Mitra Keluarga Karyasehat, Off To An Excellent Start

Encouraging track record with new hospitals
Mitra Keluarga Karyasehat’s (Mitra Keluarga) Kalideres hospital in the West Jakarta region, opened in Aug 2015, achieved breakeven EBITDA just four months after starting operations. March marks the first month it is net income-positive. It aims to start building its next hospital in Bintaro’s Section 3 Greater Jakarta area in May or June.

It raised prices by 5% in Jan 2016 across the board for its services, but due to the lower intensity cases of dengue fever outbreak in 1Q16, we observed flat average revenue/patient. We think the price increase would have a greater effect on average revenue/patient in 2Q16, as low intensity dengue fever cases have subsided.

Excellent control on drug procurement
Gross margin expanded 170 bps YoY to 47.4% in 1Q16, as Mitra Keluarga secured discounts from its drug principals in 2Q15 and more of its doctors have been following standardised procedures when prescribing drugs.

Remain BUY
Mitra Keluarga is our top BUY in the Indonesian hospital sector as it has the strongest operating cash flow generation, no debt, and excellent ROIC of c.59% in FY15, the highest among ASEAN-listed hospital operators. The key downside risk would be that of the mid- to low-income client segment migrating to public hospitals.

Company Profile
Mitra Keluarga is the largest private hospital by patient volume compared to private multi-specialty hospitals, and was listed on the Indonesia Stock Exchange in 2014. It is community focused, with a large patient base and strong captive demand. As of FY14, it has 980 doctors (including 836 specialists), 2,768 nurses and 1,082 medical staff. SWA magazine ranks Mitra Keluarga first in its 2015 Most Reputable Healthcare Brand for hospital category in the Surabaya (East Java) region.