Analysts are generally positive about First REIT’s prospects after visiting its four hospitals in Jakarta last week. The hospitals, Mochtar Riady Comprehensive Cancer Centre (MRCCC), Siloam Hospitals Lippo Village, Siloam Hospitals Kebon Jeruk and Siloam Hospitals TB Simatupang, are operated by Indonesia-listed Siloam International Hospitals.
Following the visit, Lim & Tan Securities analyst Chan En Jie has maintained his “accumulate” call with an unchanged target price of 30 cents, pegged to a forward yield spread of 2.6% and 0.5 standard deviations (s.d.) of its five-year average.
In his report dated March 26, Chan notes that the REIT stands to reap the benefits from Siloam Hospitals’ status as the largest private healthcare provider in Indonesia and an “acknowledged leader of many firsts” in Indonesia’s healthcare sector. About 63% of the country’s hospital market is made up of private providers. Siloam covers an estimated 9% share in these private hospitals.
The hospitals, which have also undergone various asset enhancement initiatives (AEIs) to cater to the growing affluent in Indonesia, have healthy patient volumes, which usually peak in the morning, says Chan.
For the FY2023 ended Dec 31, 2023, First REIT’s revenue of $108.6 million and distributable income of $51.4 million were in line with Chan’s expectations.
Chan has estimated the REIT to report revenue of $111.8 million for FY2024 and a distributable income of $51.7 million. His FY2024 distribution per unit (DPU) estimate is unchanged at 2.48 cents.
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PhillipCapital analyst Paul Chew sees First REIT as benefitting from the “virtuous cycle” in Indonesia’s healthcare sector.
In an unrated report dated March 25, Chew notes that the REIT’s four hospitals were “bustling with activity, well equipped [and] nicely furbished”. They also offered advanced specialist care including neurology, oncology, gastropathy, urology and fertility.
“Indonesia faces an acute shortage of specialists. Specialists are drawn to modern healthcare equipment and patients. Investing early in private hospitals allowed Siloam to establish a reputation and location that draws patients,” he says. “It has around 20 hospitals that are a decade old. With the patient flow, it can invest in more sophisticated equipment, which in turn attracts more specialists and patients. A perpetuating loop of specialists, equipment and patients is created.”
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In addition, First REIT, which collects its rents from these hospitals in rupiah, could see rental income grow faster in FY2024 as Siloam’s revenue grows by 18% y-o-y in the 9MFY2023.
To Chew, the four macro drivers for healthcare demand are the growing population, the rising rate of chronic diseases, expanding middle income and the spread of health insurance.
UOB Kay Hian analyst Jonathan Koh also sees First REIT benefitting from the transformation and growth of healthcare in Indonesia.
In his unrated report dated March 25, Koh notes that the country’s healthcare sector is booming due to the increasing awareness towards preventive care, rising affluence and successful healthcare reform.
“First REIT is able to capture the growth in Indonesia through its performance-based rent, which is calculated based on 8.0% of preceding financial year gross operating revenue,” Koh writes.
“Three of its hospitals currently contribute performance-based rent. The stock trades at 2024 distribution yield of 10.2% and P/NAV of 0.82 times,” he adds.
As at 12.05pm, units in First REIT are trading flat at 25 cents.
