (160) (243) (216) (376) (504)
Other Invts.(net) 0 0 0 0 0
Invts in Assoc. & JV 0 0 0 0 0
Div from Assoc & JV 0 0 0 0 0
Other Investing CF 30 (26) 29 31 39
Net Investing CF (130) (269) (187) (345) (465)
Div Paid (15) (470) (310) (349) (432)
Chg in Gross Debt (5) (50) 0 0 0
Capital Issues (1) 0 1,210 0 0
Other Financing CF (3) (3) 0 0 0
Net Financing CF (24) (523) 900 (349) (432)
Currency Adjustments 0 0 0 0 0
Chg in Cash 293 (138) 1,449 (12) 32
Opg CFPS (Rp) 347 43 45 55 63
Free CFPS (Rp) 208 30 36 21 29 High operating cash
flow to fund expansion

Page 20
Siloam International Hospitals
Edition 1 Version 2 | Bloomberg: SILO IJ | Reuters: SILO.JK Refer to important disclosures at the end of this report
HOLD Warming Up For Next Year

Last Traded Price: Rp9,775 (JCI : 4,585.55) Maintain HOLD call with much lower TP. To reflect SILO’s
Price Target : Rp10,000 (2% upside) (Prev Rp17,000) stalled expansion this year, we slashed down our FY15/16F
revenue by 5.1%/14.2% and consequently our FY15/16F net
Potential Catalyst: Better expansion and performance from new profit by 6.6%/20%. Considering the difficulties for expansion
hospitals (mainly in securing licences) going forward, we also tweak our
Where we differ: Predict slower expansion than company’s aggressive DCF assumption and all those changes resulted in a lower TP
guidance of Rp10,000.
Analyst Likely to come up short of expansion plan this year. SILO
Edward Ariadi Tanuwijaya +6221 3003 4932
targeted to open 10 new hospitals (full-fledged and Siloam
edward.tanuwijaya@id.dbsvickers.com
Medika) this year. However, to date, not a single new hospital
has been opened and SILO has cited difficulties in finalising
licences and administration as the main reason behind this
delay. Realistically, as reflected in our forecast, there will be no
Price Relative
Rp Relative Index
additional hospitals or Siloam Medikas in SILO’s portfolio this
18,055.0 year.
207
One of the largest private hospital operators in Indonesia, with

16,055.0 187
167
aggressive growth ahead. SILO currently has 20 hospitals in its
14,055.0
147
portfolio and plans to expand aggressively in the next three

12,055.0
127
10,055.0
107
years. SILO has first-mover advantage in smaller cities, strong
8,055.0 87
Sep-13 Mar-14 Sep-14 Mar-15 Sep-15 branding, and good knowledge of the real estate market
Siloam International Hospitals (LHS) Relative JCI INDEX (RHS) through parent Lippo Group. SILO is changing its expansion
model by mixing greenfield full-service hospitals (300-bed
FY Dec (Rpbn) 2014A 2015F 2016F 2017F capacity) and the compact Siloam Medika (40-bed capacity) in
Revenue 3,341 4,013 4,991 6,176 retail malls. This way, SILO can leverage more on its parent
EBITDA 487 627 880 1,199 Lippo Group’s expertise in retail malls.
Pre-tax Profit 93.5 148 190 263
Net Profit 62.6 110 141 196 Valuation:
Net Pft (Pre Ex.) 62.6 110 141 196 SILO is currently trading at 13x 2016 EV/EBITDA (cheap vs
EPS (Rp) 54.1 95.4 122 169
regional peers’ average) after sharp 43% correction in 3
EPS Pre Ex. (Rp) 54.1 95.4 122 169
EPS Gth (%) 25 76 28 39 months from early Sep2015. We value the company using DCF
EPS Gth Pre Ex (%) 25 76 28 39 valuation for each of its existing and new hospitals to arrive at
Diluted EPS (Rp) 54.1 95.4 122 169 our Rp10,000 TP.
Net DPS (Rp) 0.0 0.0 0.0 12.2
BV Per Share (Rp) 1,426 1,521 1,643 1,800 Key Risks to Our View:
PE (X) 180.6 102.5 80.0 57.8 Slower expansion than expected. The extensive licensing
PE Pre Ex. (X) 180.6 102.5 80.0 57.8
P/Cash Flow (X) 30.8 21.8 15.3 10.9 requirements for new hospitals could impede future growth. In
EV/EBITDA (X) 22.7 17.4 12.5 9.1 addition, given the asset-light model, the ability to recycle cash
Net Div Yield (%) 0.0 0.0 0.0 0.1 and raise external funds for expansion is heavily dependent on
P/Book Value (X) 6.9 6.4 5.9 5.4
Singapore-listed First REIT’s ability to acquire SILO’s hospital
Net Debt/Equity (X) CASH CASH CASH CASH
ROAE (%) 3.8 6.5 7.7 9.8 assets and lease them back to the company.
Earnings Rev (%): (7) (20) (31)
Consensus EPS (Rp): 82.4 112 172 At A Glance
Other Broker Recs: B: 8 S: 1 H: 5 Issued Capital (m shrs) 1,156
Mkt. Cap (Rpbn/US$m) 11,301 / 827
Source of all data: Company, DBS Vickers, Bloomberg Finance L.P Major Shareholders
Lippo Karawaci TBK (%) 70.8
Free Float (%) 29.2
3m Avg. Daily Val (US$m) 3.5
ICB Industry : Health Care / Health Care Equipment & Services

www.dbsvickers.com
ed: TH / sa: MA
Company Guide
Hospital expansion projection

60
Siloam Hospitals Siloam Medika
50
CRITICAL DATA POINTS TO WATCH
40
Earnings Drivers:
30
Aggressive expansion to support high Gross Operating
Revenue (GOR) growth 20
SILO now operates 20 hospitals in 14 cities across Indonesia 10

with a total of over 4,800 beds. Our assumption that SILO
would operate 28 full-service hospitals plus 22 Siloam 0
2014 2015F 2016F 2017F 2018F 2019F
Medikas by end-2019 is far more conservative than guidance.
Free cash flow forecast
Rpbn
We project Gross Operating Revenue (GOR) to increase by a 350
283
300
24% CAGR between 2014 and 2019 (i.e. aggressive 250
242 232
expansion period). By end-2019, revenue contribution from 200
new hospitals (full-service and Siloam Medika) opened after 150
2014 will increase significantly to 25%. 100

50 15
0
Improving EBITDA margins as new hospitals mature -50
We forecast GP margins to hover at about 29% over the next -100
-111
few years. But EBITDA margins will improve as the hospitals -150
2015F 2016F 2017F 2018F 2019F
in SILO’s portfolio mature. We expect EBITDA margins to
improve by an average of 0.8ppt annually from 14.6% in Gross Operating Revenue Trend
2014. We also project EBITDA to more than quadruple Rp bn
6,000 50.0%
between 2014 and 2019 45.0%
5,000
40.0%
Turning free-cash-flow positive in 2017 4,000 35.0%
Premised on successful expansion, SILO will generate its first 3,000 30.0%
positive free cash flow at the end of 2017 (excluding 2015 2,000
25.0%
positive cash flow, which is more due to stalled expansion 1,000

20.0%
15.0%
capex). This suggests that SILO should be in a better financial
0 10.0%
position to execute its next growth phase. 2013A 2014A 2015F 2016F 2017F
Total Revenue Revenue Growth (%) (YoY)

First-mover advantage in smaller cities to accelerate payback
period Profitability Trend
Rp bn
With a presence in 14 cities nationwide, SILO has strong 299
branding, network and infrastructure. In addition, synergies 249

with property developer Lippo Karawaci (LPKR) gives SILO an
advantage in securing new locations to meet its expansion 199
plans. SILO has signed a master agreement with LPKR and 149
another strategic partner MPU for 30 new locations

nationwide.
99
49
2013A 2014A 2015F 2016F 2017F
Given extremely low penetration of hospital services and
Operating EBIT Pre tax Profit Net Profit
rising healthcare needs in Indonesia, the new hospitals in
smaller cities can potentially generate positive EBITDA within Margins Trend
two years of operations. 6.0%
5.5%
5.0%
COMPANY BACKGROUND 4.5%
SILO is Indonesia's largest private hospital operator with 20 4.0%

3.5%
operational hospitals in its portfolio, and plenty of new 3.0%
hospitals in the pipeline for the next few years. 2.5%

2.0%
1.5%
1.0%
2013A 2014A 2015F 2016F 2017F
Operating Margin % Net Income Margin %

Page 22
Company Guide

Balance Sheet: 1.8
0.14
Gearing up for aggressive expansion plan 1.7
0.12
Given its current low cash balance, high debt (both interest- 1.6
and non-interest-bearing debt), and aggressive expansion 0.10
1.5
plan, SILO’s net gearing is expected to increase significantly 0.08
1.4
from 11% in 2014. 0.06
0.04 1.3
Recently, SILO secured an option to exercise a rights issue (of 0.02 1.2
up to 10% of its current share base) within the next two 0.00
2013A 2014A 2015F 2016F 2017F
1.1
years, in the event it needs to beef up the balance sheet. Gross Debt to Equity (LHS) Asset Turnover (RHS)
Capital Expenditure
Capex to ramp up in the next four years Rp
We forecast annual capex to remain at Rp800–900bn in the 1,000.0
900.0
next three years as SILO ramps up the number of hospitals 800.0
(full-fledged service and Siloam Medika). 700.0

600.0
500.0
Share Price Drivers: 400.0

300.0
Execution of expansion plan 200.0
SILO is a growth story that leverages on the expanding 100.0

0.0
healthcare services industry in Indonesia. SILO’s growth will 2013A 2014A 2015F 2016F 2017F
depend on its ability to secure locations and the necessary Capital Expenditure (-)
licences to open new hospitals, and to raise financing. ROE (%)
9.0%
Successful implementation of Indonesia’s universal healthcare
8.0%
programme 7.0%
The successful implementation will be a game changer that 6.0%
will shape the future of Indonesia’s healthcare industry, and 5.0%
create positive sentiment in the sector. Healthcare service 4.0%

3.0%
providers are among those that will benefit from structural 2.0%
changes. 1.0%
0.0%
2013A 2014A 2015F 2016F 2017F
Key Risks:
Capital-intensive projects. Given the company’s aggressive Forward PE Band (x)
plans (i.e. 10 new hospitals p.a.) for the next three years, it (x)
will require large and constant funding. 227.6
+2sd: 216.1x
207.6
187.6 +1sd: 186.1x
Related-party transactions. The asset-light model requires
167.6
asset transfers between SILO and companies within the 147.6
Avg: 156.1x
Lippo Group (through property leases, shareholder loans, 127.6 ‐1sd: 126.2x

etc.) 107.6
‐2sd: 96.2x
87.6
Subject to extensive laws and regulations. The company 67.6

Sep-13 Mar-14 Sep-14 Mar-15 Sep-15
may face an adverse impact if there are material changes to
the regulations. PB Band (x)
(x)
Litigation risks from medical and legal claims. This is the 12.3
+2sd: 11.57x
nature of the healthcare service business. 11.3
10.3 +1sd: 10.3x
Shortage of medical human resource, with low healthcare 9.3

Avg: 9.03x
worker-to-population ratio, could impede growth going 8.3
‐1sd: 7.75x
forward. 7.3
6.3 ‐2sd: 6.48x
5.3
Sep-13 Mar-14 Sep-14 Mar-15 Sep-15

Page 23
Company Guide
Key Assumptions
FY Dec 2013A 2014A 2015F 2016F 2017F
No. of hospitals in portfolio 14.0 20.0 20.0 28.0 36.0
Segmental Breakdown
FY Dec 2013A 2014A 2015F 2016F 2017F
Revenues (Rpbn)
IP-Medical services 857 1,186 1,425 1,772 2,193
IP-Medical supplies 585 734 882 1,097 1,357
OP-Medical services 620 811 974 1,211 1,499
OP-Medical supplies 299 391 469 584 722 Forecast stable margins
Others 143 219 263 327 404
Total 2,504 3,341 4,013 4,991 6,176
Gross profit (Rpbn)
OP-Medical services 226 289 355 441 546
Others 46.4 50.9 64.5 80.2 99.2
Total 659 952 1,163 1,446 1,790
Gross profit Margins (%)
IP-Medical services 23.3 30.5 30.0 30.0 30.0
IP-Medical supplies 27.7 29.3 30.0 30.0 30.0
OP-Medical services 36.4 35.7 36.4 36.4 36.4
Others 32.4 23.3 24.6 24.6 24.6
Total 26.3 28.5 29.0 29.0 29.0
Income Statement (Rpbn)

FY Dec 2013A 2014A 2015F 2016F 2017F
Revenue 2,504 3,341 4,013 4,991 6,176

Gross Profit 659 952 1,163 1,446 1,790
Other Opng (Exp)/Inc (583) (784) (952) (1,180) (1,455)
Operating Profit 75.9 168 211 266 335
Other Non Opg (Exp)/Inc 2.75 (34.3) 0.0 0.0 0.0
Associates & JV Inc 0.0 0.0 0.0 0.0 0.0
Net Interest (Exp)/Inc (6.9) (40.4) (62.9) (76.0) (72.4)
Exceptional Gain/(Loss) 0.0 0.0 0.0 0.0 0.0
Pre-tax Profit 71.8 93.5 148 190 263
Expect a strong 24%
Tax (21.6) (33.8) (37.0) (47.4) (65.7) CAGR between 2014
Minority Interest (0.3) 2.86 (0.7) (1.0) (1.3) and 2019F
Preference Dividend 0.0 0.0 0.0 0.0 0.0
Net Profit 49.9 62.6 110 141 196
Net Profit before Except. 49.9 62.6 110 141 196
EBITDA 303 487 627 880 1,199
Growth
Revenue Gth (%) 40.0 33.4 20.1 24.4 23.8
EBITDA Gth (%) 39.3 60.7 28.7 40.4 36.3
Opg Profit Gth (%) (1.3) 121.4 25.4 26.0 26.2
Net profit margins to
Net Profit Gth (Pre-ex) (%) (1.2) 25.5 76.2 28.1 38.5 remain miniscule due to
Margins & Ratio aggressive expansion
Gross Margins (%) 26.3 28.5 29.0 29.0 29.0 over the next four years
ROAE (%) 5.4 3.8 6.5 7.7 9.8
ROA (%) 2.4 2.3 3.7 4.5 5.7
ROCE (%) 2.9 4.6 6.3 7.4 8.8
Div Payout Ratio (%) 0.0 0.0 0.0 0.0 7.2
Net Interest Cover (x) 11.0 4.2 3.4 3.5 4.6

Page 24
Company Guide

FY Dec 3Q2014 4Q2014 1Q2015 2Q2015 3Q2015
Revenue 847 926 976 1,011 1,026

Cost of Goods Sold (612) (641) (669) (751) (736)
Gross Profit 236 285 307 260 290
Other Oper. (Exp)/Inc (202) (230) (232) (197) (265)
Operating Profit 33.6 54.6 74.9 62.2 25.3
Other Non Opg (Exp)/Inc (8.0) (21.3) (10.8) (5.4) (4.7)
Net Interest (Exp)/Inc (13.9) (4.0) (12.0) (12.9) (13.0)
Pre-tax Profit 11.7 29.2 52.0 43.9 7.55
Tax (4.9) (20.8) (18.4) (15.3) (1.8)
Minority Interest 1.43 (0.1) 0.88 (0.6) 2.55
Net Profit 8.17 8.26 34.5 28.0 8.35
Net profit bef Except. 8.17 8.26 34.5 28.0 8.35
EBITDA 33.6 54.6 74.9 62.2 25.3
Growth
Revenue Gth (%) 3.8 9.2 5.5 3.6 1.5
EBITDA Gth (%) 2.6 62.5 37.2 (17.0) (59.4)
Opg Profit Gth (%) 2.6 62.5 37.2 (17.0) (59.4)
Net Profit Gth (Pre-ex) (%) (57.6) 1.0 318.1 (18.9) (70.2)
Margins
Gross Margins (%) 27.8 30.8 31.4 25.7 28.3
Opg Profit Margins (%) 4.0 5.9 7.7 6.1 2.5
Balance Sheet (Rpbn)

FY Dec 2013A 2014A 2015F 2016F 2017F
Net Fixed Assets 1,402 1,589 1,401 1,600 1,633

Invts in Associates & JVs 0.0 0.0 0.0 0.0 0.0
Other LT Assets 291 414 494 534 583
Cash & ST Invts 515 280 581 440 507
Inventory 94.8 106 131 163 202
Debtors 271 393 367 456 565
Other Current Assets 26.4 62.3 74.8 89.8 108
Total Assets 2,601 2,844 3,049 3,284 3,598
Tight cash position due
to expansion
ST Debt 16.7 16.0 13.3 10.7 10.7
Creditor 164 193 247 307 380
Other Current Liab 115 269 196 226 261
LT Debt 43.0 30.5 134 124 124
Other LT Liabilities 623 682 694 710 733 Mostly related-party loan
Shareholder’s Equity 1,611 1,648 1,758 1,900 2,081 from parent company
Minority Interests 27.6 5.47 6.20 7.15 8.47
Total Cap. & Liab. 2,601 2,844 3,049 3,284 3,598
Non-Cash Wkg. Capital 113 98.7 130 177 234

Net Cash/(Debt) 456 233 433 305 372
Asset Turnover (x) 1.2 1.2 1.4 1.6 1.8
Current Ratio (x) 3.1 1.8 2.5 2.1 2.1
Quick Ratio (x) 2.7 1.4 2.1 1.7 1.6
Capex to Debt (%) 1,280.0 1,087.7 153.9 603.9 665.4
Z-Score (X) 9.3 8.0 7.7 7.5 7.4

Page 25
Company Guide
Cash Flow Statement (Rpbn)

FY Dec 2013A 2014A 2015F 2016F 2017F
Pre-Tax Profit 71.8 93.5 148 190 263

Dep. & Amort. 227 319 416 614 864
Tax Paid (21.6) (33.8) (37.0) (47.4) (65.7)
Assoc. & JV Inc/(loss) 0.0 0.0 0.0 0.0 0.0
Chg in Wkg.Cap. (580) (14.0) (7.6) (18.5) (22.6)
Other Operating CF (0.3) 2.86 (0.7) (1.0) (1.3)
Net Operating CF (303) 367 519 737 1,037
Capital Exp.(net) (764) (506) (227) (814) (896)
Other Invts.(net) 0.0 0.0 0.0 0.0 0.0
Heavy capex
Invts in Assoc. & JV 0.0 0.0 0.0 0.0 0.0 requirement for the
Div from Assoc & JV 0.0 0.0 0.0 0.0 0.0 next four years
Other Investing CF 80.2 (35.9) (92.1) (52.1) (60.6)
Net Investing CF (684) (542) (319) (866) (957)
Div Paid 0.0 0.0 0.0 0.0 (14.1)
Chg in Gross Debt (11.1) (13.2) 101 (13.0) 0.0
Capital Issues 1,328 0.0 0.0 0.0 0.0
Other Financing CF 16.2 (47.9) 0.74 0.95 1.31
Net Financing CF 1,333 (61.1) 102 (12.0) (12.8)
Currency Adjustments 0.0 0.0 0.0 0.0 0.0
Chg in Cash 347 (235) 301 (141) 66.7
Opg CFPS (Rp) 239 330 455 653 916
Free CFPS (Rp) (923) (120) 252 (66.5) 121
Target Price & Ratings History
17502 Rp 4
Closing T arget
S.No. Dat e Rat ing
16502 Pric e Pric e
1: 02 F eb 15 13500 12750 HOLD
15502
2: 30 Mar 15 13425 12750 HOLD
14502 3: 23 Apr 15 13525 12750 HOLD
2 4: 10 Aug 15 16850 17000 HOLD
13502 5: 02 Nov 15 10300 17000 HOLD
1 3
12502
11502
10502
9502 5
8502
Nov-14 Mar-15 Jul-15 Nov-15
Not e : Share price and Target price are adjusted for corporate actions.
Source: DBS Vickers

Page 26
Kalbe Farma
Edition 1 Version 1 | Bloomberg: KLBF IJ | Reuters: KLBF.JK Refer to important disclosures at the end of this report
BUY (Upgrade from HOLD) On the Path to Recovery

Last Traded Price: Rp1,350 (JCI : 4,585.55) Upgrade to Buy. We upgraded Kalbe to Buy from Hold (19%
Price Target : Rp1,600 (19% upside) (Prev Rp1,900) upside to our TP) as the stock has underperformed JCI and the
valuation is more attractive, trading at 5-year mean PE of 26x.
Potential Catalyst: Valuation and stable USD/IDR Moreover, we believe Kalbe is on the path to recovery after a
Where we differ: We expect more positive outlook for 2016 and difficult year in 2015.
potential upside from pharma business
Analyst Multiple headwinds in 2015. Kalbe was hit with a few glitches
Maynard P. Arif +6221 3003 4930 in 2015 including product recall, suspension in production line
maynard.arif@id.dbsvickers.com and slower demand overall. Hence, we revised down our
FY15/16 EPS by 6%/4% respectively after lowering our
FY15/16 revenue estimates by c.2%. The weak performance in
Price Relative 2015 is also reflected in the share price to-date.
Rp Relative Index
1,998.5 221
Recovery in 2016. We believe most of the issues in 2015
1,798.5 201
1,598.5 181 should be resolved in 2016. The suspension of manufacturing

1,398.5 161 line 6 should be lifted by 2016 and the distribution business is
141
expected to stabilize. Moreover, healthcare spending is
1,198.5
998.5 121
798.5 101 expected to grow at 12% CAGR in the next five years with the
598.5
Nov-11 Nov-12 Nov-13 Nov-14
81
Nov-15 introduction of universal healthcare (BPJS Health). This will be
Kalbe Farma (LHS) Relative JCI INDEX (RHS) the driver for long term growth in the healthcare industry
including Kalbe Farma.
FY Dec (Rpbn) 2014A 2015F 2016F 2017F
Valuation:
Revenue 17,369 17,937 19,468 22,317
EBITDA 3,093 3,052 3,478 4,213 Kalbe's shares have corrected by c.20% since 2H15 vs. 8% for
Pre-tax Profit 2,764 2,695 3,043 3,717 JCI while the valuation is now at 5-year mean PE (26x FY16
Net Profit 2,065 1,976 2,234 2,733 EPS). Our new TP is Rp1,600 (previously Rp1,900) or 33x FY16
Net Pft (Pre Ex.) 2,065 1,976 2,234 2,733
EPS, pegged at 25% discount to UNVR's multiple.
EPS (Rp) 44.0 42.2 47.7 58.3
EPS Pre Ex. (Rp) 44.0 42.2 47.7 58.3
EPS Gth (%) 8 (4) 13 22 Key Risks to Our View:
EPS Gth Pre Ex (%) 8 (4) 13 22 Weak consumer spending and regulatory risk. Further
Diluted EPS (Rp) 44.0 42.2 47.7 58.3
slowdown in the economy could dampen consumer spending,
Net DPS (Rp) 17.0 16.3 18.4 22.5
BV Per Share (Rp) 200 226 255 291 which will lead to slower than expected growth for Kalbe. In
PE (X) 30.7 32.0 28.3 23.2 addition, regulatory risks such as price control, relaxation on
PE Pre Ex. (X) 30.7 32.0 28.3 23.2 foreign investment and license may have negative impact on
P/Cash Flow (X) 27.2 26.1 26.0 23.2
EV/EBITDA (X) 20.1 20.2 17.5 14.3 Kalbe's performance.
Net Div Yield (%) 1.3 1.2 1.4 1.7
P/Book Value (X) 6.7 6.0 5.3 4.6 At A Glance
Net Debt/Equity (X) CASH CASH CASH CASH Issued Capital (m shrs) 46,875
ROAE (%) 23.6 19.8 19.8 21.3 Mkt. Cap (Rpbn/US$m) 63,281 / 4,628
Earnings Rev (%): (6) (4) N/A Major Shareholders
Consensus EPS (Rp): 46.3 53.2 60.7 Gira Sole Prima (%) 9.8
Other Broker Recs: B: 12 S: 4 H: 11 Santa Seha Sanadi (%) 9.3
Diptanala Bahana (%) 9.5
Source of all data: Company, DBS Vickers, Bloomberg Finance L.P
Free Float (%) 47.2
3m Avg. Daily Val (US$m) 4.7
ICB Industry : Health Care / Pharmaceuticals & Biotechnolog

www.dbsvickers.com
sa: YM
Company Guide
Kalbe Farma
Pharma revenue and GM

Rpbn
20,000 49.0%
Earnings Drivers: 48.5%

17,500
Recovery in pharma business. Pharma accounted for c.25% of
48.0%
Kalbe's business and it faced some headwinds in 2015: i) the 15,000
Buvanest case, ii) suspension of manufacturing line 6 and iii) 47.5%
forex volatility. As such, the growth in pharma business is 12,500

47.0%
expected to be below average this year (we expect 5-6% vs.
10,000 46.5%
12-18% between 2012-14). We expect some improvement in 13 14 15F 16F
2016 as the suspension on line 6 should be lifted before the Revenue (LHS) Gross Margin (RHS)
growth resumes to be in line with the industry at c.12% in
2017, driven by healthcare spending and BPJS Health. Nutritional revenue and GM
Rpbn
5,500 61.0%
Growth in nutritionals. Nutritional has been one of the 60.0%
4,500
strongest growth contributors in the last three years for Kalbe 59.0%
and accounted for c.28% of sales in 9M15. While demand has 3,500
58.0%
slowed this year, nutritionals still recorded double digit growth 2,500
57.0%
this year and is expected to grow at 15% CAGR between 1,500
56.0%
2014-2017.
500 55.0%
13 14 15F 16F
In addition, Kalbe is ranked #4 in the powdered milk market Revenue (LHS) Gross Margin (RHS)
with a market share of 11%, and is expanding into new
segment, liquid milk. The company is not going to compete in Revenue mix
Rpbn
the general liquid market but rather in a niche segment such 25,000
as diabetic to leverage on the existing brand name.
20,000
USD/IDR fluctuation. Most of Kalbe's raw materials are 15,000
imported (c.70-75%) and hence, the fluctuation in USD/IDR 10,000
will have an impact on margin. Based on our analysis, a 10% 5,000

change in USD/IDR could change profit by up to 3% but the
0
company will normally offset it with price adjustment. Kalbe 13 14 15F 16F
typically adjusts its prices by 3-5%, depending on the products Pharmaceuticals Consumer Health Nutritionals Distribution
and competition.
Revenue and earnings trend
We projected gross margin in 2015 and 2016 to decline to Rpbn
20000
47.5% and 48% respectively vs. 48.8% in 2014 and 48.0% in
2013 on weaker Rupiah. Rupiah has depreciated by 9% YTD 15000
against USD, and our FX strategist expects pressures on IDR to
continue with the expected Fed rate hike. 10000
5000
New products and M&A. In terms of new products, Kalbe
plans to add between 3 to 5 products each year. So far, Kalbe 0
has added liquid milk, Extra Joss + Milk and Lo Han Kuo Komix 13 14 15F 16F
in the consumer and nutritional segment. New products will be Revenue Earnings
important to support the long term growth in consumer health

segment. Gross margin vs. USD/IDR
15000 49.0%
Furthermore, Kalbe has a strong balance sheet with c.Rp1.7tr

14000 48.5%
in net cash position. The company is continuously looking for
M&A as part of its growth strategy. Any sizable acquisition will 13000 48.0%
have an impact on the earnings growth of Kalbe.

12000 47.5%
11000 47.0%
10000 46.5%
13 14 15F 16F
USD/IDR Gross Margin

Page 28
Company Guide
Kalbe Farma

Balance Sheet: 1.6
0.14
Healthy balance sheet. Kalbe's balance sheet is healthy with 1.6
0.12
over Rp1.7tr in cash and almost zero in LT debt.. Moreover,
0.10 1.5
we expect positive operating cash flow generation in excess
of Rp1.7tr annually between 2015-2017. 0.08
1.5
0.06
1.4
Capex to support new products. As part of the expansion 0.04
1.4
strategy, Kalbe expects to spend c.5% of revenue for capex 0.02
annually. This translates to c.Rp1-1.2tr of capex to support 0.00

2013A 2014A 2015F 2016F 2017F
1.3
plant expansion, joint ventures for new products and Gross Debt to Equity (LHS) Asset Turnover (RHS)
distribution. We believe Kalbe has sufficient cash flow from

Capital Expenditure
operation to fund its regular capex plan. Rp
1,200.0
Share Price Drivers: 1,000.0
Kalbe's revenue and earnings outlook. 2015 is a challenging 800.0
year on multiple fronts and Kalbe is expected to record 600.0
negative earnings growth, the first time since GFC crisis. 400.0
Demand recovery and improvement in distribution business 200.0
will lead to better earnings growth.
0.0
2013A 2014A 2015F 2016F 2017F
Successful implementation of BPJS Health and increase in Capital Expenditure (-)
healthcare spending. The government intends to increase ROE (%)

BPJS participation from c.150mn this year to all Indonesians 25.0%
(250mn) by 2019. Successful implementation will boost

20.0%
healthcare spending in Indonesia, from a low 2.9% of GDP
currently to a target 3.5 % of GDP in the next four years. 15.0%
10.0%
Key Risks:
Exposure to USD. Most of the materials for pharmaceutical 5.0%
products are imported, and hence, Kalbe is affected by the
weak rupiah. Further weakness in the rupiah will hurt 0.0%
2013A 2014A 2015F 2016F 2017F
Kalbe's margins and earnings because there is a time-lag in
adjusting prices. Forward PE Band (x)
(x)
+2 stdev
Litigation risk and product recall. Kalbe is subjected to
40.0
medical claim and product recall, which could have an
+1 stdev
impact on the company's performance. 33.0
26.0 Average
Regulatory risks. The pharmaceutical industry is regulated
and subjected to government's laws such as price cap and 19.0
-1 stdev
manufacturing process. In addition, there is a restriction on
12.0
foreign investment. Material changes in the regulation could -2 stdev
have an adverse impact on Kalbe's business. 5.0
Jan-10 Jan-11 Jan-12 Jan-13 Jan-14 Jan-15
Company Background PB Band (x)

(x)
KLBF is a leading pharmaceutical company in Indonesia. The
company offers prescription and non-prescription drugs, as 10.3 +2sd: 10.18x
well as nutritional and consumer health products. In 9.3

+1sd: 8.84x
addition, the company has distribution and logistics 8.3
operations under PT Enseval Putera Megatrading. 7.3 Avg: 7.5x
6.3
‐1sd: 6.16x
5.3
‐2sd: 4.82x
4.3
Nov-11 Nov-12 Nov-13 Nov-14 Nov-15

Page 29
Company Guide
Kalbe Farma
Segmental Breakdown
FY Dec 2013A 2014A 2015F 2016F 2017F
Revenues (Rpbn)
Prescription 3,869 4,329 4,566 4,885 5,457
Consumer Health 2,505 2,924 3,212 3,665 4,266 Distribution declined due to
3rd party customers
Nutritionals 3,792 4,581 5,039 5,761 6,956
Distribution & Logistics 5,836 5,534 5,120 5,156 5,637
Total 16,002 17,369 17,937 19,468 22,317

Gross Profit (Rpbn)
Prescription 2,353 2,609 2,639 2,785 3,080
Consumer Health 1,335 1,550 1,638 1,869 2,219
Nutritionals 2,287 2,748 2,872 3,284 4,000
Distribution & Logistics 1,704 1,569 1,357 1,366 1,522
Total 7,679 8,476 8,506 9,304 10,821

Gross Profit Margins (%)
Prescription 60.8 60.3 57.8 57.0 56.4
Consumer Health 53.3 53.0 51.0 51.0 52.0
Nutritionals 60.3 60.0 57.0 57.0 57.5
Distribution & Logistics 29.2 28.3 26.5 26.5 27.0 Lower margin due to
USD/IDR fluctuation
Total 48.0 48.8 47.4 47.8 48.5
Income Statement (Rpbn)

FY Dec 2013A 2014A 2015F 2016F 2017F
Revenue 16,002 17,369 17,937 19,468 22,317
Gross Profit 7,679 8,476 8,506 9,304 10,821
Other Opng (Exp)/Inc (5,130) (5,715) (5,847) (6,288) (7,141)
Operating Profit 2,549 2,761 2,659 3,016 3,679
Other Non Opg (Exp)/Inc 1.82 (8.7) 6.06 5.63 5.50
Net Interest (Exp)/Inc 21.8 11.4 29.9 21.3 31.2
Pre-tax Profit 2,573 2,764 2,695 3,043 3,717
Tax (602) (643) (660) (745) (910)
Minority Interest (50.9) (56.4) (58.3) (63.2) (72.5)
Preference Dividend 0.0 0.0 0.0 0.0 0.0
Net Profit 1,920 2,065 1,976 2,234 2,733
Net Profit before Except. 1,920 2,065 1,976 2,234 2,733
EBITDA 2,828 3,093 3,052 3,478 4,213
Growth
Revenue Gth (%) 17.3 8.5 3.3 8.5 14.6
EBITDA Gth (%) 13.9 9.4 (1.3) 14.0 21.1
Opg Profit Gth (%) 14.9 8.3 (3.7) 13.4 22.0
Net Profit Gth (Pre-ex) (%) 10.7 7.6 (4.3) 13.0 22.3
Margins & Ratio
Gross Margins (%) 48.0 48.8 47.4 47.8 48.5
ROAE (%) 25.3 23.6 19.8 19.8 21.3
ROA (%) 18.5 17.4 15.0 15.3 16.7
ROCE (%) 23.0 21.7 18.4 18.5 20.0
Div Payout Ratio (%) 46.4 38.6 38.6 38.6 38.6
Net Interest Cover (x) NM NM NM NM NM

Page 30
Company Guide
Kalbe Farma

FY Dec 3Q2014 4Q2014 1Q2015 2Q2015 3Q2015
Revenue 4,379 4,610 4,247 4,473 4,408

Gross Profit 2,119 2,345 2,102 2,196 2,113
Other Oper. (Exp)/Inc (1,450) (1,581) (1,418) (1,503) (1,513)
Other Non Opg (Exp)/Inc (1.2) 1.99 (0.8) 11.2 (6.5)
Associates & JV Inc 0.0 0.0 (1.0) (0.1) 0.16
Net Interest (Exp)/Inc (4.7) 9.82 18.7 13.2 4.83
Pre-tax Profit 663 776 701 717 598
Tax (156) (181) (163) (170) (148)
Minority Interest (13.1) (17.1) (9.0) (12.3) (13.7)
Net Profit 494 578 528 535 436
Net profit bef Except. 494 578 528 535 436
EBITDA 753 766 773 776 675
Growth
Revenue Gth (%) 1.5 5.3 (7.9) 5.3 (1.5)
EBITDA Gth (%) (2.2) 1.7 0.9 0.4 (13.0)
Opg Profit Gth (%) (2.4) 14.3 (10.5) 1.3 (13.4)
Net Profit Gth (Pre-ex) (%) (1.2) 17.0 (8.6) 1.2 (18.4) Margin decline due to
currency and revenue mix
Margins
Gross Margins (%) 48.4 50.9 49.5 49.1 47.9
Opg Profit Margins (%) 15.3 16.6 16.1 15.5 13.6
Balance Sheet (Rpbn)

FY Dec 2013A 2014A 2015F 2016F 2017F
Net Fixed Assets 2,926 3,404 4,035 4,595 5,086

Invts in Associates & JVs 42.4 24.3 24.3 24.3 24.3
Other LT Assets 850 875 858 841 824
Cash & ST Invts 1,614 1,895 2,552 3,113 3,775
Inventory 3,053 3,091 3,272 3,540 4,008
Debtors 2,145 2,347 2,392 2,562 2,898
Other Current Assets 684 789 739 739 739
Total Assets 11,315 12,425 13,873 15,415 17,352
ST Debt 584 252 252 252 252

Creditor 1,152 1,133 1,309 1,416 1,603
Other Current Liab 905 1,001 1,001 1,001 1,001
LT Debt 0.0 44.2 44.2 44.2 44.2
Other LT Liabilities 175 177 177 177 177
Shareholder’s Equity 8,108 9,382 10,596 11,967 13,646
Minority Interests 392 435 494 557 629
Total Cap. & Liab. 11,315 12,425 13,873 15,415 17,352
Non-Cash Wkg. Capital 3,826 4,092 4,093 4,423 5,041

Net Cash/(Debt) 1,030 1,598 2,256 2,817 3,479
Asset Turnover (x) 1.5 1.5 1.4 1.3 1.4 Healthy balance sheet
Current Ratio (x) 2.8 3.4 3.5 3.7 4.0 to support M&A
Quick Ratio (x) 1.4 1.8 1.9 2.1 2.3
Capex to Debt (%) 165.4 239.9 337.7 337.7 337.7
Z-Score (X) 17.9 19.1 17.9 17.4 17.4

Page 31
Company Guide
Kalbe Farma
Cash Flow Statement (Rpbn)

FY Dec 2013A 2014A 2015F 2016F 2017F
Pre-Tax Profit 2,573 2,764 2,695 3,043 3,716

Dep. & Amort. 284 348 395 465 536
Tax Paid (646) (643) (660) (745) (910)
Assoc. & JV Inc/(loss) 0.0 0.0 0.0 0.0 0.0
Chg in Wkg.Cap. 0.0 (263) (0.7) (331) (617)
Other Operating CF (1,277) 118 0.0 0.0 0.0
Net Operating CF 933 2,323 2,429 2,431 2,724
Capital Exp.(net) (966) (710) (1,000) (1,000) (1,000)
Other Invts.(net) 81.6 (28.1) 0.0 0.0 0.0
Invts in Assoc. & JV 0.0 0.0 0.0 0.0 0.0
Div from Assoc & JV 2.12 0.53 0.0 0.0 0.0
Other Investing CF 0.0 61.5 0.0 0.0 0.0
Net Investing CF (882) (677) (1,000) (1,000) (1,000)
Div Paid (901) (797) (763) (862) (1,055)
Chg in Gross Debt 287 (380) 0.0 0.0 0.0
Capital Issues 0.0 0.0 0.0 0.0 0.0
Other Financing CF 0.0 0.0 0.0 0.0 0.0
Net Financing CF (613) (1,177) (763) (862) (1,055)
Currency Adjustments 95.5 0.0 0.0 0.0 0.0
Chg in Cash (467) 469 666 569 669
Opg CFPS (Rp) 19.9 55.2 51.8 58.9 71.3
Target Price & Ratings History
1949 Rp
Target
S.No. Date Closing Price Rating
2 4 Price
6
1849 1: 02 Jan 15 1810 1900 BUY
5 2: 04 Feb 15 1835 1900 BUY
1749 1 3 3: 23 Feb 15 1795 1900 BUY
4: 26 Mar 15 1835 1900 BUY
1649 5: 31 Mar 15 1865 1900 BUY
6: 05 May 15 1825 1900 HOLD
1549 7: 16 Sep 15 1510 1900 HOLD
1449 7
1349
1249
Nov-14 Mar-15 Jul-15 Nov-15
Note : Share price and Target price are adjusted for corporate actions.
Source: DBS Vickers

Page 32
Industry Focus
DBSV recommendations are based an Absolute Total Return* Rating system, defined as follows:
STRONG BUY (>20% total return over the next 3 months, with identifiable share price catalysts within this time frame)
BUY (>15% total return over the next 12 months for small caps, >10% for large caps)
HOLD (-10% to +15% total return over the next 12 months for small caps, -10% to +10% for large caps)
FULLY VALUED (negative total return i.e. > -10% over the next 12 months)
SELL (negative total return of > -20% over the next 3 months, with identifiable catalysts within this time frame)
* Share price appreciation + dividends
GENERAL DISCLOSURE/DISCLAIMER
This report is prepared by PT. DBS Vickers Securities Indonesia ("DBSVI"). This report is solely intended for the clients of DBS Bank Ltd and DBS Vickers
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The research set out in this report is based on information obtained from sources believed to be reliable, but we (which collectively refers to DBS Bank
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Any valuations, opinions, estimates, forecasts, ratings or risk assessments herein constitutes a judgment as of the date of this report, and there can be no
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The valuations, opinions, estimates, forecasts, ratings or risk assessments described in this report were based upon a number of estimates and
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not participated in any public offering of securities as a manager or co-manager or in any other investment banking transaction in the past twelve months
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ANALYST CERTIFICATION
The research analyst(s) primarily responsible for the content of this research report, in part or in whole, certifies that the views about the companies and
their securities expressed in this report accurately reflect his/her personal views. The analyst(s) also certifies that no part of his/her compensation was, is, or
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spouse and/or relatives who are financially dependent on the analyst(s), do not hold interests in the securities recommended in this report (“interest”
includes direct or indirect ownership of securities).
COMPANY-SPECIFIC / REGULATORY DISCLOSURES

1. PT. DBS Vickers Securities Indonesia ("DBSVI") has a proprietary position in Kalbe Farma and Mitra Keluarga Karyasehat
recommended in this report as of 25 November 2015.
2. Compensation for investment banking services:

DBSVUSA does not have its own investment banking or research department, nor has it participated in any public offering of
Page 33
Industry Focus
securities as a manager or co-manager or in any other investment banking transaction in the past twelve months. Any US
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Indonesia Industry Focus

Indonesia Healthcare Sector

DBS Group Research . Equity 26 Nov 2015

110 6.5% Is the long-awaited Coordination of Benefits (COB)

The implications from the effective roll-out of the pilot COB

not BPJS-affiliated like Mitra Keluarga (MIKA IJ). 8%

Source: Ministry of Finance, State-budget (APBN), DBS Vickers

Stronger growth in private hospitals to serve healthcare

Indonesia hospitals - breakdown by ownership Out-of-pocket expenditure is the highest portion

2.7 3.4 4.1 4.8 5.6

What to look out for in the pharmaceutical sector in 2016:

 Price adjustments on generic drugs. The cap on ceiling

 Impact on USD/IDR rate volatility. Note that the basic

IDR has been weakening against the USD

Source: Bloomberg Finance L.P

 Government policies. Changes in regulations such as

Another risk to highlight for pharmaceutical players is the

Both health services and pharmaceuticals are direct beneficiaries

Hospital developers and operators (both BPJS-affiliated and non-

On the other hand, pharmaceutical players should see a boost in

lessons for Indonesia. Healthcare expenditure (as % of GDP) - RHS

Thailand launched the UCS programme in 2001 (funded with 200

publicly subsidised schemes (i.e. Social Security Scheme and Civil

Source: data.worldbank.org, DBS Vickers

Gov't Private - out of pocket Private - others

According to Health Insurance System Research Office report for 500

Pharmaceutical valuations - comparison among domestic peers

US$m 14A 15F 16F 14A 15F 16F % %

KAEF IJ Kimia Farma 402.7 22.9 21.2 17.8 3.3 NA NA NA 14.6

Weighted average 27.0 26.3 23.5 6.4 5.3 4.7 1.6

Source: DBS Vickers, Bloomberg Finance L.P.

Hospital valuations - comparison among regional peers

Market weighted average

Thailand 27.0 24.1 44.5 38.6 11.5 9.8 1.1 24.5

Singapore 24.7 21.6 53.2 44.2 2.7 2.6 0.7 5.2

Malaysia 15.3 13.6 30.1 27.4 3.2 3.0 1.7 11.2

India 24.7 18.9 52.7 36.2 4.3 3.9 0.3 6.9

Australia 12.3 11.3 24.3 21.6 4.9 4.4 2.8 18.3

List of non-BPJS-affiliated private hospitals participating in COB scheme

List of insurance companies cooperating with BPJS Health as of May 2015

Regulations for pharmaceutical sector

1. Pharmaceutical company has to obtain license from Health

1. Every drug circulated in Indonesia must be registered and

Revision of Health Ministry

Source: Ministry of Health, DBS Vickers

Regulations for hospital sector

1. Valid registration for medical practice is issued by Indonesia medical council.

Standard tariff rates for

1. Maximum foreign ownership is 67% for all over Indonesia.

Source: Ministry of Health, DBS Vickers

DBS Group Research . Equity 26 Nov 2015

BUY Steady And Reliable In the Long Run

ASIAN INSIGHTS VICKERS SECURITIES

Hospital expansion projection

Steady and sustainable growth in Net Operating Revenue 12 11

so far secured four sites for its new hospitals. 4

capacity, in which the number of operational beds will be 2,000,000

is expected to generate positive EBITDA after six months of 1,000,000

expansion Total Revenue Revenue Growth (%) (YoY)

continue to generate high free cash flows despite its 1,098,596

expansion plan (i.e. one additional new hospital annually). 998,596

COMPANY BACKGROUND 698,596