Medikaloka Hermina (HEAL IJ)

FY24 Earnings Miss, But LT Prospect Remains Intact

• HEAL posted FY24 PATMI of Rp536bn (91%/92% to ours/con.) mainly due to loss of IKN hospital, though this was previously well guided.
• Incorporating risks of weaker admissions in 1H25 and cost of new hospitals, we lower our FY25/26 PATMI by -19/-17%.
• We maintain our Buy rating, yet lower our DCF-based TP to Rp1,900; long-term prospect of HEAL shall remain intact.

Well-Guided FY24 Results; Management Targeting 12-15% Growth in FY25

HEAL reported 4Q24 Net Profit After Taxes and Minority Interest (PATMI) of Rp68bn (-23% yoy, -46% qoq), bringing its FY24 total to Rp536bn—91% of our estimate and 92% of the consensus, thus coming in below expectations. Flattish qoq revenue growth and lower gross profit margin due to higher medicine and salary costs resulted in a weaker 4Q24 performance. Additionally, the previously guided loss absorption of the IKN hospital further impacted PATMI. Management, however, expects FY25 revenue growth to remain at 12-15% to Rp7.5-7.7tr, driven by the addition of 700 brownfield beds and 200 greenfield beds (Hermina Bali & Salatiga), as well as private patient and non-hospital business contributions. The EBITDA margin is targeted to expand by 100bps, while PATMI margin is expected to remain similar to FY24 levels (~8%).

Trimming our FY25F/26F PATMI Forecast by -19/-17%

Incorporating the FY24 results and FY25 guidance, we revised down our FY25F/26F revenue growth forecast by -1%/-3% (exh.6), to account for the risks of weaker admissions in 1H25 due to fewer working days. Additionally, we have adjusted our salary expense growth (from 2% to 3%) and PATMI margin down, to reflect the costs of new hospitals, aligning with the company’s guidance. Overall, this resulted in a downward revision of our FY25F/26F PATMI forecast by -19/-17%.

Maintain Buy with a lower DCF-based TP of Rp1,900

We maintain our Buy rating with a lower DCF-based TP of Rp1,900 (implying 9.2x FY25F EV/EBITDA). Despite the weaker performance in 4Q24, we believe HEAL’s favorable long-term prospects remain intact due to its ability to operate at economies of scale, which continues to drive consistent margin expansion despite serving JKN patients. Additionally, CoB Managed Care offers wider margin expansion potential in the future, as our simulation indicates a potential 8-15% higher revenue per patient (exh.11). Key risks: 1) higher capex leading to lower FCF 2) Lower revenue intensity growth 3) Uncertainty in KRIS which may limit the potential of CoB Managed Care.

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