• Beneficiary of national health insurance scheme
• Robust growth from operator
• Raise FV and maintain BUY

Site visit to two properties in Indonesia

We visited two of First REIT’s (FREIT) properties in Indonesia this week – Siloam Hospitals Makassar (SHMK) and Siloam Hospitals Manado & Hotel Aryaduta Manado (MD Property). SHMK is a 7-storey hospital located in the integrated township of Tanjung Bunga, South Sulawesi Province; while MD Property is an 11-storey integrated hospital and 5-star hotel located in the North Sulawesi Province. Both assets were acquired by FREIT on 30 Nov 2012 from its sponsor Lippo Karawaci. The hospitals are operated by Siloam International Hospitals (listed subsidiary of Lippo Karawaci) and are generally well maintained, equipped with modern medical equipment from international brands such as Philips and Mindray, and have high visitor and patient traffic. Both hospitals are currently participating in the government health insurance programme administered by the Badan Penyelenggara Jaminan Sosial (BPJS) Kesehatan. This is expected to drive demand for more healthcare services and drugs. We estimate SHMK and MD Property to contribute 5.7% and 8.4% to our gross revenue forecast for FY15.

Siloam Hospitals projecting solid growth ahead

According to a press release published by Siloam International Hospitals earlier this year, it highlighted that its net operating revenue and EBITDA are projected to jump 49% and 92% to IDR3.68t and IDR868b in FY15. From a longerterm perspective, Siloam International Hospitals estimates that its net operating revenue would increase at a CAGR of 35%-38% from FY13 to FY17, while its EBITDA growth during the same period is projected to come in between 58% to 62%.

Reiterate BUY

Taking into account the robust long-term growth prospects of the Indonesian healthcare market and encouraging signs of Jokowi’s efforts to intensify the implementation of its universal health insurance programme, we deem it justifiable to raise our terminal growth rate assumption on FREIT from 1% to 1.5%. Consequently, our DDM-derived fair value estimate increases from S$1.40 to S$1.50. Supported by a still decent FY15F distribution yield of 6.1%, we maintain our BUY rating on FREIT.

Source: OCBC Research - 27 Mar 2015