Prodia diagnoses healthy markets with IPO launch

Indonesia's largest diagnostics company launches its flotation on schedule as equity markets remain buoyant following Donald Trump's unexpected election success.

PT Prodia Widyahusada TBk launched a $113 million to $144 million initial public offering on Thursday, confident that rising Asian equity markets combined with a smallish issue size and fast growing industry dynamics will underpin the deal's success.

Bankers said the 234.475 million share offering had already been covered by anchor accounts prior to launch and their view had not been affected by the outcome of the US presidential election and any volatility, which may ensue. 

"This is a structural growth story and long-term play for fundamental investors who've done their bottom-up analysis rather than pure macro players," said one. 

Prodia runs Indonesia's largest medical diagnostics network and has no direct comparable in Indonesia although the country's largest listed hospital operator, PT Mitra Keluarga, is in the same broad sector.

At Rp6,250 to Rp8,000 per share, Prodia is being pitched on a consensus valuation of 19.2 to 24.4 times 2017 EV/Ebitda. 

This represents a big discount to Mitra Keluarga, which is currently trading around 37.5 times and has risen 15.42% year-to-date, slightly underperforming the Jakarta Composite Index, which is up 18.67% over the same period.

Prodia is also being marketed at a big discount to its only other listed Asian comparable, India's Dr Lal PathLabs. 

The subcontinent's largest diagnostics company has seen its share prise rise spectacularly since a December 2015 IPO. Year-to-date, it is up 49.2% to Thursday’s Rs1,200 close.

Dr Lal is trading on a 2017 EV/Ebitda multiple of 33 times. The steep differential between Prodia and Dr Lal's valuation relates to their contrasting Ebitda margins. 

In the first quarter of the current financial year, Dr Lal reported an Ebitda margin of 27.1% compared to Prodia's 15.5% as of end June.

"One reason is because Dr Lal runs a franchising model for its collection centres, whereas Prodia is more conservative and keeps everything in-house," said one specialist. 

However, the specialist added that Prodia is confident of improving its margins to the 20% to 22% level over the next few years as it expands further. 

"Prodia's hub and spoke model means that many samples get sent to one main lab, which has plenty of capacity to really ramp up its testing capabilities at marginal extra cost," the specialist noted.

At the end of the first half, Prodia had 251 outlets and 128 clinical labs across 104 cities and 30 provinces in Indonesia. 

At the time of its IPO, Dr Lal had 1,554 collection centres and 172 labs, with 75% of its business based in Northern India. 

At the end of June, Prodia reported revenues of Rp649 billion, up 93% year-on-year and Ebitda of Rp100 billion.

The majority of IPO proceeds are being used for further expansion, with 67% earmarked for new outlets and labs and a further 19% for new equipment. Over the next five years, Prodia has said it plans to open a further 33 branches. 

The deal has an 80/20 split between primary and secondary shares. 

Post-IPO, PT Prodia Utama will see its stake fall from 76% to 57%, while Bio Majesty will drop from 24% to 18%. The company was established in 1973 by clinician Dr Andi Wijaya and three colleagues.

It currently has a dominant 35% market share compared to its nearest five competitors, which have 35% between them. 

Healthcare related stocks have had a strong run in Indonesia, where hopes are high for incremental business resulting from the government's universal healthcare insurance programme, Jaminan Kesehatan Nasional (JKN). At the end of October, the scheme was reported to have covered 67% of the population and full rollout is planned for 2019.

Prodia has no JKN business and only targets the high-end private and corporate market. However, it is a beneficiary of growing health awareness in Indonesia and is a direct play on rising disposable income. 

The country reports one of the lowest health care spends per capita across Asean and also has less than 3,000 public and private hospitals serving a population of nearly 250 million. 

Indonesia also has only 0.88 doctors for every 1,000 people in Jakarta and 0.3 elsewhere in the country. A limited supply of doctors is often cited as one of the chief constraints to faster growth. 

On a wider level, Prodia should benefit from the revolution sweeping the profession where personalised medicine using nanotechnology and genomics is viewed as one of the most exciting developments of the 21st century.

Over the shorter-term, some investors may be cautious about the outlook for the Jakarta Stock Exchange. It ranks as one of Asia's best performers during 2016 but has been trading sideways since mid-October and foreigners have turned net sellers. 

Roadshows for Prodia’s IPO will continue through to November 17, with pricing on the 18th. The retail IPO is currently scheduled for November 30 through to December 2, with listing on December 7.

Joint bookrunners are CitiCredit Suisse and First Indo Securities.  

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