Nothing Short of Outstanding

Halfway into 2024, MIKA’s financial performance has been nothing short of outstanding. At the top line, the Company’s revenues were up by 19.7% (yoy) in 6M24 to Rp2.45 trillion while its Q2/24 revenues were higher by 18.4% (yoy) at Rp1.21 trillion. Both revenues from inpatients and outpatients have expanded by double-digit rates of 22.2% (yoy) and 14.6% (yoy), respectively in 6M24 and by 21.2% (yoy) and 12.6% (yoy), respectively in Q2/24. At the bottom line, core net profit after tax have climbed significantly. On cumulative basis, core net profit was up by 32.5% (yoy) in 6M24 to Rp601 billion; while on quarter-to-quarter basis, it jumped to Rp312 billion in Q2/24 vs. Rp116 billion in Q2/23. Profitability margins have also improved notably with gross profit margin (GPM), operating profit margin (OPM), and core net profit margin (cNPM) were ticking higher in 6M24 vs. their respective standings in 6M23. On the other hand, while GPM and OPM were also expanding on quarterly basis in Q2/24, cNPM has slipped from 44.6% in Q2/23 to 25.8% in Q2/24. Nevertheless, as profitability improved, MIKA’s return on assets (ROA) and return on equity (ROE) have also increased to 14.9% and 20.2%, respectively as of the end of the Q2/24.

Expand, Expand, and Expand...

From its Kasih Hospital network, there have been a 9.0% increase in the maximum capacity to 1,054 beds (vs. 967 beds in prior update), of which resulted in an overall 1.8% increase of overall maximum capacity out of MIKA’s 30 hospitals. In addition, there are three new hospitals being constructed, of which are scheduled for opening in FY25 as well as an expected increase in operational beds by 250-300 from existing hospitals in FY24. The three new hospitals are to have a total of 500 operational beds, but start with 40-50 beds capacity upon their initial openings. In terms of ASP, MIKA also increasing the intensity of its revenues by adding sophisticated and complex medical services, particularly from its cancer center, hearing & otology center and also from its women’s and children’s clinics. To finance these expansions, the Company is to rely on its internal cash. As of the end of 6M24, MIKA has disbursed Rp379 billion in capex out of the total of Rp800 billion to Rp1 trillion budgeted this year.

Rich, but Reasonable Valuation

Since our previous update, MIKA’s share price has only increased slightly. Currently, at Rp2,970 per share, MIKA is trading at 38.8x PER (TTM), 6.9x PBV (MRQ), and 8.8x PRR (TTM). On the target price, we have updated it to Rp3,525 per share vs. Rp3,438 per share in previous report. The new target price implies 46.1x PER (TTM), 8.2x PBV (MRQ) and 10.5x PRR (TTM) and represents 18.6% upside potential from the current price. We believe that MIKA’s valuation remains very, very rich, but acceptable given its consistent financial performance, debt-free status, modest dividends, and continued expansion in its operational network. Among perceivable risks being faced by the Company are Government policies and regulations, human resources, as well as competition among its peers. These may directly and/or indirectly affect the assumptions that we are using in our valuation.