Mitra Keluarga Karyasehat, a leading Indonesian hospital operator and subsidiary of the Kalbe Group, plans to raise about IDR 4.2 trillion (USD $328 million) in an initial public offering (IPO) on the Indonesia Stock Exchange (IDX) in March 2015. The company plans to offer up to 261.9 million shares, or 18 percent of its enlarged equity, to the public. Five percent of this total constitute new shares, while 13 percent are shares divested by private equity firm Lion Investment Partners.
Currently, 66 percent of Mitra Keluarga Karyasehat’s shares are owned by Lion Investment Partners BV, while the remaining 34 percent are in the hands of Griyainsani Cakrasadaya. After the IPO, share ownership of Lion Investment Partners and Griyainsani Cakrasadaya will decline to 49.7 percent and 32.3 percent, respectively.
Proceeds from the IPO will be used to expand the company’s hospital network over the next five years. General Director at Mitra Keluarga Karyasehat Rustiyan Oen said that about IDR 1.3 trillion of the proceeds are to be used to fund the construction of seven new hospitals (including land acquisition) in the Greater Jakarta Area up to 2019, lifting the total number of hospitals owned by Mitra Keluarga Karyasehat to 18. The remainder of the proceeds will be used to purchase medical equipment, build information technology infrastructure, and enhance capacity in existing hospitals. The eleven hospitals that are currently being operated (in the Greater Jakarta Area, Surabaya and Tegal) now have a total of 1,900 hospital beds, 1,000 doctors, 2,600 nurses, and 1,060 other staff members. Per year, these hospitals (combined) provide medical treatment to about two million people.
Michael Steven, President Director of Kresna Graha Sekurindo, said that Mitra Keluarga Karyasehat’s price-to-earnings ratio (PE ratio) is estimated at 35-42 times in 2015 (market PE ratio is 24 times) and the company’s earnings rise more than 20 percent per year. In the first three quarters of 2014, the company posted net profit of IDR 406 billion, up 25.9 percent (y/y) from net profit in the same period in the preceding year.
Prospects for the health care sector (including the hospital and pharmaceutical industries) are positive as there is ample room for growth in Indonesia. Indonesia currently lacks a well-developed health care sector (for example it is plagued by a lack of hospital and infrastructure development). However, the President Joko Widodo administration wants to speed up social development, including health care access, in Southeast Asia’s largest economy. There also exists rising demand for health services from the rapidly expanding middle class. Moreover, there are no giant dominating players in this sector.
If Mitra Keluarga Karyasehat will indeed raise about IDR 4.2 trillion, then this IPO will be one of the largest in recent years. In 2011, Garuda Indonesia raised IDR 4.75 trillion, the largest IPO in recent years. Mitra Keluarga Karyasehat will become the second hospital operator to conduct an IPO on the Indonesia Stock Exchange, after Siloam International Hospitals in 2013.
Mitra Keluarga Karyasehat will organize road shows in Singapore, Hong Kong and London in order to attract investors next week. Deutsche Securities Indonesia, Morgan Stanley Asia Indonesia and UBS Securities have been appointed as underwriters for the IPO. Lead underwriter is Kresna Graha Sekurindo.
Meanwhile, the Indonesia Stock Exchange targets to see at least ten IPOs in the first six months of the year amid an improved investment climate (the benchmark Jakarta Composite Index touched a record high on Thursday 26 February). Apart from Mitra Keluarga Karyasehat, other companies that have presented their IPO plans are PP Properti (subsidiary of PT PP) and Merdeka Copper Gold (mining unit of Saratoga Capital). Regarding full-year 2014, the IDX targets 32 IPOs. In 2014, a total of 24 Indonesian companies listed on the IDX, failing to meet last year’s target due to great uncertainty brought about by Indonesia’s legislative and presidential elections (fueling political uncertainty) as well as concerns about the global economy and US monetary tightening. So far this year, only one company (Bank Yudha Bhakti) held its IPO on the IDX.