Perfectly Imperfect: Understanding BPJS Kesehatan and Its Dynamics

[Indonesia]
Perfectly imperfect
Mirae Asset Sekuritas Indonesia
joshua.michael@miraeasset.co.id
Understanding BPJS Kesehatan  With limited state healthcare budget, Indonesia’s healthcare infrastructure is still lagging behind other
and its dynamics ASEAN countries in terms of physical infrastructure and medical personnel, which may explain why
Indonesia’s domestic private inpatient cost relative to GNI per capita currently ranks the highest among
other ASEAN countries. Thus, we expect that the gradual shifting trend from OPE to BPJS Kesehatan
will continue in the coming years.
 Since its inception in 2014, DJS Kesehatan has consistently booked budget deficit (except in 2016). This
can be attributed to the following reasons: 1) less flexibility for the government to determine premium
increment; 2) payment disobedience from independent participants; 3) CoB deadlock; 4) partial compliance
from wage-earning worker (PPU) participants; 5) expected decline in 2020 participation rate due to COVID-
19 pandemic; 6) cost inefficiency stemming from inadequate healthcare infrastructure; and 7) delayed co-
payment implementation.
 We believe without any significant regulatory changes, BPJS Kesehatan will be constantly exposed to
budget deficit risks, which may get worse over time and negatively affect its financial capacity.
 There hasn’t been any adjustment to INA-CBGs since 2016. Up until now, the timeline and rate of the
adjustments remain unclear.
 After the declines of 9%/8% in 2020, we expect advanced level facilities’ (FKRTL) inpatient/outpatient
utilization to grow by 7%/5% in 2021. Inflection point should occur between 3Q21 and 4Q21.
 With stable growth and shorter payment term, privately insured and corporate patients can be a good
way to balance revenue growth, profitability level, and cash flow.
COVID-19 treatment: Benefiting  COVID-19 cases started to surge in July 2020, with surging new daily cases that peaked at 1,450 on
from supply-demand imbalance September 10 and positive rate mounting as high as 17.8% on September 12.
 We expect the number of patients in treatment in Jakarta to reach 11,112 by the end of this year, which
is more than double the current number of 4,468.
 Inpatient traffic should bottom out in 2Q20 as hospitals will benefit from supply-demand imbalance of
COVID-19 treatment. However, outpatient visits may be kept low for the rest of this year.
 COVID-19 daily treatment cost is significantly higher than average inpatient cost. Moreover, some hospitals
require all patients to undergo a PCR test before surgery. Hence, despite the severe drop in patient traffic,
revenue per inpatient day will continue to grow, along with the increased number of COVID-19 patients
in treatment.
 Despite sluggish healthcare budget realization, both MIKA and HEAL report no significant delays in
government’s payment. Receivable days from government-borne COVID-19 treatment range between
14-30 days, much shorter than insurance (30-60 days) and BPJS Kesehatan (60-100 days).
The push for COVID-19 vaccine  Sinovac (China) has committed to supplying bulk vaccine (CoronaVac) to enable Bio Farma to produce at
least 40mn doses in Indonesia before March 2021.
 By assuming that the government will prioritize the first batch of CoronaVac for Jakarta and East Java, as
positive cases in both provinces accounted for 40% of total domestic cases, it should arguably be enough
to achieve herd immunity in Jakarta and East Java.
 In the best scenario, the production and distribution of the first batch of CoronaVac will take around 6
months to be completed.
Initiate overweight on the sector  We have Buy recommendation on both MIKA (TP IDR2,900) and HEAL (TP IDR4,000).
 We have a slight preference for MIKA due to: 1) regulatory risk embedded in BPJS Kesehatan; 2) its more
benefits from a faster-than-expected vaccine timeline; and, 3) higher share liquidity.
 We believe higher profitability level (EBITDA margin and net margin) justifies premium valuations of
domestic healthcare sector, vs. regional peers.
 We expect MIKA’s and HEAL’s FY21 revenue/net profit to grow by 24.0%/31.4% and 23.8%/53.3%.
 Risks to our call: 1) delay in vaccine production and distribution; 2) prolonged budget deficit of BPJS
Kesehatan; and, 3) unfavorable JKN-related regulations imposed by the government.
Healthcare companies covered in this report

Target price EPS growth (%) Dividend yield (%) P/E (x) EV/EBITDA (x)
Company Ticker Rating
(IDR/share) FY20F FY21F FY20F FY21F FY20F FY21F FY20F FY21F
Mitra Keluarga Karyasehat MIKA Buy 2,900 -18.6 31.4 0.9 0.7 57.8 44.0 36.0 28.8
Medialoka Hermina HEAL Buy 4,000 -17.1 53.3 0.4 0.2 46.3 30.2 15.1 12.0
Source: Mirae Asset Sekuritas Indonesia Research
Analysts who prepared this report are registered as research analysts in Indonesia but not in any other jurisdiction, including the U.S.
PLEASE SEE ANALYST CERTIFICATIONS AND IMPORTANT DISCLOSURES & DISCLAIMERS IN APPENDIX 1 AT THE END OF REPORT.
September 28, 2020 Healthcare
C O N T E N T S
Understanding BPJS Kesehatan and its dynamics 3

Healthcare financing trend: Gradual shift from OPE to BPJS Kesehatan 3
A love-hate relationship between BPJS Kesehatan and its participants 4
Prolonged budget deficit may negatively affect BPJS Kesehatan’s financial capacity 8
Single class system: Accommodative regulation as the key to success 9
No tariff adjustment to INA-CBGs since 2016 9
Expecting single digit growth of FKRTL utilization in 2021 9
Privately insured & corporate patients: A good way to balance revenue growth,
profitability level, and cash flow 10
COVID-19 treatment: benefiting from supply-demand imbalance 11

Jakarta: COVID-19 cases start to surge in July 2020 11
Patients in treatment in Jakarta may be more than doubled by the end of this year 12
Inpatient traffic should bottom out in 2Q20 14
Inpatient beds capacity may be expanded, but number of Pulmonologists are limited 15
Expecting higher-than-normal revenue per inpatient day during the pandemic,
but not yet to peak 15
State budget for COVID-19: On-time reimbursement despite sluggish realization 16
The push for COVID-19 vaccine 17

The long and winding road to vaccine approval 17
First batch of CoronaVac likely enough to achieve herd immunity in Jakarta
and East Java 19
Vaccine distribution always a main concern 20
Initiate overweight on the sector 21

Slight preference for MIKA 21
Higher profitability level justifies premium valuations of domestic healthcare sector
vs. regional peers 22
Mirae Asset Sekuritas Indonesia Research 2

Understanding BPJS Kesehatan and its dynamics
Healthcare financing trend: Gradual shift from OPE to BPJS Kesehatan

According to Regulation No. 36/2009, the Indonesian Government is mandated to allocate at least
5% of its budget for healthcare (Figure 1). Unfortunately, that level of budget seems not quite
enough, as ratio of domestic state healthcare to nominal GDP has been consistently the lowest
among Singapore, Thailand and Malaysia (Figure 2), with moderate degree of government
participation in domestic healthcare expenditure compared to those ASEAN countries (Figure 4).
The continuous underfunding of Indonesian healthcare sector can be reflected from this country’s
healthcare infrastructure which lags behind other ASEAN countries in terms of physical
infrastructure and medical personnel. As of 2019, domestic hospital bed density totaled at only
11.8 per 10,000 population, with domestic medical doctors density of 2.0 per 10,000 population
(vs. WHO’s recommendation at 10.0).
Nevertheless, since the inception of BPJS Kesehatan in 2014 as the new administrator of state
healthcare insurance (Jaminan Kesehatan Nasional/JKN) program, the government’s contribution
to domestic health expenditure has been growing at a lively pace, from 34.5% in 2014 to 48.4% in
2017 (Figure 5). As the portion of other private expenditure (i.e. corporate & private insurance)
tended to be stable throughout 2015-17, the portion of out-of-pocket (OPE) payments continues
declining at the same pace as the improvement in government’s contribution.
Figure 2. State healthcare expenditure to (nominal) GDP:

Figure 1. Domestic state healthcare expenditure
Indonesia, Singapore, Thailand & Malaysia
State healthcare expenditure (L) Indonesia Singapore Thailand Malaysia
(IDR tr) Share of state healthcare expenditure in total state expenditure (R) 5% 4.8%
7.2% 4.3% 4.3% 4.2% 4.3% 4.3% 4.2%

300 8%
5.8% 4%
250
213 6%
5.0% 4.9% 2.8%
200 4.6% 4.6%
170 3%
4.0% 5%
2.2% 2.3%
3.4% 2.1% 2.1%
150 2.0% 2.0%
109 114 2% 2.2%
93 92 3%
100 1.8% 2.0% 1.8% 1.9% 2.0%
69 1.8% 1.3%
60
2% 1% 0.7% 0.7% 0.7% 0.7%
50 0.6% 0.6%
- 0% 0%
2014 2015 2016 2017 2018 2019 2020* 2021* 2014 2015 2016 2017 2018 2019 2020*
*indicative figure
*indicative figure
Source: LKPP Indonesia, SingStat, NESDC Thailand, Ministry of Health Malaysia,
Source: LKPP Indonesia, Mirae Asset Sekuritas Indonesia Research
Ministry of Finance Malaysia, Mirae Asset Sekuritas Indonesia Research
Figure 3. Hospital bed & medical doctors density per 10,000 population:
Medical doctors density (per 10,000 population) Hospital bed density (per 10,000 population)
30
26.7
25.0
25 22.5
20 18.1
15 13.0
11.8
10
5.5
5
2.0
0
Indonesia Singapore Thailand Malaysia
Source: Ministry of Health Indonesia, SingStat, statista, Mirae Asset Sekuritas Indonesia Research

Figure 4. Healthcare expenditure by source of fund in 2017:

Figure 5. Domestic healthcare expenditure by source of fund
State Out-of-pocket payments Other private expenditure State Out-of-pocket payments Other private expenditure
100% 100%
17.0% 12.7% 11.9% 17.6% 17.0%
19.1% 23.0% 18.6%
80% 11.3% 80%
37.6%
34.6% 32.7% 37.6% 34.6%
60% 60% 41.1%
42.5%
40% 76.0% 40%
48.4% 48.2% 50.5% 44.8% 48.4%

20% 20% 40.3%
34.5%
0% 0%
Indonesia Singapore Thailand Malaysia 2014 2015 2016 2017
Source: WHO, Mirae Asset Sekuritas Indonesia Research Source: WHO, Mirae Asset Sekuritas Indonesia Research
As we can see in Figure 6, domestic private inpatient cost relative to GNI per capita was the
highest compared to that of other ASEAN countries and it’s tied with Singapore (23.2%) whose
healthcare infrastructure and quality are much better (Figure 6). Thus, we expect that the gradual
shifting trend from OPE to BPJS Kesehatan will continue in the coming years.
Figure 6. Public vs. private inpatient cost as of 2018: Indonesia vs. Singapore, Thailand and Malaysia
(in respective local currency)
Average inpatient cost (per visit) Average inpatient cost (per visit) to GNI per capita
Public Private Public Private
Indonesia 4,700,0001 12,861,3432 8.5% 23.2%
3
Singapore 3,853 18,296 4.9% 23.2%
Thailand N/A 41,6394 N/A 19.6%
Malaysia 2,9335 6,9646 6.8% 16.0%
Source: BPJS Kesehatan, Ministry of Health Singapore, https://ringgitplus.com/en/blog/insurance/government-and-private-hospitals-in-malaysia-how-much-do-they-really-cost.html,
Worldbank, Mirae Asset Sekuritas Indonesia Research
List of assumptions used
1
Laporan Pengelolaan Program BPJS Kesehatan 2018 p.170
2
Using company (i.e. MIKA, HEAL and SILO) data
3
Using 4 major catastrophic, noncommunicable disease, i.e. Cardiac surgery, Abdomen cancer, Stroke and Kidney failure
4
Using company (i.e. Bangkok Chain Hospital and Chularat Hospital) data
5
Using 3 major catastrophic, noncommunicable disease, i.e. Cardiac surgery, Chemotherapy (4 cycles) and Stroke
6
Using company (i.e. IHH Healthcare and KPJ Healthcare) data
A love-hate relationship between BPJS Kesehatan and its participants

According to Regulation No. 24/2011 regarding Social Security Administrator (Badan
Penyelenggara Jaminan Sosial/BPJS), BPJS Kesehatan is delegated to manage Social Security
Fund for Healthcare (Dana Jaminan Sosial/DJS Kesehatan) and its development in order to
provide payment of benefits to JKN participants and finance the operations of the program.
However, since its inception in 2014, DJS Kesehatan has consistently recorded budget deficit
(except in 2016), as shown in Figure 7. This can be attributed to the following reasons:
Figure 7. P/L of DJS Kesehatan (IDR bn)

2014 2015 2016 2017 2018 2019
Revenue 41,514 55,538 74,408 78,353 93,201 112,070
Contribution revenue 40,720 52,691 67,404 74,247 81,975 111,754
Government contributions - - - 3,600 10,256 -
Cigarette excise tax - - - - 682 -
Others 794 2,847 7,004 506 287 316
Expense 44,823 61,298 73,900 92,818 104,889 129,107
Healthcare expenses 42,659 57,109 67,248 84,445 94,297 108,460
Others 2,164 4,188 6,652 8,373 10,592 20,647
Surplus (deficit) (3,309) (5,760) 508 (14,464) (11,688) (17,037)
Source: BPJS Kesehatan, Mirae Asset Sekuritas Indonesia Research

Less flexibility for the Government to determine premium increment

Contribution revenue is determined by premium and number of participants who actually pay.
Presidential Regulation No. 64/2020 mandated premium hike to be reviewed at the latest every
two years. In compliance with this regulation, premium for PBI participants and independent
participants grew by CAGR 2014-21 of 8.9% and 8.6%, respectively. As for wage-earning worker
(Pekerja Penerima Upah/PPU) participants, calculation basis were initially kept at 5%, but with
gradually increasing cap of calculation basis.
However, the government actually has less flexibility in determining premium increment. and the
road to ratification can be bumpy as well, owing to the fact that the previously mentioned
Presidential Regulation was once revoked by Supreme Court in March 2020.
Figure 8. Monthly premium rate of BPJS Kesehatan from 2014-21 (IDR)

Perpres Perpres Perpres Perpres
Legal basis Perpres 64/2020
111/2013 19/2016 28/2016 82/2018
Applicable year 2013-2015 2016 2016-2017 2018-2019 2020 2021
Jan-Mar Apr-Jun Jul-Dec
Independent participants
Class I 59,500 80,000 80,000 80,000 160,000 80,000 150,000 150,000
Class II 42,500 51,000 51,000 51,000 100,000 51,000 100,000 100,000
Class III 25,500 30,000 25,500 25,500 25,500 25,500 25,500 35,000
PBI (only Class III) 19,225 23,000 23,000 23,000 42,000 25,500 25,500 35,000
5% of the monthly salary as calculation basis, capped at:

PPU
2,362,500* 8,000,000 12,000,000
* non-taxable income (PTKP) K/1 was amounted to IDR28,350,000 anually
Source: Presidential regulations, Mirae Asset Sekuritas Indonesia Research
Independent participants: payment disobedience & CoB deadlock

As of 7M20, BPJS Kesehatan had noted c.221mn participants, or equivalent to 82% participation
rate. Out of this figure, 59% are recipients of state/region budget contribution (Penerima Bantuan
Iuran/PBI), 25% are PPU, and the rest 16% are either non-wage-earning workers (Pekerja Bukan
Penerima Upah/PBPU) or non-workers (Bukan Pekerja/BP), i.e. independent participants.
Throughout 2014-19, the number of participants grew by 10.9% CAGR, led by the rise in the
number of independent participants at 20.4% CAGR.
Despite the robust growth of independent participants since the inception BPJS Kesehatan in
2014, current number of independent participants hasn’t been able to surpass its 2018 level and
even decreased by 2.7% YoY in 2019. BPJS Kesehatan is currently plagued by payment
disobedience of its participants, especially from independent participants. Based on our back-of-
envelope calculations, contribution revenue from each independent participant per month in 2018
amounted to c.IDR25k, implying that almost all of independent participants registered for Class III
facilities. However, 20% of them actually registered for Class I facilities, while 24% of them
registered for Class II facilities. By weighting the average contribution rate for each class facility
based on the respective number of registered participants, we estimate that 43% of independent
participants have been incompliant, in spite of administrative sanctions stipulated in Government
Regulation No. 86/2013.
Moreover, the deadlock in the Coordination of Benefit (CoB) scheme implementation may have
discouraged them from participating in BPJS Kesehatan. CoB scheme is a method of limiting the
total benefits to a certain amount that doesn’t exceed the amount of health services covered when
BPJS Kesehatan (as 1st guarantor) and the private insurance company (as 1 st payer) cover the
same person for the same health insurance benefits. In order for CoB scheme to work, the private
insurance company must provide similar health insurance plans to BPJS Kesehatan’s, i.e.
managed care plan (as opposed to indemnity plan1).
1Managed care is a healthcare plan in which the insurer signs contracts with certain health care providers & facilities to provide care for
their members at a certain lower prices, while having to meet a minimum level of quality. Managed care plan also attempt to reduce
healthcare costs by focusing on preventive care & using financial incentives, e.g. charging less for generic drugs than branded ones.
Indemnity plan (or fee-for service plan) is a healthcare plan that allows the beneficiaries to direct their own health care and visit almost
any doctor or hospital they like. The insurance company then pays a set portion of the total charges.

The deadlock happens because there’re still a limited number of managed care plans offered by
private insurance companies at the moment. As a result, people who can afford to pay for private
insurance premium most likely opt to waive their BPJS Kesehatan membership.
PPU participants: Partial compliance

Despite their less payment risk compared to independent participants, contribution revenue from
PPU participants is also relatively weak, amounting to c.IDR65k per participant per month in
2018, with calculation basis of roughly only IDR1.3mn, or 51% lower than estimated 2 average
national minimum wage of IDR2.6mn in 2018. Given 93% participation rate of PPU participants 3,
we believe the only explanation that makes sense is that in front of BPJS Kesehatan, many
employers report lower salary expenses than the actual amount paid to their employees.
The government is currently considering payment integration between JKN contribution with other
public services.
Figure 9. Number of BPJS Kesehatan participants
Recipient of state/region budget contribution (PBI) Wage-earning worker (PPU)

Independent participants Participation rate
(mn)
250 100%
84% 82%
79%
200 72% 35.3 35.6 80%
36.2
66%
61% 30.4
24.4 53.5 55.0
150 53% 19.9 49.8 60%
44.9
13.9 41.0
37.9
100 33.1 40%
135.4 131.8
112.7 122.0
50 98.9 106.5 20%
86.4
0 0%
2014 2015 2016 2017 2018 2019 8M20
Expecting participation rate to decline in 2020 due to COVID-19 pandemic

We expect lower participation rate in 2020 from 83.6% in 2019 to 82.5% for this year. The number
of PBI (regional) participants dropped from 38.8mn in 2019 to 35.1mn in 8M20 as some regions
reallocate their budget to handle the COVID-19 pandemic. Moreover, COVID-19-related
economic downturn has forced some employers to lay off their employees, thus weakening
independent participants’ purchasing power, which may negatively affect their ability to pay JKN
contribution. By assuming 1% domestic population growth, we estimate JKN participants of
223.4mn and 227.0mn in 2020-21F, respectively.
2 We assume 15% annual growth from 2016 average national minimum wage of IDR2.0mn, according to Statistics Indonesia
(https://www.bps.go.id/linkTableDinamis/view/id/917)
3Based on total number of PPU workers at 53.5mn, according to Statistics Indonesia.

Figure 11. Breakdown of independent participants for each

Figure 10. Number of participants by class facilities in 2018
class in 2018
Independent participants PBI PPU Class I Class II Class III
(mn)
150
-
120 20%
90
122.0
55%
60 24%
30
31.5
18.3
- - 20.0
0 7.4 8.9
Class I Class II Class III
Source: BPJS Kesehatan, Mirae Asset Sekuritas Indonesia Research Source: BPJS Kesehatan, Mirae Asset Sekuritas Indonesia Research
Cost inefficiency stems from inadequate healthcare infrastructure and delayed co-
payment implementation
The utilization of BPJS Kesehatan facilities grew by CAGR of 24.5% throughout 2014-19 (Figure
12). This surge in utilization growth will surely jack up healthcare expenses, especially with
inadequate healthcare infrastructure at first level facilities (Fasilitas Kesehatan Tingkat
Pertama/FKTP). There’s a significant difference in daily utilization between FKTP and advanced
level facilities (Fasilitas Kesehatan Rujukan Tingkat Lanjutan/FKRTL), as shown in Figure 13.
Moreover, 16.5% cases at FKTP level subsequently need to be referred to FKRTL, 62.6% of
which are private hospitals.
Despite only contributing 37% to total utilization, FKRTL made up 84% of healthcare expenses in
2018 (Figure 14-15). Hence, we believe that the underutilization of FKTP has shored up JKN
inpatient costs in Indonesia, compared to those ASEAN countries, as we’ve previously shown in
Figure 6.
Figure 12. Domestic healthcare utilization by facilities* Figure 13. Daily healthcare utilization per facilities
First Level (FKTP) Advanced Level (FKRTL) Outpatient First Level Advanced Level
Advanced Level (FKRTL) Inpatient 120
(mn) 108
300 98
100
11.0 90
250
9.7 80 76
8.7 84.7 69
200
64.4 76.8
7.6 60
150 6.3 49.3
42
39.8 40
100
4.2 180.4
21.3 150.3 147.4 19 21
120.9 16 18
50 100.6 20 14
10
66.8
0 -
2014 2015 2016 2017 2018 2019 2014 2015 2016 2017 2018 2019

* FKTP including Public Health Center (Puskesmas), Practice Doctor & Dentist, Primary
Clinic, Class D Pratama Hospital
FKRTL including Main Clinic, General Hospital (RSU), Specialized Hospital

Figure 14. DJS Kesehatan healthcare expenses by types of Figure 15. DJS Kesehatan healthcare utilization by types of
facilities in 2018 facilities in 2018
First Level (FKTP) Advanced Level Outpatient (RJTL) First Level (FKTP) Advanced Level Outpatient (RJTL)
Advanced Level Inpatient (RITL) Advanced Level Inpatient (RITL)
4%
16%
33%
55%
29% 63%
On the other hand, in order to ease the financial burden borne by BPJS Kesehatan, we agree with
KPK’s recommendation to accelerate the implementation of co-payment for independent
participants. The co-payment policy has been regulated since December 2018, according to
Minister of Health Regulation No. 51/2018 regarding Co-payment and Cost Difference in JKN.
However, it’s been almost two years and counting since then, and discussions are still ongoing to
determine the types of healthcare services that will be subjected to co-payment policy.
Back in January 2019, BPJS Kesehatan announced the rules of the co-payment policy. For each
outpatient visit, the co-payment amount is IDR20k for Class A & B hospitals and IDR10k for Class
C & D hospitals and main clinic, with a maximum of IDR350k for 20 visits within 3 months. As for
each inpatient visit, the co-payment amount is 10% of the total cost, with a maximum amount of
IDR30mn. BPJS Kesehatan will then pay the remaining hospital claims after being subtracted by
the co-payment amount. However, the co-payment provision doesn’t apply to PBI participants.
We believe the implementation of co-payment will reduce participants’ moral hazard and, thus,
will help achieve cost efficiency in the JKN program.
Prolonged budget deficit may negatively affect BPJS Kesehatan’s financial

capacity
We believe that without any significant regulatory changes, BPJS Kesehatan will be constantly
exposed to budget deficit risks, which may get worse over time and negatively affect its financial
capacity. According to the Minister of Health Regulation No. 28/2014, FKRTL claims are
disbursed by BPJS Kesehatan no later than 15 days after the complete claim files are received,
but in practice, the payment can be severely delayed to 60-100 days. This can be seen from
hospital’s receivable days which keep getting stretched as the number of JKN patients is rising
over time. Fortunately for MIKA, due to its lower proportion of JKN patients, MIKA has better
receivable days than HEAL, as shown in Figure 16-17.
Figure 16. JKN patients’ volume mix vs receivable days: Figure 17. JKN patients’ volume mix vs receivable days:
MIKA HEAL
Receivable days (R) JKN patients volume mix (L) Receivable days (R) JKN patients volume mix (L)
100 100% 100 100%
85.6
80 80% 80 75.8 80%
60 60% 60 53.6 60%

45.8
56%
37.1 36.8 50%
40 40% 40 45% 40%
28.6 28%
22.9 19%
20 20% 20 30% 20%
5%
0%
0 0% 0 0%
2016 2017 2018 2019 2016 2017 2018 2019
Source: Company, Mirae Asset Sekuritas Indonesia Research Source: Company, Mirae Asset Sekuritas Indonesia Research

Single class system: Accommodative regulation as the key to success

The government plans to implement a single class system for all participants in 2H20, in which all
available classes will be replaced by a standard class. While the details are still unclear, if all
available classes are converted to either Class II or Class III, PPU participants will be the most
disadvantaged. Currently, with the percentage of monthly salary as the basis of the payment
scheme, they’re entitled to choose the highest available class. Based on 2018 data, PPU
participants accounted for 25% of total participants; 37% of them registered for Class I, while the
rest registered for Class II.
Moreover, the government should accelerate the CoB implementation as well. If Minister of Health
Regulation No. 51/2018 can be adjusted to make it more accommodative, we believe that it will
increase the number of JKN participations in the future, which will help solve the deficit problem.
No tariff adjustment to INA-CBGs since 2016

In JKN’s system, the payment from BPJS Kesehatan to the health providers (i.e. its partner
hospitals) uses the prospective payment method, in which rates of the health services have been
determined before patients are treated. Under this system, patients receive health services based
on their needs without any reduction in quality. The prospective payment method is called
Indonesian Case Base Groups (INA-CBGs).
For BPJS Kesehatan, the benefits of the INA-CBGs lie in the financial risk sharing with providers,
cheaper administration fee, and support for information system improvement. This will
significantly limit unnecessary health services that may cause over-treatment, over-prescription,
and over-utility.
INA-CBGs rates include all the components of hospital resources used for both medical and non-
medical services; the rates will not be affected by the days of treatment. On the other hand,
hospitals may provide health services which use non-INA-CBGs rates for some specific services,
such as health equipment, chemotherapy drugs, and chronic disease drugs.
INA-CBGs rates are roughly 60-70% lower than non-JKN rates. However, the cost of unbranded
generic drugs is also far cheaper than patented drugs, and doctor fees are considerably lower
than non-JKN rates.
According to Presidential Regulation No. 12/2013, INA-CBGs rates will be reviewed at least once
every two years. However, there hasn’t been any adjustments since 2016. On average, the tariff
of INA-CBGs increased by roughly 10% in 2016. Up until now, the timeline and rate of tariff
adjustment are yet to be specified and certainly put health providers in a disadvantageous
position.
Expecting single digit growth of FKRTL utilization in 2021

COVID-19 pandemic has kept some non-COVID-19 patients away from hospitals out of fear of
contracting the virus, which in turn should cut down both FKRTL inpatient and outpatient
utilization rate in 2020. However, as we estimate that the production and distribution of the first
batch of COVID-19 vaccine will take around 6 months to be completed (see page 20 for
elaborated details), we expect inflection point to occur between 3Q21 and 4Q21.
As we mentioned previously, by assuming 4.5% and 4.75% FKRTL inpatient utilization rate for
2020-21F, respectively, we estimate 10.0mn and 10.8mn FKRTL inpatient utilization, each for
2020-21F. As such, after its decline of 9% in 2020, we expect FKRTL inpatient utilization to grow
by 7% in 2021.
As for FKRTL outpatient utilization, by assuming 35% and 36% rate for 2020-21F, respectively,
we estimate 78.2mn and 81.7mn FKRTL outpatient utilization, each for 2020-21F. Hence, after its
drop of 8% in 2020, we expect FKRTL outpatient utilization to grow by 5% in 2021.

Figure 18. FKRTL inpatient utilizations and utilization rate Figure 19. FKRTL outpatient utilizations and utilization rate
in 2014-21F in 2014-21F
FKRTL inpatient utlization (L) FKRTL inpatient utilization rate (R) FKRTL outpatient utlization (L) FKRTL outpatient utilization rate (R)
(mn) (mn)
15 10% 100 50%
84.7 81.7
76.8 78.2
12 11.0 10.8 8% 80 40%
9.7 10.1
64.4
8.7 38%
9 6% 35% 36%
7.6 4.91% 4.75% 60 30%
4.50% 49.3
6.3
39.8
6 4% 40 20%
4.2
21.3
3 2% 20 10%
0 0% 0 0%
2014 2015 2016 2017 2018 2019 2020F 2021F 2014 2015 2016 2017 2018 2019 2020F 2021F
Privately insured & corporate patients: A good way to balance revenue

growth, profitability level, and cash flow
Despite its decent utilization growth outlook, BPJS Kesehatan has significant regulatory risks
embedded in it. Unfavorable future INA-CBGs rates will result in lower profitability level of
healthcare providers, while prolonged budget deficit may negatively affect BPJS Kesehatan’s
financial capacity.
Given the shifting trend from OPE to BPJS Kesehatan, having privately insured and corporate
patients can be a good way to balance revenue growth, profitability level, and cash flow.
According to General Insurance Association of Indonesia (AAUI), health and personal accident
gross claims grew by 3.4% CAGR throughout 2016-19. The number of gross claims even soared
by 11.4% YoY in 1H20, which we believe was driven by COVID-19-related claims. According to
CNBC Indonesia, there are as many as 60 life insurance companies that cover COVID-19-related
claims.
Moreover, the current receivable days from privately insured patients now range between 30-60
days, lower than receivable days from BPJS Kesehatan. In fact, lower receivable days will help
hospitals to maintain their cash flow stability.
Figure 20. Domestic health & personal accident gross claims
(IDR bn)
5,000
4,361
4,184
3,944 4,007
4,000
3,000
2,304
2,069
2,000
1,000
-
2016 2017 2018 2019 1H19 1H20
Source: AAUI, Mirae Asset Sekuritas Indonesia Research

COVID-19 treatment: benefiting from supply-

demand imbalance
In this report, we’re going to discuss COVID-19-related updates in Jakarta as the top contributor
of COVID-19 cases in Indonesia.
Jakarta: COVID-19 cases start to surge in July 2020

Since the first recorded positive cases were found in Indonesia on March 3, Jakarta has been the
biggest contributor of COVID-19 cases in the country. As of September 15, the number of COVID-
19 positive cases in Jakarta has reached 56,953 cases, making up 25.3% of total domestic cases.
Based on WHO’s criteria, the pandemic was still under control 4 at the beginning, with 3.9%
positive rate5 in the first week of May. Nevertheless, in order to slow down the transmission of
COVID-19, Jakarta’s government officially announced the first Large-Scale Social Restrictions
(Pembatasan Sosial Berskala Besar/PSBB) policy on April 7, which lasted for 2 months.
Throughout PSBB implementation, additional daily cases managed to be kept below 240,
although the average positive rate stood at 5.5%, which was a bit higher than WHO’s indicator for
contained pandemic of 5%.
Considering the above good progress, starting from June 11, Jakarta’s government decided to
loosen COVID-19 restrictions by implementing PSBB Transitional Period – Phase I, during which
public transportation, sociocultural activities, offices of non-essential business activities (including
shopping centers), and worship places can gradually resume their operations, albeit at half
capacity, while implementing strict health protocols.
However, things started to get worse since July, with surging new daily cases that peaked at
1,450 on September 10 (Figure 22) and positive rate mounting as high as 17.8% on September
12 (Figure 23). The acceleration of daily cases and mortality put Jakarta at the imminent risk of
exceeding the capacity of healthcare facilities. In response to this, Jakarta’s government decided
to implement PSBB 2.0, which came into effect since September 14. Sociocultural activities are
fully restricted, while offices of non-essential business activities can only operate at 25% capacity.
Shopping centers are still be able to operate at half capacity, but restaurant dine-ins are
prohibited; only take-out services are permitted.
Figure 21. Cumulative positive COVID-19 cases in Jakarta Figure 22. Number of new daily COVID-19 cases in Jakarta
100,000 2,000
80,000 1,450
1,500
56,953
60,000
1,000
40,000
500
20,000
- -
Mar-20 Apr-20 May-20 Jun-20 Jul-20 Aug-20 Sep-20 Mar-20 Apr-20 May-20 Jun-20 Jul-20 Aug-20 Sep-20
Source: Jakarta’s government, Mirae Asset Sekuritas Indonesia Research Source: Jakarta’s government, Mirae Asset Sekuritas Indonesia Research
4According to WHO’s criteria published in May 2020, a positive rate of less than 5% is one indicator that the epidemic is under control in a
country. The % of positive samples can be interpreted only with comprehensive surveillance and testing of suspect cases, in the order of
1/1000 population/week. In the case of Jakarta, the % of positive samples can be interpreted when the number of weekly PCR tests has
reached 10,645, which was achieved in the 1 st week of May 2020.
5Positive rate: Share of PCR tests returning a positive result.

On the bright side, Jakarta is the only province in Indonesia that has exceeded WHO’s
recommended number of PCR tests, i.e. 1/1000 population/week; in the 2 nd week of September
2020, the weekly number of PCR tests totaled at 65,211, or around 6.1x of WHO’s recommended
number. As of September 15, 784,161 PCR tests have been administered, accounting for 45.2%
of total domestic PCR tests.
Figure 24. Cumulative PCR tests conducted in Jakarta

Figure 23. COVID-19 daily positive rate in Jakarta
(unique persons tested)
25% 1,000,000
784,161
20% 800,000
17.8%
15% 600,000
10% 400,000
5% 200,000
1.8%
0% -
May-20 Jun-20 Jul-20 Aug-20 Sep-20 Feb-20 Mar-20 Apr-20 May-20 Jun-20 Jul-20 Aug-20
Source: Jakarta’s government, Mirae Asset Sekuritas Indonesia Research Source: Jakarta’s government, Mirae Asset Sekuritas Indonesia Research
Patients in treatment in Jakarta may be more than doubled by the end of this
year
Positive cases of COVID-19 are divided into four categories: 1) in treatment; 2) in self-isolation; 3)
recovered; and, 4) dead. Both in-treatment and self-isolated patients can be categorized as active
positive cases. As of September 15, recovery rate of COVID-19 cases in Indonesia stood at
76.0%, with 2.6% mortality rate, thus leaving the rest as active positive cases. As long as COVID-
19 vaccine hasn’t been widely available, we believe there won’t be any significant positive
improvements in either recovery rate or mortality rate.
In our calculation, by assuming gradual increases in weekly number of PCR tests from currently
65,000 to 80,000 at the end of this year and using 10% positive rate, there will be 1.8mn PCR
tests performed with total positive cases of 181,416 at the end of this year. Furthermore, by
assuming recovery rate of 80% and mortality rate of 2.5%, we estimate year-end number of active
positive cases to reach 31,748.
Although Jakarta’s government has prohibited self-isolation for positive patients and plans for
government-managed centralized self-isolation, we believe most of them will eventually be forced
to undergo self-isolation on their own due to the limitation on inpatient and ICU beds estimated by
Jakarta’s government. To illustrate, Wisma Atlet COVID-19 Emergency Hospital, Kemayoran,
currently has 2,296 patients in treatment (79.8% occupancy rate) and 2,741 patients under self-
isolation (37.6% occupancy rate) as of September 20.
Figure 25. Estimated inpatient bed occupancy at COVID-19 referral hospitals in Jakarta
Source: Jakarta’s government

Figure 26. Estimated ICU bed occupancy at COVID-19 referral hospitals in Jakarta
Figure 27. Availability of inpatient beds at Regional Public Hospital (Rumah Sakit Umum Daerah/RSUD)*
*as of September 18, 2020

Hence, by assuming 35% of active positive patients to be treated, the number of patients in
treatment should reach 11,112 by the end of this year, which is more than double the current
number of 4,468 (as of September 15).

Inpatient traffic should bottom out in 2Q20

COVID-19 pandemic has, indeed, kept some non-COVID-19 patients away from hospitals out of
fear of contracting the virus. In 2Q20, MIKA and HEAL experienced 30-40% and 50-60% decline
in inpatient admissions and outpatient visits, respectively. Moreover, the establishment of Wisma
Atlet COVID-19 Emergency Hospital, Kemayoran on March 23, along with the declining number
of COVID-19 patients in treatment up until June 2020, has prevented MIKA and HEAL from
obtaining a considerable number of COVID-19 patients during that quarter.
Figure 28. MIKA & HEAL quarterly inpatient days Figure 29. MIKA & HEAL quarterly outpatient visits
(in thousands) (in thousands)
MIKA HEAL MIKA HEAL
300 274 2,500

247 247
250 228 236
2,000
184 1,600 1,600 1,583 1,600
200 179
169
160 1,500 1,300
146 149
150
115
1,000
100 659 703 696 693 700
621
500 334
50
- -
1Q19 2Q19 3Q19 4Q19 1Q20 2Q20 1Q19 2Q19 3Q19 4Q19 1Q20 2Q20
However, as the number of COVID-19 patients in treatment has spiked up since July, MIKA’s
inpatient days has reached 85-90% of the normal state. It currently allocates around 20% of its
total operational inpatient and ICU beds (445 inpatient and 50 ICU beds) for COVID-19 treatment
at 100% occupancy rate for both of them at the moment. As for HEAL, it currently allocates
around 400 inpatient beds for COVID-19 treatment (10% of its total inpatient beds) at nearly full
occupancy rate.
Figure 30. Number of COVID-19 patients in treatment in Jakarta
5,000 4,728
4,000
3,000
2,000
1,000
-
Mar-20 Apr-20 May-20 Jun-20 Jul-20 Aug-20 Sep-20
Source: Jakarta’s government, Mirae Asset Sekuritas Indonesia Research
Outpatient visits: Likely to be kept low for the rest of this year
In May-June 2020, as the number of inpatient days kept declining and positive rate was moving
sideways, the fear of COVID-19 seemed to subside, which triggered faster-than-expected
recovery in outpatient visits. However, given the surge in the number of positive cases and
positive rate in mid-July 2020, outpatient visits may be kept low for the rest of this year.

Inpatient beds capacity may be expanded, but number of Pulmonologists are

limited
Although it’s still possible for both MIKA and HEAL to expand the capacity of their inpatient and
ICU beds, the number of Pulmonologists 6 (Dokter Spesialis Paru/Sp.P) in Jakarta remains
limited. According to Indonesian Society of Respirology (Perhimpunan Dokter Paru
Indonesia/PDPI), currently there are only 187 pulmonologists registered in Jakarta, constituting
16.9% of the current total pulmonologists nationwide of 1,106.
According to PDPI’s chairman, dr. Agus Dwi Susanto, the ideal number of pulmonologists
nationwide should be at least 2,500. As Jakarta’s cases contributed 25.3% to total domestic
cases, the recommended number of pulmonologists in Jakarta should be around 600. As this
number is practically impossible to achieve in the near term, General Practitioners and Internists
(Dokter Spesialis Penyakit Dalam/SpPD) have to lend their hands in treating COVID-19 patients.
Expecting higher-than-normal revenue per inpatient day during the

pandemic, but not yet to peak
On April 13, the Indonesian government declared COVID-19 as a national disaster. Accordingly,
the government announced that hospitals are now able to submit claims to the Ministry of Health
for the standard costs of COVID-19 treatment carried out since February 2020. The mechanism
will proceed from hospitals’ claim submission to BPJS until BPJS’ verification and submission of
the approved claims to the Ministry of Health.
Hospitals are entitled to propose the reimbursement payment every two weeks to maintain their
cash flow. The Ministry of Health will reimburse 50% of each claim (as a down payment) after
receiving the claim from the hospitals. The rest of the claims will be verified by BPJS in a matter
of days, before being paid by the Ministry of Health.
According to the Minister of Health Decision No. HK.01.07/MENKES/238/2020, inpatient costs per
patient that can be reimbursed by the government can be calculated using the following formula:
𝑎 + [(𝑏. 𝑛) − 𝑎] − 𝑐;
in which:
a = INA-CBGs rate for Class III beds in Class A, Regional I hospitals;
b = Cost per day, with details as follows:
Cost per day (IDR)

No. Criteria
Without Co-morbid With Co-morbid
1. ICU with ventilator 15,500,000 16,500,000
2. ICU without ventilator 12,000,000 12,500,000
3. Isolation rooms with ventilator 10,500,000 14,500,000
4. Isolation rooms without ventilator 7,500,000 9,500,000
c = Personal Protective Equipment (PPE) assistance, either from donation or the Government;
and
n = Length of Stay
As we can see above, COVID-19 daily treatment cost is significantly higher than average inpatient
cost of MIKA (IDR3-4mn) and HEAL (IDR2-3mn). Moreover, some hospitals require all patients to
undergo a PCR test before surgery. Hence, despite the severe drop in patient traffic, revenue per
inpatient day will continue to grow, along with the increased number of COVID-19 patients in
treatment.
6Pulmonologist: a physician who specializes in the respiratory system.

Figure 31. Revenue per inpatient day for MIKA and HEAL
(IDR) MIKA HEAL
5,000,000
4,000,000
3,287,486 3,358,725 3,336,739
2,972,450 3,087,513 3,075,760
3,000,000
2,666,165 2,795,782 2,766,572 2,736,120

2,592,889
2,000,000 2,251,219
1,000,000
-
1Q19 2Q19 3Q19 4Q19 1Q20 2Q20
Source: Company, Mirae Asset Sekuritas Indonesia Research
Discourse of price cap on PCR tests

Based on the Minister of Health Circular Letter No. HK.02.02/I/2875/2020, the government has
capped the rate of rapid tests at IDR150,000 since July 2020. Thus, the gross margin from rapid
tests is very slim. Recently, COVID-19 Handling Task Force has planned to cap PCR test rate as
well after they found unreasonably high prices of PCR tests at several hospitals, even as high as
IDR2.5mn. Currently, MIKA and HEAL charge IDR1.5-1.9mn for a PCR test, with gross margin of
around 20%. While the price cap mechanism is still unclear, this will surely disadvantage all
hospitals if it materializes.
State budget for COVID-19: On-time reimbursement despite sluggish

realization
For 2020, the government allocates IDR87.55tr healthcare budget specifically for the handling of
COVID-19, in which IDR3.3tr is apportioned to cover the standard costs of COVID-19 treatment.
As of August 28, only IDR975bn or around 30% of the total budget has been realized. The
Minister of Finance attributed this slow healthcare budget realization to continued prudence in
budget execution.
Nevertheless, up until now, MIKA and HEAL report no significant delays in the government’s
payment. Receivable days from government-borne COVID-19 treatment range between 14-30
days, much shorter than insurance (30-60 days) and BPJS Kesehatan (60-100 days). As
healthcare budget realization continues being in the public spotlight, we believe that the Ministry
of Health will find a way to improve its budget execution performance.

The push for COVID-19 vaccine
The long and winding road to vaccine approval

Scientists from all over the world are currently racing to produce a safe and effective COVID-19
vaccine. As of September 18, 39 vaccines have passed preclinical testing, and 7 of them have
reached Phase III.
In Figure 33, the one highlighted yellow, i.e. CoronaVac by Sinovac, is the safest bet for
Indonesia at the moment. The Minister of SOE has hinted that the vaccine will have a price tag of
US$25-30 (IDR375,000-450,000).
Figure 32. Vaccine testing process

 Scientists test a new vaccine on cells and then give it to animals to
Preclinical Testing see if it produces an immune response.
 Currently there’re 92 preclinical vaccines in active development.
Phase I: Scientists give the vaccine to a small number of people to test safety and
Safety trials dosage as well as to confirm that it stimulates the immune system.
 Scientists give the vaccine to hundreds of people split into
groups, such as children and the elderly, to see if the vaccine acts
Phase II:
differently in them.
Expanded trials
 These trials further test the vaccine’s safety and ability to stimulate
the immune system.
 Scientists give the vaccine to thousands of people and wait to
see how many become infected, compared with volunteers who
received a placebo7.
Phase III:
 These trials can determine if the vaccine protects against the
Efficacy trials
coronavirus.
 Phase 3 trials are large enough to reveal evidence of relatively rare
side effects that might be missed in earlier studies.
Early/limited approval Approved vaccines without waiting for the results of Phase 3 trials.
 Regulators in each country review the trial results and decide
whether to approve the vaccine or not.
 During a pandemic, a vaccine may receive emergency use
Approval
authorization before getting formal approval.
 Once a vaccine is licensed, researchers continue to monitor people
who receive it to make sure it’s safe and effective.
Source: The New York Times, Mirae Asset Sekuritas Indonesia Research
Figure 33. List of current COVID-19 vaccine developments that have passed preclinical testing
No. Developers Current Progress Additional info
On August 9, the Saudi health ministry announced that CanSino
Phase III;
1. CanSino Biologics (China) Biologics would run a Phase 3 trial in Saudi Arabia, and later in
Limited approval
the month they also started a trial in Pakistan.
The approval was a “conditional registration certificate”, which
would depend on positive results from Phase 3 trials.
Phase III;
2. Gamaleya Research Institute (Russia) In a small study, they found that the vaccine yielded mild side
Early approval
effects. Meanwhile, Russia negotiated agreements to supply the
vaccine to countries including Brazil, Mexico and India.
Phase 3 trial was launched in Brazil in July and another in
Indonesia in August. Sinovac has committed to supply bulk
Phase III; vaccine to enable Bio Farma to produce at least 40mn doses
3. Sinovac (China)
Limited approval of CoronaVac in Indonesia before March 2021;
after March 2021, Sinovac will continue to supply the required
quantity of the bulk vaccine until the end of 2021.
7Placebo: a substance or treatment which is designed to have no therapeutic value.

Sinopharm (China), Phase III; Phase 3 trials in the United Arab Emirates in July, and in Peru &
4.
w/ Wuhan Institute of Biological Products Limited approval Morocco in August.
Sinopharm (China), Phase III;
5.
w/ Beijing Institute of Biological Products Limited approval
The data-safety monitoring board, will perform its first analysis of
Moderna (USA), Moderna’s efficacy data once 53 cases of have been diagnosed.
6. Phase III
w/ National Institutes of Health It may take till the end of 2020 or early 2021 to reach the
necessary numbers.
Phase 3 trial called “BRACE” to see if the Bacillus Calmette-
Murdoch Children’s Research Institute
7. Phase III Guerin (BCG) vaccine (i.e. tuberculosis vaccine) partly protects
(Australia)
against the coronavirus.
In September, the chief executive of Pfizer said they would know
BioNTech (Germany), in collaborations
if the vaccine works as soon as October 2020. If approved,
8. with Pfizer (USA) and Fosun Pharma Phase II/III
Pfizer has said they expect to manufacture over 1.3 billion doses
(China)
of their vaccine worldwide by the end of 2021.
On September 6, AstraZeneca halted global trials of the vaccine
to investigate one volunteer, who developed a form of
AstraZeneca (UK & Sweden),
9. Phase II/III inflammation called transverse myelitis. The British and Brazilian
w/ University of Oxford
trials resumed on September 12. But, as of now, trials in other
countries remain on hold.
10. Zydus Cadila (India) Phase II Launched a Phase 2 trial on August 6.
CureVac has collaborated with Tesla on creating mRNA “micro-
11. CureVac (USA) Phase II factories,” which could potentially be deployed around the world
to make billions of doses of the vaccine.
Anhui Zhifei Longcom (China),
12. w/ Chinese Academy of Medical Phase II Began Phase 2 trials in July.
Sciences
Institute of Medical Biology, Chinese
13. Phase II Has previously invented vaccines for polio and hepatitis A.
Academy of Medical Sciences (China)
Imperial College London (UK), The researchers expect to know if the vaccine is effective by the
14. Phase I/II
w/ Morningside Ventures end of the year.
AnGes (Japan),
15. Phase I/II Began recruiting for the trial at the end of August.
w/ Osaka University and Takara Bio
Arcturus Therapeutics (US), In August, Arcturus launched a Phase 1/2 trial at Singapore
16. Phase I/II
w/ Duke-NUS Medical School General Hospital.
Beth Israel Deaconess Medical Center Will launch a Phase 3 trial with 60,000 participants in September
17. Phase I/II
(USA), w/ Johnson & Johnson in Latin America.
In September Novavax reached an agreement with the Serum
18. Novavax (USA) Phase I/II Institute of India, a major vaccine manufacturer, that they said
would enable them to produce as many as 2bn doses a year.
19. Finlay Vaccine Institute (Cuba) Phase I/II
20. Vector Institute (Russia) Phase I/II
21. Sanofi (France), w/ GSK Phase I/II Sanofi expects to begin a Phase 3 trial by the end of the year.
Bharat Biotech (India),
22. w/ Indian Council of Medical Research Phase I/II Vaccine would be available no sooner than early 2021.
and National Institute of Virology
23. Inovio (USA) Phase I Plan to start Phase 2/3 trials in September.
Phase I In May 2020, Genexine has signed a MoU with Kalbe Farma
(KLBF IJ) to develop a COVID-19 vaccine (GX-19).
24. Genexine (Republic of Korea)
Both has agreed to conduct GX-19 clinical trials in Indonesia.
Anticipate moving to Phase 2 trials in the fall.
Academy of Military Medical Sciences Phase I
25.
(China)
ReiThera (Italy), Phase I
26. w/ Lazzaro Spallanzani National Institute Based on an adenovirus that infects gorillas.
for Infectious Diseases
Phase I Uses a weakened measles virus that carries a gene for the
27. Merck (USA)
coronavirus spike protein.

University of Hong Kong, Phase I

Engineer a nasal-spray vaccine to produce part of the
28. w/ Xiamen University and Beijing Wantai
coronavirus spike protein.
Biological Pharmacy
Clover Biopharmaceuticals (China), Phase I
29.
w/ GSK and Dynavax
30. Vaxine (Australia) Phase I Expects to start Phase 2 trials in September.
Phase I Partly funded by the cigarette maker Philip Morris, uses a
Medicago (Canada),
31. species of tobacco to make vaccines.
w/ GSK and Dynavax
Plan to start Phase 2/3 trials in October.
University of Queensland (Australia), Phase I Expected their first supply of the vaccines to be ready in mid-
32.
w/ CSL 2021.
Phase I Subsidiary of British American Tobacco, engineers a species of
tobacco called Nicotiana benthamiana to make viral proteins.
33. Kentucky BioProcessing (USA)
The company previously used this technique to make a drug
called Zmapp for Ebola.
34. Medigen (Chinese Taipei), w/ Dynavax Phase I
35. Adimmune (Chinese Taipei) Phase I
West China Hospital of Sichuan Phase I
36.
University
Phase I Have reached an agreement with authorities in Brazil to run their
37. COVAXX (USA)
Phase 2/3 trial there.
38. University of Tübingen (Germany) Phase I
Research Institute for Biological Safety Phase I
39.
Problems (Kazakhstan)
Source: The New York Times, Mirae Asset Sekuritas Indonesia Research
Past experiences not that encouraging, virus likely to re-emerge

In the history of medicine, rarely has a vaccine been developed in less than five years. Among the
fastest being developed was the mumps8 vaccine, which took four years to go from collecting
viral samples to licensing a drug in 1967. To add more concern, no medically proven predecessor
exists for any type of human coronavirus, according to National Geographic.
WHO itself doesn’t expect widespread vaccinations until the middle of next year, emphasizing the
importance of rigorous checks on their effectiveness and safety. Moreover, none of the candidate
vaccines in advanced clinical trials so far has demonstrated a “clear signal” of efficacy at the level
of at least 50% sought by the U.N. health agency.
Moreover, there’s a possibility for the virus to re-emerge and cause future outbreaks. The virus
may also mutate in ways that would make previously effective vaccines useless.
First batch of CoronaVac likely enough to achieve herd immunity in Jakarta

and East Java
Herd immunity occurs when a large portion of a community (the herd) becomes immune to a
disease, making the spread of disease from person to person unlikely. As a result, the whole
community becomes protected — not just those who are immune.
There are two paths to herd immunity for COVID-19 — vaccines and infection. As it isn't yet clear
if infection of the COVID-19 virus makes a person immune from future infection, a vaccine would
be the only ideal approach to achieving herd immunity. Due to highly transmissible nature of the
virus, WHO’s Chief Scientist, Dr Soumya Swaminathan, estimated that it needs at least 60-70%
of the population to have immunity to really break the chain of transmission.
Positive cases in Jakarta and East Java accounted for 40% of total domestic cases. Hence, by
assuming that the central government will prioritize the first batch of CoronaVac for Jakarta and
East Java, it should arguably be enough to achieve herd immunity in both provinces. The
government has to distribute around 35.5mn doses of CoronaVac to cover 70% of total population
in both provinces; 7.5mn goes to Jakarta, while the rests to East Java.
8Mumps: A viral infection that primarily affects saliva-producing (salivary) glands.

Vaccine distribution always a main concern

With annual vaccine production capacity of 100mn doses at the moment, the first batch of the
vaccine should be able to be produced by Bio Farma in 5 months. On the other hand, vaccine
distribution will always be a main concern. Being the members of SOE pharmaceutical holding
established in January 2020 and also Bio Farma’s subsidiaries, Indofarma (INAF IJ) and Kimia
Farma (KAEF IJ) have been appointed to distribute CoronaVac across the nation. Both Indofarma
and Kimia Farma have their own distribution division, i.e. Indofarma Global Medika (IGM) and
Kimia Farma Trading & Distribution (KFTD). As of 2019, IGM and KFTD had 29 and 48 branch
offices spread out throughout Indonesia, respectively.
According to WHO’s Vaccine Management Handbook, all vaccines must be refrigerated within
temperature range of 2°C to 8°C. Hence, to reconstitute a vaccine, a lyophilized (freeze-dried)
vaccine in one vial must be mixed with a diluent (liquid) in another (Figure 34-35). By assuming
packed vaccine volume per dose (including its diluent) of 5cm 3, 40mn doses of vaccines will have
total volume of 200,000L. Furthermore, by assuming maximum net storage capacity of a truck of
2,232L, it will need 90 trucks to deliver 40mn doses of vaccine in one day.
In the best scenario, without any production disruptions, while assuming IGM and KFTD to have
sufficient distribution infrastructure, the production and distribution of the first batch of CoronaVac
will take around 6 months to be completed.
Figure 34. Hypothetical vaccine vials in secondary packaging Figure 35. Hypothetical vaccine diluent carton
Source: WHO Source: WHO
Figure 36. How to calculate maximum net storage capacity of a truck
Source: WHO

Initiate overweight on the sector
We initiate overweight on Indonesia’s healthcare sector. Despite the declining trend of non-
COVID-19 patient traffic in 2020, we believe hospitals can benefit from the persistent excess
demand of COVID-19 inpatient beds, especially since we expect COVID-19 patients in treatment
in Jakarta may be more than doubled by the end of this year. Inpatient traffic should bottom out in
2Q20, while revenue per inpatient day will continue being higher-than-normal during the
pandemic.
In 2021, as we estimate that the production and distribution of the first batch of CoronaVac will
take around 6 months to be completed, inflection point should occur between 3Q21 and 4Q21.
That being said, we expect MIKA’s and HEAL’s FY21 revenue/net profit to grow by 24.0%/31.4%
and 23.8%/53.3%, respectively.
We have Buy recommendation on both MIKA (TP IDR2,900) and HEAL (TP IDR4,000).
Risks to our call: 1) delay in vaccine production and distribution; 2) prolonged budget deficit of
BPJS Kesehatan; and, 3) unfavorable JKN-related regulations imposed by the government.
Slight preference for MIKA
Regulatory risk embedded in BPJS Kesehatan

Both MIKA and HEAL have their own competitive advantage in serving their patients. MIKA has
established a strong footing in serving non-JKN patients, while HEAL has specialty in serving JKN
patients. However, given the regulatory risk embedded in BPJS Kesehatan, it may cause
turbulence to HEAL’s future performance as more than half of its revenue is contributed from
BPJS Kesehatan.
Benefiting more from faster-than-expected vaccine timeline

As we assume similar degrees of recovery in patient volume for both MIKA and HEAL, a faster-
than-expected vaccine timeline will benefit MIKA more than HEAL as MIKA’s revenue per
inpatient day and outpatient visit for non-COVID patients are 15-20% and 80% higher than those
of HEAL, respectively.
Higher share liquidity

We’re also in favor of MIKA’s share liquidity. As seen in Figure 37, MIKA has significantly higher
monthly trading volume-to-float ratio than HEAL, especially in the past one year.
Figure 37. Monthly trading volume-to-float ratio: MIKA vs. HEAL
MIKA HEAL
10%
8%
6%
4%
2%
0%
Jan-18 Jul-18 Jan-19 Jul-19 Jan-20 Jul-20
Source: Bloomberg, Mirae Asset Sekuritas Indonesia Research

Higher profitability level justifies premium valuations of domestic healthcare

sector vs. regional peers
Domestic healthcare sector (MIKA and HEAL) is currently trading at FY21F P/E and EV/EBITDA
of 40.8x and 25.0x, which is a bit higher than regional peers in ASEAN at average FY21F P/E and
EV/EBITDA of 40.7x and 18.6x, respectively. We believe higher profitability level (EBITDA margin
and net margin) justifies premium valuations of domestic healthcare sector vs. regional peers.
Figure 38. Comparison to regional peers

Share price FY21F FY21F
Bloomberg Market cap FY21F FY21F
Company as of August 31 EBITDA Net
ticker code (USD mn) P/E EV/EBITDA
(Local currency) margin margin
Raffles Medical Group
RFMD SP 1,113 0.82 27.3 14.7 18.2% 10.0%
(Singapore)
Bangkok Dusit Medical
Services BDMS TB 10,378 20.8 37.7 20.8 22.2% 11.1%
(Thailand)
Bumrungrad Hospital
BH TB 2,773 110.5 34.6 19.6 28.3% 16.7%
(Thailand)
Bangkok Chain Hospital
BCH TB 1,171 15.6 30.0 17.0 26.5% 12.8%
(Thailand)
Chularat Hospital
CHG TB 855 2.6 33.3 20.4 24.4% 14.5%
(Thailand)
IHH Healthcare
IHH MK 11,280 5.36 49.6 17.3 21.8% 6.2%
(Malaysia)
KPJ Healthcare
KPJ MK 896 0.825 21.2 10.7 15.7% 4.9%
(Malaysia)
Sector average (regional) 28,063 40.7 18.6 22.4% 10.9%
Mitra Keluarga Karyasehat MIKA IJ 2,283 2,370 44.0 28.8 30.0% 20.1%
Medialoka Hermina HEAL IJ 671 3,160 30.2 12.0 22.3% 7.5%
Sector average (domestic) 40.8 25.0 26.2% 13.8%
Source: Bloomberg, Mirae Asset Sekuritas Indonesia Research

[Indonesia] Healthcare
Mitra Keluarga Karyasehat Buy

(MIKA IJ) (Initiate)
Specialty in serving non-JKN patients TP: IDR2,900

Upside: 20.3%
PT Mirae Asset Sekuritas Indonesia

Specialty in serving non-JKN  MIKA hospitals are widely scattered across Java; 80% of them are located in Jabodetabek and West Java, while
patients the rest are sited in East Java. By concentrating its hospital locations on Greater Jakarta and Surabaya, the
company can obtain attractive occupancy rates, revenue per patient, and financial returns.
 Despite JKN’s growing penetration into domestic healthcare system since 2014, the company has maintained its
strong footing in serving non-JKN patients, which enables MIKA to book higher revenue per inpatient day,
EBITDA margin, and net margin compared to HEAL.
 Revenue contribution from JKN may go up from 15% in 1H20 to as high as 30-40% in the future.
COVID-19 treatment to support  Provided the surging number of COVID-19 patients, we believe COVID-19 treatment will support revenue growth
FY21 revenue growth in 4Q20 as well as FY21.
 FY20-21F inpatient revenue: +5% and +20% YoY.
 FY20-21F outpatient revenue: -28% and +23% YoY.
 FY20-21F PCR & rapid tests revenue of IDR168bn and IDR302bn.
Maintained positive free cash flow  Since its IPO in 2015, MIKA has barely had debt in its B/S.
and net cash position  Receivable days keep climbing due to the increased number of JKN patients, yet it can be kept below 60 days.
MIKA has also consistently recorded positive cash flow since 2016.
 With abundant amount of cash, all capex can still be funded internally.
 MIKA estimates that the 26th hospital located in Surabaya will commence operation in either 4Q20 or 1Q21. The
company also plans to start ground-breaking the 27th hospital in 4Q20.
Expecting FY21 net profit to grow  PCR and rapid tests drag down profitability level.
by 31% YoY  FY20-21 net profit of IDR594bn (-19% YoY) and IDR781bn (+31% YoY).
Initiate Buy with TP of IDR2,900  We initiate Buy on MIKA with TP of IDR2,900.

 A faster-than-expected vaccine timeline will benefit MIKA more than HEAL.
 Our TP is derived using an equally blended method of target FY21F P/E multiple of 50.0x (average of its 5-year
mean) and FY21F EV/EBITDA multiple of 36.5x (average of its 5-year mean).
 Risks to our call: 1) delay in vaccine production & distribution; 2) prolonged budget deficit of BPJS Kesehatan; and,
3) unfavorable JKN-related regulations imposed by the government.
Key data
(D-1yr=100)
JCI MIKA Share Price (9/25/20, IDR) 2,410 Market Cap (IDRbn) 34,333.7
120
Consensus Net Profit (21F, IDRbn) 805.1 Shares Outstanding (mn) 14,246.4
110
100
NP Mirae Asset vs. consensus (21F, %) -3.0 Free Float (%) 38.1
90 EPS Growth (21F, %) 31.4 Beta (Adjusted, 24M) 0.3
80
P/E (21F, x) 44.0 52-Week Low (IDR) 1,570
70
60
Industry P/E (Current, x) 11.4 52-Week High (IDR) 3,030
9/19 11/19 1/20 3/20 5/20 7/20 9/20
Benchmark P/E (21F, x) 13.2
Share performance Earnings and valuation metrics

(%) 1M 6M 12M FY (Dec.) 2016 2017 2018 2019 2020F 2021F
Absolute -0.8 29.2 -6.7 Revenue (IDRbn) 2,435 2,496 2,713 3,205 3,136 3,888
Relative 8.5 22.6 14.5
EBITDA (IDRbn) 846 949 914 1,103 937 1,168
EBITDA Margin (%) 34.7 38.0 33.7 34.4 29.9 30.0
NP (IDRbn) 695 680 614 730 594 781
EPS (IDR) 49 48 43 51 42 55
ROE (%) 19.7 18.4 15.1 17.0 13.0 15.2
P/E (x) 49.4 50.5 56.0 47.0 57.8 44.0
EV/EBITDA (x) 39.0 35.8 37.1 31.1 36.0 28.8
Dividend Yield (%) 1.0 1.4 - 0.7 0.9 0.7
Source: Company, Mirae Asset Sekuritas Indonesia Research estimates
September 28, 2020 Mitra Keluarga Karyasehat
C O N T E N T S
Specialty in serving non-JKN patients 25

Hospital locations concentrated on Greater Jakarta and Surabaya 25
Higher revenue per patient and profitability level than HEAL 25
Gradually increased number of JKN patients 26
COVID-19 treatment to support FY21 revenue growth 27

FY20-21F inpatient revenue: +5% and +20% YoY 27
FY20-21F outpatient revenue: -28% and +23% YoY 28
FY20-21F PCR & rapid tests revenue of IDR168bn and IDR302bn 28
Consistently positive free cash flow and net cash position 29
Expecting FY21 net profit to grow by 31% YoY 30

PCR and rapid tests drag down profitability level 30
FY20-21 net profit of IDR594bn (-19% YoY) and IDR781bn (+31% YoY) 30
Initiate Buy with TP of IDR2,900 31
MIKA at a glance 32
Company snapshot 32
Mirae Asset Daewoo Research 24

Specialty in serving non-JKN patients
Hospital locations concentrated on Greater Jakarta and Surabaya

MIKA’s hospitals are widely scattered across Java; 80% of them are located in Jabodetabek and
West Java, while the rest are sited in East Java1. By concentrating its hospital locations on
Greater Jakarta and Surabaya, the company has managed to obtain attractive occupancy rates,
revenue per patient, and financial returns since both provinces are the regions with the highest
population density, GDP per capita, and wealth concentration.
Higher revenue per patient and profitability level than HEAL

Despite the rising penetration of state healthcare insurance (Jaminan Kesehatan Nasional/JKN)
into domestic healthcare system since 2014, the company has maintained its strong footing in
serving non-JKN patients. Currently, 8 out of its 25 hospitals in total are dedicated for non-JKN
patients, compared to HEAL which has 100% JKN participation across its hospitals.
Non-JKN rates are roughly 60-70% higher than INA-CBGs rates. Hence, its revenue per inpatient
day is always higher than HEAL’s. This is also the case with revenue per outpatient visit.
Figure 39. Revenue per inpatient days: MIKA vs. HEAL Figure 40. Revenue per outpatient visits: MIKA vs. HEAL
(IDR) MIKA HEAL (IDR) MIKA HEAL

5,000,000 750,000
3,885,139
4,000,000 3,731,649 600,000
3,451,076 505,161
3,167,899 489,633 471,136 458,473
3,000,000 450,000
2,718,834 2,842,456 2,850,393

2,704,837
2,000,000 300,000
254,849 258,459 236,979 253,676

1,000,000 150,000
- -
2016 2017 2018 2019 2016 2017 2018 2019
The increased level of operations allows MIKA to achieve economies of scale at its non-JKN
hospitals. As EBITDA margin for JKN hospitals is averagely 10% lower than non-JKN hospitals,
MIKA consistently records superior EBITDA margin and net margin relative to HEAL.
Figure 41. EBITDA margin: MIKA vs. HEAL Figure 42. Net margin: MIKA vs. HEAL
(% ) MIKA HEAL (% ) MIKA HEAL
50 50
38.0
40 40
34.7 33.7 34.4
28.6 27.2
30 30
22.6 22.8
20 20
21.9
18.4 19.9 18.7
7.9 7.0
10 10
2.7 4.1
0 0
2016 2017 2018 2019 2016 2017 2018 2019
1MIKA also has 1 hospital located in Tegal.

Gradually increased number of JKN patients

MIKA started treating JKN patients in 2017. In the same year, MIKA announced the acquisition of
PT Rumah Kasih Indonesia (Kasih Group), a chain of 7 hospitals with roughly 500 hospital beds,
serving mostly JKN patients. Since then, the number of JKN patients has been on the rise until
MIKA acquired Mutiara Hati Hospital in 2019, followed by the acquisition of RSIA Panti Abdi
Dharma in 2020, which also served mostly JKN patients. As of 1H20, Kasih Group has 763
operational beds, accounting for 25% of MIKA’s total operational beds.
As of 1H20, JKN patients made up 30% of total patients volume and contributed 15% to its total
revenue. For FY20-21F, we expect JKN patients to contribute 30% and 33% to total patient
volume, respectively. Revenue contribution from JKN patients may even go up as high as 30-40%
in the future, according to the company.
Figure 43. Patient volume by payor type Figure 44. Revenue by payor type
OPE Privately insured & corporate JKN OPE Privately insured & corporate JKN
100% 0% 5% 100% 0% 2%
10% 13%
19%
28%
80% 41% 80%
37%
52% 52%
33% 49%
60% 60% 51%
31%
40% 40%
59% 59%
48% 48% 46%
20% 41% 20% 41% 36%
0% 0%
2016 2017 2018 2019 2016 2017 2018 2019

COVID-19 treatment to support FY21 revenue

growth
As the COVID-19 pandemic has kept some non-coronavirus patients away from hospitals out of
fear of contracting the virus, MIKA experienced 35-40% and 50-55% decline in 2Q20 inpatient
admissions and outpatient visits, respectively, which caused its 2Q20 revenue to drop by 27%
YoY. However, provided the surging number of COVID-19 patients, we believe COVID-19
treatment will support revenue growth in 4Q20 as well as in FY21.
FY20-21F inpatient revenue: +5% and +20% YoY

We assume 3Q-4Q20 inpatient days for non-COVID patients will be 40% and 50% lower than
normal and reach 445k in FY20F. As for COVID-19 patients, MIKA currently allocates around
20% of its total operational inpatient and ICU beds (445 inpatient and 50 ICU beds). By assuming
Average Length of Stay (ALoS) of 10 days and 60%/90% occupancy rate in 3Q20/4Q20, we
estimate FY20F COVID-19 inpatient days of 77k. Hence, according to our calculation, FY20F
inpatient days will reach 523k, or 16% YoY lower than FY19.
In FY21, as we estimate the production and distribution of the first batch of CoronaVac will take
around 6 months to be completed, inflection point should occur between 3Q21 and 4Q21. We
expect 2H21 non-COVID inpatient days at 246k, higher than 1H21 figure of 210k. The opposite
applies to COVID-19 inpatient days; we estimate 1H21 and 2H21 figure of 71k and 51k,
respectively. That being said, FY21F inpatient days will total at 579k.
Figure 45. MIKA inpatient days and outpatient visits in 2016-21F (‘000)
Inpatient days Outpatient visits
3,000
2,679
2,500
2,184
2,030
2,000 1,841
1,735 1,727
1,500
1,000
624 579
488 523
425 403
500
-
2016 2017 2018 2019 2020F 2021F
By assuming revenue per inpatient day of IDR7.3mn for COVID-19 patients and IDR3.4-3.5mn for
non-COVID in FY20-21F, we estimate FY20-21F inpatient revenue at IDR2.1tr (+5% YoY) and
IDR2.5tr (+20% YoY), respectively.

FY20-21F outpatient revenue: -28% and +23% YoY

We believe the impact of COVID-19 on outpatient visits will be worse, as we expect it to be 45%
and 55% lower than normal in 3Q-4Q20 and will total at 1,727k in FY20. For FY21, we also
expect inflection point to occur between 3Q21 and 4Q21. We expect 2H21 non-COVID outpatient
visits at 1,284k, higher than 1H21 figure of 747k.
By assuming average revenue per outpatient visit of IDR526k and IDR543k in FY20-21F, we
estimate FY20-21F outpatient revenue at IDR889bn (-28% YoY) and IDR1,089bn (+23% YoY),
respectively.
FY20-21F PCR & rapid tests revenue of IDR168bn and IDR302bn

We expect nationwide PCR tests to reach 4mn and 8.9mn in FY20-21F, respectively. We derive
our appraisal by assuming gradual increases in the number of weekly tests until the end of 1H21;
for Jakarta, we believe the number of weekly tests can reach 100k+ at the end of 1H21.
As of early September, MIKA has conducted 53k+ PCR tests (c.3% of total nationwide tests) and
150k+ rapid tests. The price range for a PCR test is IDR1.5-1.7mn, while a rapid test is capped at
IDR150k, according to the Minister of Health Circular Letter No. HK.02.02/I/2875/2020.
By assuming 2.5% and 2.0% shares to total nationwide tests in FY20-21F, we estimate that the
number of MIKA’s PCR tests2 will come in at 100k and 177k in FY20-21F. Meanwhile, rapid tests
may reach 273k and 484k in FY20-21F. Hence, for FY20-21F, we estimate revenue from PCR
and rapid tests of IDR168bn and IDR302bn, respectively.
Figure 46. MIKA revenue breakdown in 2016-21F
(IDR bn) Inpatient Outpatient PCR & rapid tests
5,000
4,000
302
-
3,000 168 1,089
- 1,228
- - 889
1,029
2,000 850 930
2,497
1,000 1,977 2,080
1,586 1,566 1,684
-
2016 2017 2018 2019 2020F 2021F
2We exclude PCR tests for COVID-19 patients in treatment to avoid double counting.

Consistently positive free cash flow and net cash

position
Since its IPO in 2015, MIKA has barely had debt in its B/S. Receivable days keep climbing due to
the increased number of JKN patients, yet it can be kept below 60 days. In fact, MIKA has
consistently recorded positive cash flow since 2016.
With abundant amount of cash, all capex can still be funded internally. MIKA estimates that the
26th hospital located in Surabaya will commence operation in either 4Q20 or 1Q21. The current
building construction has reached completion rate of 88% as of June 2020. Furthermore, the
company plans to start ground-breaking the 27th hospital in 4Q20, with estimated investment
value of IDR150-200bn.
Moreover, M&A opportunities will remain part of the company’s strategy. Currently the company is
in discussion on M&A opportunities of 1-2 undisclosed hospitals.
Figure 47. MIKA receivable days and cash conversion days Figure 48. MIKA free cash flow
Receivable days Cash conversion days (IDR bn)

90
1,000 925
75
800
60 52 53
46 600
502
45 37 459 462
401
29 400
30 23 34
31 215
27
24 200
15
15
12
- -
2016 2017 2018 2019 2020F 2021F 2016 2017 2018 2019 2020F 2021F
Figure 49. MIKA capex in 2015-20F
Source: Company

Expecting FY21 net profit to grow by 31% YoY
PCR and rapid tests drag down profitability level

Both PCR and rapid tests have gross margin of c.20% and 5-10%, respectively, which are
significantly lower than the company’s consolidated gross margin. Hence, although the company
is enjoying higher profitability level from COVID-19 patient treatment, we expect FY20-21F gross
margin to drop to 43.2% and 43.0%, with EBITDA margin of 29.9% and 30.0%, respectively. By
excluding PCR and rapid tests, FY20-21F gross margin should each be 1.4% and 2.2% higher
than our estimates.
Figure 50. MIKA gross margin: with vs. without PCR & rapid tests
With PCR & rapid tests Without PCR & rapid tests
2020F 2021F 2020F 2021F
Revenue 3,136 3,888 2,968 3,586
COGS (1,782) (2,215) (1,644) (1,966)
Gross profit 1,354 1,673 1,324 1,620
Gross margin 43.2% 43.0% 44.6% 45.2%
FY20-21 net profit of IDR594bn (-19% YoY) and IDR781bn (+31% YoY)
Provided its FY20-21F net margin of 18.9% and 20.1%, we expect FY20-21F net profit to arrive at
IDR594bn (-18.6% YoY) and IDR781bn (+31.4% YoY), respectively.
Figure 51. MIKA revenue, EBITDA and net profit

Reve nue EBITDA Net profit
5,000
3,888
4,000
3,205 3,136
3,000 2,713
2,435 2,496
2,000
1,103 1,168
846 949 914 937
1,000
695 680 730 781

614 594
-
2016 2017 2018 2019 2020F 2021F
Figure 52. MIKA gross margin, EBITDA margin and net margin
(% ) Gross margin EBITDA margin Net margin
50
47.5 47.5 47.3 47.9

40 43.2 43.0
38.0
30 34.7 33.7 34.4
29.9 30.0
28.6 27.2
20 22.6 22.8
18.9 20.1
10
0
2016 2017 2018 2019 2020F 2021F

Initiate Buy with TP of IDR2,900
We initiate Buy on MIKA with TP of IDR2,900. We like MIKA due to: 1) its specialty in non-JKN
patients, which enables MIKA to book higher revenue per inpatient day, EBITDA margin, and net
margin compared to HEAL; 2) COVID-19 treatment which can support revenue growth in 4Q20 as
well as in FY21; and, 3) its consistency in booking positive free cash flow and net cash position.
Moreover, as we assume similar degrees of recovery in patient volume for both MIKA and HEAL,
a faster-than-expected vaccine timeline will benefit MIKA more than HEAL, as MIKA’s revenue
per inpatient day and outpatient visit for non-COVID patients are 15-20% and 80% higher than
HEAL, respectively.
Our TP is derived using an equally blended method of target FY21F P/E multiple of 50.0x
(average of its 5-year mean) and FY21F EV/EBITDA multiple of 36.5x (average of its 5-year
mean). At our TP, MIKA is trading at FY21F P/E of 52.9x.
Risks to our call: 1) delay in vaccine production & distribution; 2) prolonged budget deficit of BPJS
Kesehatan; and 3) unfavorable JKN-related regulations imposed by the government.
Figure 53. Forward P/E Band
(x) P/E -2 SD -1 SD Avera ge +1 SD +2 SD
80
70 +2sd = 69.8 x
60 +1sd = 59.9 x
50 Mean = 50.0 x
40 -1sd = 40.1 x
30 -2sd = 30.2 x
20
Mar-1 5 Mar-1 6 Mar-1 7 Mar-1 8 Mar-1 9 Mar-2 0
Figure 54. Forward EV/EBITDA Band
(x)
EV/EBITDA -2 SD -1 SD Avera ge +1 SD +2 SD
70
60
+2sd = 56.4 x
50
+1sd = 46.5 x
40
Mean = 36.5 x
30
-1sd = 26.5 x
20
-2sd = 16.6 x
10
Mar-1 5 Mar-1 6 Mar-1 7 Mar-1 8 Mar-1 9 Mar-2 0

MIKA at a glance
Company snapshot
Mitra Keluarga was established in 1989 with the opening of its first 35-bed hospital in East
Jakarta. PT Mitra Keluarga Karyasehat Tbk was formally incorporated in 1995, under the name of
PT Calida Ekaprana, before becoming PT Mitra Keluarga Karyasehat in 2014. The success of its
first hospital was then followed with the opening of more hospitals located mainly in Greater
Jakarta and Surabaya areas.
In March 2015, Mitra Keluarga went public by listing its shares on the Indonesia Stock Exchange
(Ticker Code: MIKA IJ).
In October 2017, MIKA announced the acquisition of PT Rumah Kasih Indonesia (Kasih Group), a
chain of 7 hospitals with roughly 500 hospital beds. Kasih Group’s hospitals are located in
strategic areas with a compact hospital model and serve mostly patients covered under the
government’s Health Insurance Scheme (Jaminan Kesehatan Nasional/JKN), which allows the
company to tap into smaller cities with less doctor supply.
MIKA is considered to be among the nation’s premier hospital network, which currently comprises
of 16 Mitra Keluarga hospitals and 9 other hospitals under Kasih Group. The company owns the
land and buildings of 24 out of those 25 hospitals.
Its total number of inpatients and outpatients reached 208,374 and 2,678,638, respectively, in
2019, served by 6,067 medical and 1,727 non-medical employees.
Mitra Keluarga Pratama Jatiasih has been appointed by the government as a referral hospital to
treat COVID-19 patients, which was then followed by the other Mitra Keluarga Hospitals.
Currently, the company has treated more than 4,600 COVID 19 patients and suspects at most of
MIKA’s hospitals.
MIKA has developed strategic alliance with the National Disaster Management Authority (Badan
Nasional Penanggulangan Bencana/BNPB) and other several parties for drive-thru mass rapid
tests in Jabodetabek and Surabaya. Currently, up to 110,000 rapid tests have been conducted by
the company. Moreover, MIKA has set up in-house laboratory for PCR swab tests. Currently, the
company is handling more than 400 tests daily.
Figure 55. MIKA’s hospital development
Source: Company presentation

Figure 56. Mitra Keluarga’s dan Kasih Group’s hospital networks
Figure 57. Classes of hospital rooms
Figure 58. Range of services

Figure 59. List of MIKA’s hospitals with respective bed capacity and operational beds
Figure 60. List of Mitra Keluarga’s dan Kasih Group’s hospital Figure 61. List of Mitra Keluarga’s dan Kasih Group’s hospital
network (1/7) network (2/7)
Source: Company presentation Source: Company presentation

Figure 66. List of Mitra Keluarga’s dan Kasih Group’s hospital network (7/7)

Mitra Keluarga Karyasehat (MIKA IJ)
Comprehensive Income Statement (Summarized) Statement of Financial Condition (Summarized)

(IDR bn) 12/18 12/19 12/20F 12/21F (IDR bn) 12/18 12/19 12/20F 12/21F
Revenue 2,713 3,205 3,136 3,888 Current assets
Cost of sales (1,429) (1,671) (1,782) (2,215) Cash & ST investment 2,008 1,866 2,376 2,546
Gross profit 1,284 1,534 1,354 1,673 Trade receiveable 331 475 421 706
Operating expenses (504) (592) (599) (701) Inventories 40 49 45 65
EBIT 780 943 755 972 Others 40 86 91 95
EBITDA 914 1,103 937 1,168 Non-current assets
Interest income 85 75 57 100 Fixed assets 2,066 2,390 2,491 2,695
Interest expense (15) (14) (16) (19) Others 606 711 818 941
Pretax profit 850 1,004 796 1,053 Total assets 5,089 5,576 6,242 7,048
Income taxes (191) (213) (143) (190) Current liabilities
Minority interest (45) (61) (59) (82) Account payable 97 162 135 209
Net profit 614 730 594 781 ST financials 8 3 - -
Gross margin (%) 47.3 47.9 43.2 43.0 Accrued expense 125 163 160 199
EBITDA margin (%) 33.7 34.4 29.9 30.0 Others 82 103 400 400
Operating margin (%) 28.8 29.4 24.1 25.0 Non-current liabilities
Net margin (%) 22.6 22.8 18.9 20.1 LT financials 10 2 - -
Others 318 351 403 464
Total liabilities 639 783 1,098 1,272
Capital stock 146 142 142 142
Additional paid in capital 1,909 1,363 1,363 1,363
Treasury stock (332) (1) (9) (9)
Retained earnings 2,318 2,777 3,078 3,627
Capital adjustment 31 14 14 14
Minority interest 379 497 556 638
Total equities 4,450 4,793 5,144 5,775
Cash Flows (Summarized) Forecasts/Valuations (Summarized)

(IDR bn) 12/18 12/19 12/20F 12/21F 12/18 12/19 12/20F 12/21F
Operating cash flow 868 695 1,192 782 P/E (x) 56.0 47.0 57.8 44.0
Net profit 614 730 594 781 P/B (x) 8.6 8.0 7.5 6.7
Depreciation 134 160 182 196 EV/EBITDA (x) 37.1 31.1 36.0 28.8
Change in working capital 120 (196) 416 (195) EPS (IDR) 43.1 51.3 41.7 54.8
Investment cash flow (577) (557) (337) (462) BPS (IDR) 279.8 301.5 322.1 360.6
Capex (453) (452) (283) (400) DPS (IDR) - 18.0 21.0 16.7
Others (124) (105) (54) (62) Payout ratio (%) - 41.8 41.0 40.0
Financing cash flow (203) (400) (248) (150) Div. yield (%) - 0.7 0.9 0.7
Change in financial liabilities (9) (13) (5) - Revenue growth (%) 8.7 18.1 (2.1) 24.0
Change in equity (332) (218) (8) - EBITDA growth (%) (3.7) 20.6 (15.0) 24.7
Dividend - (256) (299) (238) Operating profit growth (%) 2.7 20.8 (19.9) 28.7
Others 138 87 65 88 Net profit growth (%) (9.7) 19.0 (18.6) 31.4
Increase (Decrease) in Cash 88 (262) 607 170 A/R turnover (x) 9.8 8.0 7.0 6.9
Beginning Balance 743 831 569 1,176 Inventory turnover (x) 35.7 37.8 38.0 40.0
Ending Balance 831 569 1,176 1,346 A/P turnover (x) 15.3 13.0 12.0 13.0
ROA (%) 12.1 13.1 9.5 11.1
ROE (%) 15.1 17.0 13.0 15.2
Current ratio (X) 7.8 5.7 4.2 4.2
Gross debt/equity (%) 0.4 0.1 - -
Net debt/equity (%) Net Cash Net Cash Net Cash Net Cash
Int. coverage (x) 52.4 69.4 48.2 50.0

[Indonesia] Healthcare
Medialoka Hermina Buy

(HEAL IJ) (Initiate)
Specialty in serving JKN patients TP: IDR4,000

Upside: 21.2%
PT Mirae Asset Sekuritas Indonesia

Specialty in serving JKN patients  As an early adopter of JKN, HEAL has extensive experiences in dealing with JKN patients.
Currently, the company has 100% JKN participation across its hospitals.
 Economies of scale enable HEAL’s EBITDA margin to keep improving despite ever-growing JKN
patients.
COVID-19 treatment to support  Given the surging number of COVID-19 patients, we believe COVID-19 treatment will support
FY21 revenue growth revenue growth in 4Q20 as well as in FY21.
 FY20-21F inpatient revenue: -11% and +20% YoY.
 FY20-21F outpatient revenue: +16% and +32% YoY.
Aggressive hospital expansion  More aggressive hospital expansion than MIKA.

 Since 2016, its number of operational beds has grown by CAGR 2016-19 of 21%, higher than
MIKA’s CAGR 2016-19 of 14%.
 This is reflected from HEAL’s cumulative capex throughout 2016-19 which totaled at IDR2.6tr (vs.
MIKA’s at IDR1.7tr).
Expecting FY21 net profit to grow  FY20-21F net profit of IDR212bn (-17.1% YoY) and IDR325bn (+53.3% YoY), respectively.
by 53% YoY
Initiate Buy with TP of IDR4,000  We initiate Buy on HEAL with TP of IDR4,000.

 Our TP is derived using an equally blended method of target FY21F P/E multiple of 36.4x (-1 SD of
its 3-year mean) and FY21F EV/EBITDA multiple of 14.2x (-1 SD of its 3-year mean).
 Risks to our call: 1) delay in vaccine production & distribution; 2) prolonged budget deficit of BPJS
Key data
(D-1yr=100)
JCI HEAL
Share Price (9/25/20, IDR) 3,300 Market Cap (IDRbn) 9,810.9
120
Consensus Net Profit (21F, IDRbn) 353.9 Shares Outstanding (mn) 2,973
110
100 NP Mirae Asset vs. consensus (21F, %) -8.2 Free Float (%) 25.8
90
EPS Growth (21F, %) 53.3 Beta (Adjusted, 24M) 0.8
80
70 P/E (21F, x) 30.2 52-Week Low (IDR) 1,850
60
50
Industry P/E (Current, x) 11.4 52-Week High (IDR) 4,010
9/19 11/19 1/20 3/20 5/20 7/20 9/20
Benchmark P/E (21F, x) 13.2
Share performance Earnings and valuation metrics

(%) 1M 6M 12M FY (Dec.) 2016 2017 2018 2019 2020F 2021F
Absolute 6.7 64.7 -4.0 Revenue (IDRbn) 2,234 2,678 3,058 3,631 3,495 4,326
Relative 16.0 58.2 17.2
EBITDA (IDRbn) 411 533 571 795 739 965
EBITDA Margin (%) 18.4 19.9 18.7 21.9 21.2 22.3
NP (IDRbn) 176 72 124 255 212 325
EPS (IDR) 59 24 42 86 71 109
ROE (%) 14.8 15.9 6.7 11.9 9.1 12.4
P/E (x) 55.7 135.6 78.9 38.4 46.3 30.2
EV/EBITDA (x) 24.4 21.4 19.1 14.0 15.1 12.0
Dividend Yield (%) 1.3 0.5 - 0.3 0.4 0.2
September 28, 2020 Medialoka Hermina
C O N T E N T S
Specialty in serving JKN patients 39

JKN patients keep surging along with swift increase in JKN utilization 39
EBITDA margin improves further despite ever-growing JKN patients 39
COVID-19 treatment to support FY21 revenue growth 40

FY20-21F inpatient revenue: -11% and +20% YoY 40
FY20-21F outpatient revenue: +16% and +32% YoY 41
Aggressive hospital expansions 42
Expecting FY21 net profit to grow by 53% YoY 44
Initiate Buy with TP of IDR4,000 45
HEAL at a glance 46
Company snapshot 46
Mirae Asset Daewoo Research 38

Specialty in serving JKN patients
JKN patients keep surging along with swift increase in JKN utilization
HEAL is uniquely positioned to take advantage of JKN’s growing penetration into domestic
healthcare system better than its peers. Since the inception of BPJS Kesehatan in 2014, HEAL’s
JKN patients remain on the rise, along with the rapid increase in JKN utilization; JKN patients’
contribution to total patients volume has expanded from 30% in 2016 to 61% as of 1H20, with
CAGR 2015-19 consolidated revenue of 21%, which was double that of MIKA.
Currently, the company has 100% JKN participation across its hospitals. On average, the
company charges higher JKN revenue per inpatient day (IDR2.3mn) than MIKA (IDR1.3mn) in
FY20.
Figure 67. BPJS Kesehatan’s FKRTL utilization and

Figure 68. HEAL’s vs. MIKA’s revenue
HEAL’s inpatient days & outpatient visits
JKN inpatient days ('000) (L) JKN outpatient visits ('000) (L) HEAL MIKA
(IDR bn)
Advanced Level (FKRTL) inpatient utilization (R)
5,000
5,000 15,000,000
4,000 3,631
4,000 11,000,000 12,000,000
9,659,092
8,726,857 3,000 3,205
3,000 3,346 9,000,000
7,600,000
2,141
2,593 2,000
2,000 6,000,000
1,991
1,709
1,000
1,000 1,035 613 3,000,000
505
364
204
-
- -
2016 2017 2018 2019 2015 2016 2017 2018 2019
Source: BPJS Kesehatan, Company, Mirae Asset Sekuritas Indonesia Research Source: Company, Mirae Asset Sekuritas Indonesia Research
EBITDA margin improves further despite ever-growing JKN patients

Since HEAL has a much higher number of JKN patients than MIKA, its revenue per inpatient day
is lower than MIKA’s. However, its EBITDA margin can keep improving. As an early adopter of
JKN, HEAL has extensive experiences in dealing with JKN patients, allowing its hospitals to
feature specific patient traffic management, hospital design, administration, and reimbursement
processes, all of which have enabled economies of scale.
Figure 69. HEAL’s % of JKN patients to total patients volume Figure 70. MIKA’s % of JKN patients to total patients volume
vs. EBITDA margin vs. EBITDA margin
% of JKN patients to total patients volume EBITDA margin % of JKN patients to total patients volume EBITDA margin
60% 60%
50% 56% 50%

51%
40% 46% 40%
38.0%
30% 30% 34.7% 33.7% 34.4%
30%
28%
20% 20%
21.9%
18.4% 19.9% 18.7% 19%
10% 10%
0% 0% 5%
2016 2017 2018 2019 2016 2017 2018 2019

COVID-19 treatment to support FY21 revenue

growth
As the COVID-19 pandemic has kept some non-coronavirus patients away from hospitals out of
fear of contracting the virus, HEAL experienced 30-35% and 55-60% decline in 2Q20 inpatient
admissions and outpatient visits, which caused its 2Q20 revenue to drop by 16% YoY. However,
provided the surging number of COVID-19 patients, we believe COVID-19 treatment will support
revenue growth in 4Q20 as well as in FY21.
FY20-21F inpatient revenue: -11% and +20% YoY

We assume 3Q-4Q20 inpatient days for non-COVID patients will be 35% and 50% lower than
normal and reach 721k in FY20F. As for COVID-19 patients, HEAL currently allocates around
10% of its total operational inpatient beds (400 out of 4,521 inpatient beds). By assuming Average
Length of Stay (ALoS) of 10 days and 65%/90% occupancy rate in 3Q20/4Q20, we project FY20F
COVID-19 inpatient days of 69k. Hence, according to our calculation, FY20F inpatient days will
reach 791k, or 17% YoY lower than FY19.
For FY21, as we estimate that the production and distribution of the first batch of CoronaVac will
take around 6 months to be completed, inflection point should occur between 3Q21 and 4Q21.
We expect 2H21 non-COVID inpatient days at 434k, higher than 1H21 figure of 326k. The
opposite applies to COVID-19 inpatient days; we estimate 1H21 and 2H21 figure of 57k and 41k,
respectively. That being said, FY21F inpatient days will notch 860k.
Figure 71. HEAL’s inpatient days and outpatient visits in 2016-21F (‘000)
Inpatient days Outpatient visits
7,000
6,000
6,083
5,000 5,292
4,959
4,000 4,504
3,892
3,000 3,555
2,000
958 860
777 791
1,000 523 627
-
2016 2017 2018 2019 2020F 2021F
By assuming revenue per inpatient day of IDR7.3mn for COVID-19 patients and IDR2.5-2.7mn for
non-COVID in FY20-21F, we estimate FY20-21F inpatient revenue at IDR2.3tr (-11% YoY) and
IDR2.8tr (+20% YoY), respectively.

FY20-21F outpatient revenue: +16% and +32% YoY

We believe that the impact of COVID-19 on outpatient visits will be worse, as we expect it to be
45% and 55% lower than normal in 3Q-4Q20 and will total at 3,892k in FY20. For FY21, we also
expect inflection point to occur between 3Q21 and 4Q21. Moreover, we predict that 2H21 non-
COVID outpatient visits will arrive at 3,144k, higher than 1H21 figure of 1,815k.
By assuming average revenue per outpatient visit of IDR321k and IDR324k in FY20-21F, we
estimate FY20-21F outpatient revenue at IDR1.2tr (+16% YoY) and IDR1.5tr (+32% YoY),
respectively.
We don’t include revenue from PCR and rapid tests due to unavailability of such data.
Figure 72. HEAL revenue breakdown from 2016-21F
(IDR bn) Inpatient Outpatient

5,000
4,000
1,544
3,000 1,016
1,173
835
896
2,000
812
2,591 2,766
1,000 2,215 2,307
1,782
1,422
-
2016 2017 2018 2019 2020F 2021F

Aggressive hospital expansions
HEAL has been strengthening its position as one of the largest hospital groups in Indonesia by
undergoing more aggressive hospital expansion than MIKA. Since 2016, its number of operational
beds has grown by CAGR 2016-19 of 21%, higher than MIKA’s CAGR 2016-19 of 14%. This is
reflected from HEAL’s cumulative capex throughout 2016-19 which totaled at IDR2.6tr (vs. MIKA’s
at IDR1.7tr). Currently, the company has 2 hospitals under construction in Manado and Kutabumi,
which are scheduled to commence operation in 3Q20 and 4Q20, respectively.
The expansion of HEAL’s hospitals is partly financed through debt. As of 1H20, the company’s
gross/net gearing reached 43%/23%, respectively, with interest coverage of 2.0x. The company
recently issued IDR450bn bonds with tenor of 3 and 5 years and coupon rate of 8.0%, 40% of
which will be used for capacity expansion. Taking the recent bonds issuance into account, we
expect FY20-21F gross/net gearing of 59%/22% and 52%/28%, with interest coverage of 3.3x
and 3.9x, respectively. Following the bonds issuance, the current cost of debt is 8.5%.
In addition, receivable days have been climbing due to the greater number of JKN patients and
stood at 81 days in 1H20. Its year-end free cash flows are mostly negative, but the company
finally managed to touch the positive territory in 2019.
Figure 73. Number of operational beds: HEAL vs. MIKA Figure 74. Capex: HEAL vs. MIKA
HEAL MIKA (IDR bn) HEAL MIKA
5,000 4,600 1,000
4,054
769
4,000 800 715 700
3,378
595 600
2,780 600 525
3,000
3,033
2,115 2,876 543
2,000 2,372 2,492 400
446
375 400
1,810 324
1,000 200 283
- -
2016 2017 2018 2019 2020F 2016 2017 2018 2019 2020F 2021F
Figure 75. HEAL’s gross and net gearing Figure 76. HEAL’s interest coverage
Gross gearing Net gearing

(% ) (x)
149.3
150 6
115.6 5
120 5.4
5.1
4
90
3.9
58.8 3 3.3 3.3
60 48.2 51.8 3.0
46.8
36.5 2
32.1 28.0
23.7 25.4 22.4
30
1
0 0
2016 2017 2018 2019 2020F 2021F 2016 2017 2018 2019 2020F 2021F

Figure 77. HEAL’s receivable days and cash conversion days Figure 78. HEAL’s free cash flow
Receivable days Cash conversion days (IDR bn)

90
1,000
86 87
75
76 700
73
60
61 400
58
45 54 52 173
47 86
100
30 37
27 (200) (64)
15 (119)
(167)
12
- (500) (396)
2016 2017 2018 2019 2020F 2021F 2016 2017 2018 2019 2020F 2021F

Expecting FY21 net profit to grow by 53% YoY
We expect gross margin to bottom out in 2Q20, as HEAL will enjoy higher profitability level from
treating COVID-19 patients. We estimate FY20F gross margin to drop to 42.7% and bounce back
to 44.0% in FY21F. Accordingly, we forecast FY20-21F EBITDA margin and net margin of
21.2%/22.3% and 6.1%/7.5%, respectively.
Hence, FY20-21F net profit will total at IDR212bn (-17.1% YoY) and IDR325bn (+53.3% YoY),
respectively.
Figure 79. HEAL’s revenue, EBITDA and net profit
(IDR bn) Reve nue EBITDA Net profit
5,000
4,326
4,000 3,631
3,496
3,058
3,000 2,678
2,234
2,000
965
795 739
1,000 533 571
411 325
124 255 212
176 72
-
2016 2017 2018 2019 2020F 2021F
Figure 80. HEAL’s gross margin, EBITDA margin and net margin
(% ) Gross margin EBITDA margin Net margin
50
44.3 43.6 44.8 44.0
41.9 42.7
40
30
21.9 21.2 22.3
19.9 18.7
18.4
20
7.9 7.0 7.5

10 6.1
4.1
2.7
0
2016 2017 2018 2019 2020F 2021F

Initiate Buy with TP of IDR4,000
We initiate Buy on HEAL with TP of IDR4,000. We like HEAL due to: 1) its specialty in JKN
patients, which enables its EBITDA margin to keep improving despite ever-growing JKN patients;
2) COVID-19 treatment which can support revenue growth in 4Q20 as well as in FY21; and, 3)
considerably cheaper valuation than MIKA.
Our TP is derived using an equally blended method of target FY21F P/E multiple of 36.4x (-1 SD
of its 3-year mean) and FY21F EV/EBITDA multiple of 14.2x (-1 SD of its 3-year mean). At our
TP, HEAL is trading at FY21F P/E of 36.6x.
Risks to our call: 1) delay in vaccine production & distribution; 2) prolonged budget deficit of BPJS
Figure 81. Forward P/E Band
(x) P/E -2 SD -1 SD Avera ge +1 SD +2 SD
120
100 +2sd = 103.6 x
80 +1sd = 81.2 x
60 Mean = 58.8 x
40
-1sd = 36.4 x
20
-2sd = 14.0 x
0
May-18 May-19 May-20
Figure 82. Forward EV/EBITDA Band
(x)
EV/EBITDA -2 SD -1 SD Avera ge +1 SD +2 SD
25
+2sd = 22.8 x
20 +1sd = 19.9 x
Mean = 17.0 x
15
-1sd = 14.2 x
-2sd = 11.3 x
10
5
May-18 May-19 May-20

HEAL at a glance
Company snapshot
Hermina was founded in 1985 with the opening of its first maternity hospital, which was then
upgraded to become a women’s and children’s hospital in 1989. In 1999, its status changed from
a non-profit organization to a corporation, PT Medikaloka Hermina.
Backed by its unique ‘doctor partnership’ business model, over the years, the company has grown
to become one of the country’s premier private hospital groups. With its strong foothold in
women’s and children’s services, the company is well recognized for its comprehensive care
services in this medical area. On top of that, Hermina’s hospitals provide a range of specialist
medical services, including complex surgical procedures, laboratory services, radiology and
imaging facilities, fertility treatment, as well as general healthcare, pharmacy, diagnostic, and
emergency services. It has a proven track record in successfully developing new hospitals and
optimizing capacity, while maintaining a healthy level of profitability.
Hermina is also one of the early adopters of JKN, Indonesia’s universal healthcare insurance
program, opening opportunities to serve over 220 million JKN members across the country, while
also supporting the government’s healthcare program.
Hermina entered a new chapter in 2018 when becoming a public company on May 16, 2018 by
listing its shares on the Indonesia Stock Exchange (ticker code: HEAL IJ).
As of June 2020, Hermina’s hospital network comprised of 37 hospitals and 4,521 hospital beds,
with a total workforce of 12,025 employees serving over 6,46 milion patients across Indonesia.
Figure 83. HEAL’s milestones

Figure 84. HEAL hospital networks
Figure 85. Range of services

Medialoka Hermina (HEAL IJ)
Comprehensive Income Statement (Summarized) Statement of Financial Condition (Summarized)

(IDR bn) 12/18 12/19 12/20F 12/21F (IDR bn) 12/18 12/19 12/20F 12/21F
Revenue 3,058 3,631 3,495 4,326 Current assets
Cost of sales (1,777) (2,005) (2,003) (2,424) Cash & ST investment 304 593 1,092 812
Gross profit 1,282 1,626 1,493 1,902 Trade receiveable 777 926 738 992
Operating expenses (896) (1,043) (1,010) (1,230) Inventories 55 51 60 68
EBIT 386 583 482 672 Others 92 94 103 113
EBITDA 571 795 739 965 Non-current assets
Interest income 20 31 42 76 Fixed assets 2,656 3,096 3,439 3,846
Interest expense (131) (109) (147) (172) Others 286 288 317 348
Pretax profit 276 505 376 577 Total assets 4,171 5,048 5,748 6,179
Income taxes (85) (162) (94) (144) Current liabilities
Minority interest (67) (89) (71) (108) Account payable 203 208 195 211
Net profit 124 255 212 325 ST financials 265 230 250 250
Gross margin (%) 41.9 44.8 42.7 44.0 Others 572 607 607 607
EBITDA margin (%) 18.7 21.9 21.2 22.3 Non-current liabilities
Operating margin (%) 12.6 16.1 13.8 15.5 LT financials 601 1,064 1,514 1,514
Net margin (%) 4.1 7.0 6.1 7.5 Others 161 175 183 192
Total liabilities 1,801 2,283 2,749 2,774
Capital stock 297 297 297 297
Additional paid in capital 1,831 1,831 1,831 1,831
Retained earnings 272 485 662 966
Capital adjustment (534) (466) (466) (466)
Minority interest 504 617 675 776
Total equities 2,370 2,764 2,999 3,405
Cash Flows (Summarized) Forecasts/Valuations (Summarized)

(IDR bn) 12/18 12/19 12/20F 12/21F (IDR bn) 12/18 12/19 12/20F 12/21F
Operating cash flow (96) 360 626 361 P/E (x) 78.9 38.4 46.3 30.2
Net profit 124 255 212 325 P/B (x) 5.3 4.6 4.2 3.7
Depreciation 185 212 257 293 EV/EBITDA (x) 19.1 14.0 15.1 12.0
Change in working capital (405) (107) 157 (256) EPS (IDR) 41.8 85.9 71.2 109.2
Investment cash flow (649) (638) (620) (722) BPS (IDR) 627.6 722.2 781.8 884.3
Capex (695) (666) (600) (700) DPS (IDR) - 11.0 12.0 7.1
Others 46 27 (20) (22) Payout ratio (%) - 26.3 13.9 10.0
Financing cash flow 726 568 493 81 Div. yield (%) - 0.3 0.4 0.2
Change in financial liabilities (563) 429 470 - Revenue growth (%) 14.2 18.7 (3.7) 23.8
Change in equity 1,357 - - - EBITDA growth (%) 7.1 39.3 (7.0) 30.6
Dividend - (33) (36) (21) Operating profit growth (%) 0.1 51.1 (17.3) 39.4
Others (68) 172 58 102 Net profit growth (%) 71.9 105.3 (17.1) 53.3
Increase (Decrease) in Cash (19) 289 499 (280) A/R turnover (x) 4.8 4.3 4.2 5.0
Beginning Balance 322 304 593 1,092 Inventory turnover (x) 35.2 37.6 36.0 38.0
Ending Balance 304 593 1,092 812 A/P turnover (x) 9.4 9.7 10.0 12.0
ROA (%) 3.0 5.1 3.7 5.3
ROE (%) 6.7 11.9 9.1 12.4
Current ratio (X) 1.2 1.6 1.9 1.9
Gross debt/equity (%) 36.5 46.8 58.8 51.8
Net debt/equity (%) 23.7 25.4 22.4 28.0
Int. coverage (x) 3.0 5.4 3.3 3.9

APPENDIX 1
Important Disclosures & Disclaimers

2-Year Rating and Target Price History
Company (Code) Date Rating Target Price Company (Code) Date Rating Target Price
MIKA IJ 9/28/20 Buy 2,900 HEAL IJ 9/28/20 Buy 4,000
(IDR) MIKA Analyst's TP (IDR) HEAL Analyst's TP
3,800 4,800
3,800
2,800
2,800
1,800
1,800
800 800
Sep-18 Sep-19 Sep-20 Sep-18 Sep-19 Sep-20
Stock Ratings Industry Ratings

Buy : Relative performance of 20% or greater Overweight : Fundamentals are favorable or improving
Trading Buy : Relative performance of 10% or greater, but with volatility Neutral : Fundamentals are steady without any material changes
Hold : Relative performance of -10% and 10% Underweight : Fundamentals are unfavorable or worsening
Sell : Relative performance of -10%
Ratings and Target Price History (Share price (─), Target price (▬), Not covered (■), Buy (▲), Trading Buy (■), Hold (●), Sell (◆))
* Our investment rating is a guide to the relative return of the stock versus the market over the next 12 months.
* Although it is not part of the official ratings at PT Mirae Asset Sekuritas Indonesia, we may call a trading opportunity in case there is a technical or short-term material
development.
* The target price was determined by the research analyst through valuation methods discussed in this report, in part based on the analyst’s estimate of future earnings.
* The achievement of the target price may be impeded by risks related to the subject securities and companies, as well as general market and economic conditions.
Equity Ratings Distribution

Buy Trading Buy Hold Sell
Equity Ratings Distribution 38% 20% 35% 7%
* Based on recommendations in the last 12-months (as of June 30, 2020)
Disclosures
As of the publication date, PT Mirae Asset Sekuritas Indonesia and/or its affiliates do not have any special interest with the subject company and do not own 1% or more of the
subject company's shares outstanding.
Analyst Certification
Opinions expressed in this publication about the subject securities and companies accurately reflect the personal views of the Analysts primarily responsible for this
report. Except as otherwise specified herein, the Analysts have not received any compensation or any other benefits from the subject companies in the past 12
months and have not been promised the same in connection with this report. No part of the compensation of the Analysts was, is, or will be directly or indirectly
related to the specific recommendations or views contained in this report but, like all employees of PT Mirae Asset Sekuritas Indonesia, the Analysts receive
compensation that is impacted by overall firm profitability, which includes revenues from, among other business units, the institutional equities, investment banking,
proprietary trading and private client division. At the time of publication of this report, the Analysts do not know or have reason to know of any actual, material conflict
of interest of the Analyst or PT Mirae Asset Sekuritas Indonesia except as otherwise stated herein.
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Perfectly Imperfect: Understanding BPJS Kesehatan and Its Dynamics

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Perfectly Imperfect: Understanding BPJS Kesehatan and Its Dynamics

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[Indonesia]

Healthcare companies covered in this report

Understanding BPJS Kesehatan and its dynamics 3

COVID-19 treatment: benefiting from supply-demand imbalance 11

The push for COVID-19 vaccine 17

Initiate overweight on the sector 21

Mirae Asset Sekuritas Indonesia Research 2

Understanding BPJS Kesehatan and its dynamics

Healthcare financing trend: Gradual shift from OPE to BPJS Kesehatan

Figure 2. State healthcare expenditure to (nominal) GDP:

7.2% 4.3% 4.3% 4.2% 4.3% 4.3% 4.2%

Mirae Asset Sekuritas Indonesia Research 3

Figure 4. Healthcare expenditure by source of fund in 2017:

40% 76.0% 40%

48.4% 48.2% 50.5% 44.8% 48.4%

A love-hate relationship between BPJS Kesehatan and its participants

Figure 7. P/L of DJS Kesehatan (IDR bn)

Mirae Asset Sekuritas Indonesia Research 4

Less flexibility for the Government to determine premium increment

Figure 8. Monthly premium rate of BPJS Kesehatan from 2014-21 (IDR)

5% of the monthly salary as calculation basis, capped at:

Independent participants: payment disobedience & CoB deadlock

Mirae Asset Sekuritas Indonesia Research 5

PPU participants: Partial compliance

Figure 9. Number of BPJS Kesehatan participants

Recipient of state/region budget contribution (PBI) Wage-earning worker (PPU)

Source: BPJS Kesehatan, Mirae Asset Sekuritas Indonesia Research

Expecting participation rate to decline in 2020 due to COVID-19 pandemic

Mirae Asset Sekuritas Indonesia Research 6

Figure 11. Breakdown of independent participants for each

Independent participants PBI PPU Class I Class II Class III

Source: BPJS Kesehatan, Mirae Asset Sekuritas Indonesia Research

Mirae Asset Sekuritas Indonesia Research 7

Prolonged budget deficit may negatively affect BPJS Kesehatan’s financial

60 60% 60 53.6 60%

Mirae Asset Sekuritas Indonesia Research 8

Single class system: Accommodative regulation as the key to success

No tariff adjustment to INA-CBGs since 2016

Expecting single digit growth of FKRTL utilization in 2021

Mirae Asset Sekuritas Indonesia Research 9

Privately insured & corporate patients: A good way to balance revenue

Figure 20. Domestic health & personal accident gross claims

Source: AAUI, Mirae Asset Sekuritas Indonesia Research

Mirae Asset Sekuritas Indonesia Research 10

COVID-19 treatment: benefiting from supply-

Jakarta: COVID-19 cases start to surge in July 2020

Mirae Asset Sekuritas Indonesia Research 11

Figure 24. Cumulative PCR tests conducted in Jakarta

Source: Jakarta’s government

Mirae Asset Sekuritas Indonesia Research 12

Source: Jakarta’s government

*as of September 18, 2020

Mirae Asset Sekuritas Indonesia Research 13

Inpatient traffic should bottom out in 2Q20

MIKA HEAL MIKA HEAL

300 274 2,500

Figure 30. Number of COVID-19 patients in treatment in Jakarta

Source: Jakarta’s government, Mirae Asset Sekuritas Indonesia Research

Mirae Asset Sekuritas Indonesia Research 14

Inpatient beds capacity may be expanded, but number of Pulmonologists are

Expecting higher-than-normal revenue per inpatient day during the

Cost per day (IDR)