Mitra Keluarga prices IPO near top

The success of the Indonesian hospital owner and operator's deal shows investors still favour healthcare stocks despite premium valuations.

Indonesian hospital owner and operator PT Mitra Keluarga Karyasehat raised Rp4.45 trillion ($343 million) from its initial public offering of shares on Monday after fixing the deal near the top of its Rp14,500 to Rp18,000 indicative price range. 

The 261.93 million share offering was priced at Rp17,000 after the order book closed multiple times oversubscribed with almost no price sensitivity. About 180 investors participated in the transaction, which will be formally allocated on Tuesday.

However, sources close to the deal said the top 10 investors will receive about 50% of the shares on offer, with the top 20 receiving just under 75%. About 40% of the order book will get no allocation at all. 

"The company wanted to give stock to investors, which had done their homework," said one observer. "There was a very strong order book led by sovereign wealth funds, long-only funds and Asean and Indonesian specialists."

The flotation ranks as one of Indonesia’s largest in recent years, beating taxi operator Bluebird, which raised Rp2.4 trillion ($200 million) in 2014 and just behind Garuda’s Rp 4.7 trillion ($360 million) offering in 2011.

At Rp17,000 per share, the IPO has been priced on a heady 2015 EV/Ebitda multiple of 28.9 times and even higher forward p/e ratio of 41 times. Healthcare stocks across the Asean region have performed extremely well over the past few years, but investors must be wondering how much upside remains.

At the end of 2012, hospital operators in Thailand, Malaysia and Singapore were averaging forward EV/Ebitda multiples in the low teens. By the end of 2013 this had expanded to the mid-teens and by the end of 2014 to the early 20's. 

Some analysts argue they will be able to maintain their premium valuations because they are expanding so rapidly. In Indonesia's case, they are a play on the country's undeveloped healthcare sector and growing middle class.

Nevertheless, Mitra Keluarga's decision to price just off the top of the range was probably a sensible move given its closest comparable has lost some of its momentum over the past few months. Siloam Hospitals, Indonesia’s largest operator by number of hospitals, has traded down 0.6% since the beginning of January, although this in line with the Jakarta Composite Index, which is pretty much flat on the year. 

Over the past 12 months, however, it has risen 22.8%, peaking in early November. At current levels, it is trading at 131 times forward earnings and at 25 times 2015 EV/Ebitda. 

Further afield, Malaysia’s IHH Healthcare is up 13.3% so far this year and 44.2% on a one-year basis. It is now trading on a forward EV/Ebitda multiple of 21 times and p/e ratio of 46 times. 

A cluster of listed hospital operators in Thailand are trading at EV/Ebitda multiples ranging from 13.5 to 23 times times. These include Bumrungrad Hospital Group on 21 times and and Bangkok Dusit Medical Services on 23 times. 

Mitra Keluarga is owned by the pharmaceutical group PT Kalbe Farma and has ambitions to open a further seven new hospitals over the next five years in Greater Jakarta and Surabaya in East Java. It currently operates 2,000 hospital beds across 11 hospitals of which seven are in Greater Jakarta, three in Surabaya and one in Tegal, Central Java. 

Both Mitra Keluarga and Siloam believe the Indonesian healthcare sector will be given a boost by plans to introduce universal health insurance by 2019. So far, 131.3 million Indonesians have registered for the scheme, up from 112 million a year ago. 

Listing of the new IPO on the Jakarta Stock Exchange is scheduled for March 24 and will comprise 18% of the company's outstanding share capital, equating to a market capitalization of Rs 24.7 trillion ($1.89 billion).

The offering had a split of 28% primary shares and 72% secondary.

Private equity firm Lion Investment Partners has reduced its stake from 66% to 49.7% through the IPO and will now be subject to a six-month lock up alongside Griyainsani Cakrasadaya, which has lowered its stake from 34% to 32.3%. The company itself will be subject to a 12-month regulatory lock up.

Mitra has said that 56% of the proceeds will be used to construct new hospitals, with 20% allocated for the purchase of new medical equipment, 16% for land acquisition and the remaining 8% for the expansion of existing hospitals.

Joint global co-ordinators comprise Kresna, Morgan Stanley and UBS, with Deutsche Bank as joint bookrunner and CIMB as domestic underwriter.

¬ Haymarket Media Limited. All rights reserved.

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