FOCUS RESEARCH
28 SEPTEMBER 2015
INITIATE COVERAGE PT KALBE FARMA TBK
BUY
STOCK INFORMATION Bloomberg Code KLBF IJ
Sector Healthcare
Current Price Rp1,370
Target Price Rp1,680
Upside/Downside 22.6%
Share Out (bn shares) 46.9
Market Cap (Rpbn) 64,219
52 – w range (low-high) Rp1,370– Rp1,905
52 – w average daily Rp1,736
PRICE CHART
Source: Bloomberg
SHAREHOLDERS INFORMATION, AS OF 30 JUNE 2015
PT Gira Sole Prima 10.2%
PT Santa Seha Sanadi 9.7%
PT Diptanala Bahana 9.5%
PT Lucasta Murni Cemerlang 9.4%
PT Ladang Ira Panen 9.2%
PT Bina Arta Charisma 8.7%
Public (below 5%) 43.3% Source: Company data
DISTRIBUTION NETWORK NATIONWIDE
Source: Company data
Febby Stephanie
(+62-21) 5785 1818 ext. 2068
Carried away by currency weakening… but remains defensive
Dominant Player in Pharmaceutical and Healthcare Industry
PT Kalbe Farma (KLBF IJ or “the company”) was founded in 1966 in Jakarta as a family
pharmaceutical business. The company has been continuously expanding the
business, both organically and through series of merger and acquisitions. And today,
the company is the leader integrated healthcare solution provider in Indonesia,
through its 4 business segments: the Prescription Pharmaceutical, Consumer Health,
Nutritionals and Distribution and Logistics Division.
Key to the steady growth...
KLBF maintained to book a strong revenue growth, relying on: 1) its largest medical
representative team in Indonesia; 2) strong brand awareness of existing major
products; 3) comprehensive product offerings for all income groups; 4) huge long-
term investments in research, including oncology plant, stem cells and cancer
institute, etc.; 5) increasing healthcare spending under JKN program; and 6) extensive
distribution network both national and international coverage. The company’s total
revenue is projected to Rp23.5 trillion in 2017F attained by a 12.8% p.a CAGR
between 2015F-2017F. This year, KLBF guided 5%-7% YoY sales growth, while its EPS
expected to increase by 6%-8% YoY. These targets were revised from initial target of
11%-13% YoY sales growth and 14-16% YoY EPS growth, due to various challenges this
year, i.e depreciating Rupiah, softening macroeconomic condition that lead to weaker
purchasing power and CCI, coupled with internal issues i.e product recall in Feb’15
and termination of a distribution relationship with a major client.
Improvement expected in 2H
In terms of seasonality, company’s performance usually picked up in 2H (3 years
average contribution: 53.2% to annual sales). In our view, the economic slowdown in
1H15 will gradually recover as the delayed government infrastructure projects are
initiated in 2H15, which is expected to boost economy by stronger labor absorption
and better national infrastructure that translates into improved consumption.
Moreover, as the product recall case has been completed, it is expected to recover in
early 4Q15. For FY15F and FY16F, we estimate sales growth of 6.4% and 11.4% to
Rp18.47 trillion and Rp20.57 trillion, respectively. However, we remain cautious on
margin pressure resulting from further currency weakness as well as intensifying
competition that gives the price pressure on branded generics that are currently
priced at a premium to unbranded generics. The management estimated that for each
10% of IDR/USD weakening, gross margin to suffer by 3%. To lower the risk of margin
pressure, the company will focus on higher margin products such as oncology drugs
etc (the company targeted to add 4-5 new SKUs from current 3 SKUs), while
maintaining its USD cash balance of around USD40-50 million and raw material
inventories for 3-4 months.
Buy On Weakness – Fair value Rp 1,680 per share
The share price has been corrected by 21% since the beginning of the month due to
selling pressure mainly on the weakening of IDR. We feel that this gives an
opportunity to pick up the share since our fair equity value came in at Rp 1,680 per
share which represents a 2016F PER target of 30.0x and 2016F EV/EBITDA target of
21.2x. Based on yesterday’s closing price, KLBF was trading at a valuation of 24.5x
PER 2016F and 16.9x EV/EBITDA 2016F indicating that our fair value offers a 22.6%
upside potential.
The Risk: 1) rising raw material prices as impact of weakening Rupiah currency that
lead to further margin pressure; 2) intensifying competition; 3) delay in
macroeconomics recovery.
Financial Summary (Rp billion) 2013A 2014A 2015F 2016F 2017F
Revenue 16,002.1 17,368.5 18,472.2 20,574.0 23,490.4
EBITDA 2,804.3 3,069.3 3,097.1 3,656.9 4,362.4
Net profit 1,919.5 2,064.7 2,221.0 2,622.9 3,154.8
EPS (Rp) 40.9 44.0 47.4 56.0 67.3
PER (x) 30.5 41.5 28.9 24.5 20.4
BVPS (Rp) 181.3 209.4 238.1 271.5 312.5
PBV (x) 6.9 8.7 5.8 5.0 4.4
EV/EBITDA (x) 20.6 27.4 20.1 16.9 14.0
Dividend yield (%) 1.5% 0.9% 1.4% 1.7% 2.0%
RoE (%) 24.2 22.5 21.2 22.0 23.0
Source: Company data and Lautandhana Research
Please see important disclosures at the end of this report
50.0
70.0
90.0
110.0
130.0
150.0
170.0
190.0
210.0
Oct-12 Apr-13 Oct-13 Apr-14 Oct-14 Apr-15
Oct 2012= 100
KLBF IDX
PT KALBE FARMA TBK 28 SEPTEMBER 2015
2|P a g e
COMPANY PROFILE
Dominant Player in Pharmaceutical and Healthcare Industry
PT Kalbe Farma (KLBF IJ or “the company”) was founded in 1966 by Dr. Boen Setiawan in Jakarta as a
family pharmaceutical business. The company has been continuously expanding the business, both
organically and through series of merger and acquisitions. To strengthen the pharmacy business, the
company has established Dankos Lab (1977) as well as acquired Hexpharm Jaya (1985), Saka Farma
(1997) and PT Hale International (2012). In 1985, the company entered the consumer health
business through the acquisition of Bintang Toedjoe and initiated the energy drink business in 1994.
Meanwhile, the nutritional business was strengthened through acquisition of Sanghiang Perkasa in
1993. Kalbe Farma was listed in IDX in 1991 by releasing 20 million shares.
Currently, the company is the leader in integrated healthcare solution provider in Indonesia, through
its 4 business segments: the Prescription Pharmaceutical, Consumer Health, Nutritionals and
Distribution and Logistics Division.
Key Milestones
Source: Company data
Individual Controlling Shareholders
Source: Company data
Pharmaceutical Division
This division produces ethical drugs. KLBF continuously strengthens its position as leading
pharmaceutical company in Indonesia, through complete product range for all segments, from
unbranded generic drugs, branded generics and licensed drugs. As of 2014, the company’s
pharmaceutical business enjoys majority market share nationwide (15%, according to IMS Health),
backed by the largest medical representatives team in Indonesia with more than 2.5k personnel.
28 SEPTEMBER 2015 PT KALBE FARMA TBK
P a g e | 3
Ethical and OTC Drugs Production Capacity Type Unit Annual Capacity
Tablet millions 12,667
Capsule millions 1,497
Liquid millions of bottles 92
Cream millions of tubes 33
Injection millions of ampoules 113
Intravenous infusion millions of liters 3
Source: Company data, as of 2014
Strong brand lineups
Source: Company data
In order to support government health program which commenced operation in early 2014, Jaminan
Kesehatan Nasional/ JKN (National Health Insurance), the company has penetrated further in the
lower-margin unbranded generics market. Hence, the unbranded generics product will account for
the highest growth. As a commitment, as well as to maintain cost efficiency, the company also
constructed a plant located in Cikarang in 2012 which focused in unbranded generic drugs.
As one of the long-term investment strategy, in 4Q14 the company has just completed the first
oncology (treatment for cancer) plant in Indonesia and have launched 3 SKUs, and also started to
build competence in stem cells and genomics also expanding licensed products from multinational
companies to gain technology transfer.
Competitors
Top 3 competitors:
a. Sanbe; b. Dexa; c. Novartis
Source: IMS Health Prescription Pharmaceuticals, 2014
Consumer Health Division
This division offers OTC drugs with therapeutic benefits, consumer products with health benefits
including supplements and other preventive products along with energy and RTD products. The
company also enjoy strong brands with leading market position over recent decades, such as
Promag, Neo Entrostop, Extra Joss, Komix, Woods, Fatigon, etc.
Consumer Health Production Capacity Type Unit Annual Capacity
Liquid millionsof liters 23
Tablet millions 424
Capsule millions 33
Effervescent powder tons 15,000
Fruit Juice millions of liters 27
Source: Company data, as of 2014
Strong brand lineups
Source: Company data
PT KALBE FARMA TBK 28 SEPTEMBER 2015
4|P a g e
Competitors, OTC Products
Top 3 competitors:
a. Tempo Scan (TSPC. IJ) ; b. Soho; c. Phapros
Source: IMS Health OTC, 2014
Nutritional Division
This division offers a complete product range for all ages, from infants, toddlers, children, tweens,
adults, expectant and lactating mothers, up to the elderly; as well as nutritional products for
consumers with special medical needs. As an effort to expand the market penetration, the company
also develop new channel of consumer order through hotline service (Kalbe Home Delivery 500-880)
and e-store via www.kalbestore.com (mainly for consumer health and nutritional products).
Nutritionals Production Capacity Type Unit Annual Capacity
Powdered milk and other milk-based foods Tons 24,000
Baby foods and biscuits Tons 5,000
Source: Company data, as of 2014
Strong brand lineups
Source: Company data
Competitors, Powder Milk
Top 3 competitors:
a. Nestle ; b. Sari Husada; c. Nutricia
Source: AC Nielsen 2014, based on Value (Rp)
Distribution and Logistics Division
To ensure product availability across Indonesia, KLBF has built a Distribution and Logistics Division,
run by its subsidiary PT Enseval Putera Megatrading Tbk (EPMT IJ), which is responsible for delivering
Kalbe’s and third party principal products to over 1 million of outlets in Indonesia. In addition, the
company has also expanded the business portfolio include raw material trading, medical device
trading and retail health services. The company is supported by 2 Regional Distribution Centers
(RDC) in Jakarta and Surabaya and 70 branches in 51 cities, to reach more than 1 million outlets all
over Indonesia, both directly and indirectly, in cooperation with local sub-distributors. Some of the
major third party customers, i.e.: PT Mead Johnson Indonesia, PT L’Oreal Indonesia, PT Kara Santan
Pertama, and PT Beiersdorf Indonesia.
28 SEPTEMBER 2015 PT KALBE FARMA TBK
P a g e | 5
In addition, the company operates retail health services through Mitrasana Clinics, which provide
one-stop service with 4-in-1 concept including family doctor, pharmacy, laboratory, and convenient
store. These clinics are another channel used by the company to distribute its products to end-
customer. To date, the company has opened 83 Mitrasana clinics in Jakarta and its greater area, and
seeks another 10 clinics until the end of year, which 2 of them have been fully dedicated for BPJS
patients.
Distribution and Logistics Capacity Type Number Number of Pallet
Regional Distribution Centers 2 21,000
Branches 70 79,615
Source: Company data, as of 2014
Major Third Party Clients Prescription Pharmaceuticals Consumer Medical Instrument & Diagnostic Fine Chemical Raw Materials
Source: Company data
Sales breakdown by segment Sales breakdown by geographical location
Source: Company data, Lautandhana Research Source: Company data, Lautandhana Research
0%
20%
40%
60%
80%
100%
2010A 2011A 2012A 2013A 2014A 1H15
Se
gm
en
t C
on
trib
uti
on
Prescription pharmaceutical Consumer health Nutritionals Distribution and logistics
4.0%
96.0%
2010A3.9%
96.1%
2011A
Export Domestic
3.6%
96.4%
2012A
4.1%
95.9%
2013A4.6%
95.4%
2014A
PT KALBE FARMA TBK 28 SEPTEMBER 2015
6|P a g e
FINANCIAL ANALYSIS
Key to the steady growth...
KLBF maintained to book a strong revenue growth, relying on: 1) its largest medical representative
team in Indonesia; 2) strong brand awareness of existing major products; 3) comprehensive product
offerings for all income groups; 4) huge long-term investments in research, including oncology plant,
stem cells and cancer institute, etc.; 5) increasing healthcare spending under JKN program; and 6)
extensive distribution network both national and international coverage. The company’s total
revenue is projected to Rp23.5 trillion in 2017F attained by a 12.8% p.a CAGR between 2015F-2017F.
This year, KLBF guided 5%-7% YoY sales growth, while its EPS expected to increase by 6%-8% YoY.
These targets were revised from initial target of 11%-13% YoY sales growth and 14-16% YoY EPS
growth, due to various challenges this year, i.e depreciating Rupiah, softening macroeconomic
condition that lead to weaker purchasing power and CCI, coupled with internal issues i.e product
recall in Feb’15 and termination of a distribution relationship with a major client.
Revenue Breakdown In Rp billion 2013A 2014A 2015F 2016F 2017F CAGR*
Segment
Prescription Pharmaceuticals 3,869 4,329 4,675 5,142 5,862 12.0%
Consumer Health 2,505 2,924 3,363 3,800 4,522 16.0%
Nutritionals 3,792 4,581 5,177 5,953 7,144 17.5%
Distribution and logistics 5,836 5,535 5,258 5,679 5,963 6.5%
Total 16,002 17,369 18,472 20,574 23,490 12.8%
% contribution to sales
Prescription Pharmaceuticals 24.2% 24.9% 25.3% 25.0% 25.0%
Consumer Health 15.7% 16.8% 18.2% 18.5% 19.2%
Nutritionals 23.7% 26.4% 28.0% 28.9% 30.4%
Distribution and logistics 36.5% 31.9% 28.5% 27.6% 25.4%
*) 2015F-2017F
Source: Company data and Lautandhana Research
Potential downside that affecting costs...
Kalbe’s direct costs of production are dominated by raw material (3 years average: 73.7% of total
manufacturing cost or equal to 38.0% of COGS). According to company, 95% of raw materials are
imported, mainly from China and India, while skimmed milk was imported from Australia and New
Zealand. It is charged in US$ rate while the revenue is in Rupiah, hence, this is a key catalyst which
will have an impact on the profitability’s performance. To minimize the impact of forex transaction,
the company conducts a natural hedge by forming a cash reserve of US$40-50 million and also
increasing ASP to the customers, if necessary. Despite this strategy, the management acknowledges
that for every 10% decrease in Rupiah value, its gross margin reduces by 3%.
The other main component in COGS is distribution cost (3 years average: 48.6% of COGS), which is
the direct cost for distribution and logistics division. The net sales figures from respective division
represents the third party product sales and distribution margin of internal product (Kalbe group)
sales for consolidated accounting purposes, as this division is run under company’s subsidiary, PT
Enseval (EMPT IJ). The gross margin of this division were mainly determined by agreement with third
party principals, which may disrupted by infrastructure issues.
COGS Breakdown, 2014
Source: Company data
43.2%
0.0%
43.7%
13.2%
56.8%
Distribution cost Manufacturing cost Raw material Other production costs
28 SEPTEMBER 2015 PT KALBE FARMA TBK
P a g e | 7
Slower growth in 1H15
During 1H15 the company booked overall sales of Rp8.72 trillion, grew only 4.1% YoY from Rp8.38
trillion, resulting from setbacks in macroeconomic growth, termination of distribution contract, and
product recall (licensed drug category) in February named Bunavest Spinal and Tranaxemat Acid
(which accounted for 4-5% of pharma sales) due to malpractice case which resulted in the death of 2
patients in Siloam Hospitals Karawaci (SILO IJ). This case was widely publicized and KLBF was
declared guilty by BPOM (Indonesian FDA) and the company, as manufacturer, was penalized of
temporary revocation of marketing authorization and suspend the production of all injection
products in line 6. In this line, there are 26 special injection products produced by the company,
including the type of Bunavest Spinal and Tranaxemat Acid. However, the company stated that the
drug investigation has been completed, the production and distribution is expected to be continued
in early 4Q15.
In terms of segment, consumer health and nutritionals division posted the highest growth of 12.0%
and 10.8% YoY to Rp1.59 trillion and Rp2.38 trillion, respectively, while its distribution revenue
declined by 5.1% from Rp2.69 trillion to Rp2.55 trillion in consequence of contract termination with
Abbot by the end of 2014 that accounted for ~3%-4% to total sales. The gross margin, however,
expanded by 140bps to 49.3%, largely derived from ASP hikes of 3-4% and product mix. In line with
margin improvements, the net profit increased by 7.1% YoY to Rp1.08 trillion from Rp493.1 billion.
Meanwhile, the inventory days level remained high at 130 days (133 days in 1Q15), which mostly
derived from the depreciating IDR that lead to higher value of inventory and compounded by weak
demand in line with retreating CCI. The management stated that both payable and receivable ratio
are currently in ideal level (43 and 54 days, respectively) and would continuously implement end-to-
end supply chain management to overcome any fluctuation in inventory, and seeks at least 5-day
reduction in current inventory days.
Interim Financial Result
1H14 1H15 YoY 1Q15 2Q15 QoQ Consensus Coverage
P/L (in Rp billion)
Revenue 8,379.8 8,719.8 4.1% 4,246.7 4,473.1 5.3% 17,369.0 50.2%
Cost of revenue 4,367.4 4,422.0 1.3% 2,144.7 2,277.4 6.2% 8,892.9 49.7%
Gross profit 4,012.4 4,297.7 7.1% 2,102.0 2,195.7 4.5% 8,476.1 50.7%
Operating expense 2,684.0 2,921.4 8.8% 1,418.2 1,503.2 6.0% 5,327.1 54.8%
Operating profit 1,328.3 1,376.3 3.6% 683.9 692.4 1.3% 3,149.0 43.7%
Net profit 992.9 1,063.1 7.1% 528.7 534.5 1.1% 2,065.0 51.5%
Profitability
Gross margin 47.9% 49.3% 49.5% 49.1%
EBIT margin 15.9% 15.8% 16.1% 15.5% 48.8%
Net margin 11.8% 12.2% 12.4% 11.9% 18.1%
Source: Company data and Lautandhana Research
Improvement expected in 2H
In terms of seasonality, company’s performance usually picked up in 2H (3 years average
contribution: 53.2% to annual sales), e.g increasing demand of ulcer drug in the fasting month. In our
view, the economic slowdown in 1Q15 will gradually recover as the delayed government
infrastructure projects are initiated in 2H15, which is expected to boost economy by stronger labor
absorption and better national infrastructure that translates into improved consumption. Moreover,
as the product recall case has been completed, it is expected to recover in early 4Q15. For FY15F and
FY16F, we estimate sales growth of 6.4% and 11.4% to Rp18.47 trillion and Rp20.57 trillion,
respectively.
However, we remain cautious on margin pressure resulting from further currency weakness as well
as intensifying competition that gives the price pressure on branded generics that are currently
priced at a premium to unbranded generics. To lower the risk of margin pressure and currency
fluctuation, the company will focus on higher margin products such as oncology drugs etc (the
company targeted to add 4-5 new SKUs from current 3 SKUs), while maintaining its USD cash balance
of around USD40-50 million and raw material inventories for 3-4 months.
PT KALBE FARMA TBK 28 SEPTEMBER 2015
8|P a g e
Revenue seasonality
Source: Company data
Healthy and strong components of balance sheet
Along with the massive expansion in Indonesia and overseas, the company should be equipped with
strong funding and healthy balance sheet components. As of 1H15, the company is still on net cash
position with minor gearing of 0.04x. Therefore, the company plans to fund capital expenditures
primarily through existing cash funds as well as internal cash flows. We expect that the company will
continue to maintain a healthy balance sheet and a net cash position, while retaining small amounts
of short term loans as a buffer, to give a lot of room to exercise any loan in the future once needed.
Healthy Balance Sheet In Rp billion 2013A 2014A 2015F 2016F 2017F
Cash and cash equivalent 1,426.5 1,894.6 2,145.3 2,762.4 3,581.7
Inventories 3,053.5 3,090.5 3,291.3 3,579.6 4,011.1
Equity 8,500.0 9,817.5 11,160.6 12,728.8 14,646.3
Total interest bearing debt 583.8 296.1 296.1 280.3 266.1
DER (x) 0.1 0.0 0.0 0.0 0.0
Net debt to equity (x) Net cash Net cash Net cash Net cash Net cash
Source: Company data and Lautandhana Research
0.0% 20.0% 40.0% 60.0% 80.0% 100.0%
2010
2011
2012
2013
2014
2015
1Q 2Q 3Q 4Q
28 SEPTEMBER 2015 PT KALBE FARMA TBK
P a g e | 9
INDUSTRY ANALYSIS
JKN Program, the Fertilizer for the Growth of National Healthcare Sector
As of 1 January 2014, the government initiated a program named Jaminan Kesehatan Nasional/ JKN
(National Health Insurance) which is intended to provide a comprehensive guarantee of health
insurance for all Indonesian citizens to be able to live healthy, productive and prosperous. Prior to
JKN, the government have carried out some form of social security in health, such as:
1. Askes Sosial (Social Health Insurance) for civil servants, pensioners and veterans;
2. Jaminan Pemeliharaan Kesehatan (JPK) Jamsostek for SOE and private company employees;
3. Jaminan Kesehatan for military and policemen; and
4. Jaminan Kesehatan Masyarakat (Jamkesmas) for poor residents
Along with the commencement of JKN, all health insurance program that has implemented above,
were integrated into the Badan Penyelenggara Jaminan Sosial Kesehatan (BPJS Kesehatan).
The participation to this program is mandatory to all Indonesians, including foreigners who worked
for at least 6 months in Indonesia. JKN participants consist of Subsidized/ Beneficiary Participants
(Penerima Bantuan Iuran/ PBI) and Non-subsidized/ Non-Beneficiary Participants (Non-PBI). All
participants are required to pay monthly premium to BPJS Kesehatan as JKN administrator.
According to Presidential Decree no. 111 Year 2013, the first stage of implementation in 2014 will
cover subsidy recipients, military members, civil servants and formal sector workers and the second
stage will cover all population (100%) members by 1 January 2019. As of June 2015, there are more
than 147 million people (more than 50% of population) who have been officially registered as BPJS
participants.
Premium Payment Class Categories Monthly Premium Fee Inpatient Grade
Subsidized Participants (PBI) Poor and near poor residents Rp 19,225/ person Grade 3
Non Subsidized Participants (Non-PBI) Civil servants/ military/ policemen/
retired
5% of salaries and compensations
(2% paid by employers, 3% paid by employees) Grade 1, 2
Formal sector workers 5% of salaries and compensations
(4% paid by employers, 1% paid by employees) Grade 1,2
Informal sector workers - Rp 25,500 (class III)/ person
- Rp 42,500 (class II)/ person
- Rp 59,500 (class I)/ person
- Grade 3
- Grade 2
- Grade 1
Source: Presidential Decree No 111/2013
As of 2013, Indonesia’s healthcare expenditure ratio was relatively low at 3.3% of total GDP, far
below the ratio of developed countries such as the US (18%) and UK (9.6%). With the
implementation of JKN program, the healthcare expenditure ratio is expected to be significantly
boosted and hence, more positive outlook for the healthcare sector. For 2015F, the International
Pharmaceutical Manufacture Group (IPMG) expected that national pharmaceutical industry will
grow by 11.8% YoY to US$4.6 billion, indicating pharmaceutical spending of US$19/ capita/ year. As
a proof of demureness over this JKN program, stated by recent news that the government will
increase the health budget allocation from current 3.7% to 5% of the 2016F state budget or more
than Rp100 trillion, assuming the total government spending of Rp2,000 trillion next year. The funds
will be allocated through the Ministry of Health for the financing of construction/ renovation of
hospitals, provision of medical equipment and other needs relating to the JKN program.
Healthcare Expediture/ GDP ratio 2013 Indonesia Pharmaceutical Sales (USD Bn)
Source: Centers for Medicare and Medicaid Services, Office of the Actuary; United Kingdom:
Healthcare Rerport, Economist Intelligence Unit; KementrianKesehatan Indonesia, China;
Singapore Govt Budget; Economic Survey, India; Frost and Sullivan; Company presentation.
Source: GP Farmasi, Business Monitor International, Pharmaceutical Healthcare Report, Lautandhana
Research
0.0% 2.0% 4.0% 6.0% 8.0% 10.0% 12.0% 14.0% 16.0% 18.0% 20.0%
Indonesia
India
Thailand
Malaysia
China
Singapore
United Kingdom
United States
-
1.00
2.00
3.00
4.00
5.00
6.00
7.00
8.00
2008A 2009A 2010A 2011A 2012F 2013F 2014F 2015F
USD
Bn
PT KALBE FARMA TBK 28 SEPTEMBER 2015
10|P a g e
Ratio of Healthcare Spending to the State Budget
Source: MoF
… Triggering Higher Demand for Unbranded Generic Drugs
Regarding the JKN program, medicines for the patients that are covered by BPJS Kesehatan mostly
limited to unbranded generic drugs, as stipulated in the Decree of the Minister of Health
no.328/MENKES/SK/IX/2013 on the National Formulary (Fornas). National formulary is the list of
drugs that are fully covered by BPJS Kesehatan, which based on latest scientific evidence by National
Committee of Fornas, including the most efficacious and safest drugs with affordable prices. Thus,
we believe that the demand on the unbranded generic drugs will advance and benefited the generic
drugs producers to grow and expand their production capacity to meet national needs. However, we
believe the market for branded and licensed drugs will still grow, although in a slower pace, in line
with the fast-growing middle-upper economic class who demand for premium healthcare.
Tender Process through E-Catalogue
According to the Regulation of Minister of Health No. 63/2014, JKN is conducted through electronic
purchasing method based on e-catalogue (instead of tender auction process, as it used to), in order
to ensure transparency, effectiveness and the efficiency of the drug procurement process. As seen in
the government e-catalog portal (www.lkpp.go.id), all of the information i.e drug name, supplier’s
name, packaging, smallest unit price (in Rp), distributors list, and the contract are clearly published.
Such transparency leads the private hospitals, in particular, to have the negotiating power and
hence, opens wider competition window among pharmaceutical companies.
Source: www.lkpp.go.id
Rising opportunity for consumer health business
According to BCG in March 2013, a portion of Indonesia’s population is expected to continue
entering the middle-class socioeconomic category. On the following chart, in the same tone, World
Bank projected that in 2025, the middle-upper class with average monthly expenditure of Rp2.6-5.2
million/capita/month will dominate the population. Hence, we believe the growth of this group will
create more opportunities for consumer health business (nutritional food, vitamins, energy/ healthy
drinks, milk, etc), as their lifestyle encourage higher health-consciousness.
28 SEPTEMBER 2015 PT KALBE FARMA TBK
P a g e | 11
2012A vs 2020F Projected Indonesian Population Projected Monthly Expenditure Categories
Categories
Monthly household
expenditure
(IDR mn)
Population 2012,
million (%)
Population 2020,
million (%)
Elite >7.5 2.5 (1.0%) 6.9 (2.6%)
Affluent 5.0-7.5 6.6 (2.7%) 16.5 (6.1%)
Upper middle 3.0-5.0 23.2 (9.3%) 49.3 (18.4%)
Middle 2.0-3.0 41.6 (16.8%) 68.2 (25.5%)
Emerging middle 1.5-2.0 44.4 (17.9%) 50.5 (18.9%)
Aspirant 1.0-1.5 65.4 (26.3%) 47.9 (17.9%)
Poor <1.5 64.5 (26.0%) 28.3 (10.6%)
Source: Boston Consulting Group, March 2013 Source: World Bank, June 2012
Dependency on Currency Rate
Recently, Capital Investment Coordination Board (Badan Koordinasi Penanaman Modal/ BKPM)
stated that almost 95% of national demand for pharmaceuticals raw material are imported, mostly
from China, India, Europe and US. They mentioned several factors that initiated the high
dependency on imported products, i.e government regulation that prohibits foreign pharmaceutical
companies to sell their products in Indonesia without having production facilities (Ministry of Health
Regulation no. 1010/ Menkes/ PER/ XI/ 2008); strict regulations regarding the product quality
standards; as well as the high risk on pharmaceutical plant construction. Hence, the stability of
Rupiah is critical for the national pharmaceutical industry, as the imported basic materials generally
accounted for 85%-90% of the COGS.
PT KALBE FARMA TBK 28 SEPTEMBER 2015
12|P a g e
FINANCIAL HIGHLIGHTS OF PT KALBE FARMA, TBK
In Rp Billion
BALANCE SHEET 2013A 2014A 2015F 2016F 2017F INCOME STATEMENT 2013A 2014A 2015F 2016F 2017F
ASSETS
Cash & cash equivalents 1,426 1,895 2,145 2,762 3,582 Revenue 13,636 16,002 17,369 18,472 20,574
Accounts receivable 2,145 2,347 2,497 2,649 2,896 COGS (7,103) (8,323) (8,893) (9,510) (10,379)
Inventories - net 3,053 3,091 3,291 3,580 4,011 Gross profit 6,533 7,679 8,476 8,962 10,195
Other current assets 872 789 914 1,024 1,133
Total current assets 7,497 8,121 8,847 10,016 11,622 Operating expenses (4,316) (5,130) (5,715) (6,050) (6,738)
Fixed assets 2,926 3,404 4,035 4,639 5,201
Other non-current assets 892 900 1,108 1,149 1,313 Operating profit 2,218 2,549 2,761 2,912 3,457
Total Non-current assets 3,818 4,304 5,143 5,788 6,514
TOTAL ASSETS 11,315 12,425 13,991 15,804 18,136 EBITDA 2,453 2,804 3,069 3,097 3,657
LIABILITIES & EQUITY
Interest expense (18) (29) (52) (31) (28)
Short term loans 584 252 252 236 222
Other income (expenses) 33 2 (9) 13 2
Accounts payable 1,152 1,133 1,234 1,384 1,604
Total other income/(expenses) 16 (27) (61) (18) (26)
Other payables 905 1,001 1,100 1,191 1,371
Total Current Liabilities 2,641 2,386 2,586 2,812 3,197 Income before tax 2,234 2,522 2,700 2,894 3,431
Total Non-Current Liabilities 175 222 244 263 292 Tax expense (533) (602) (643) (690) (817)
Capital Stock 469 469 469 469 469
Other items 6 12 12 10 12 Net profit before minority interest 1,701 1,920 2,058 2,204 2,614
Non-controlling interest 392 435 449 506 579 Minority interest (41) (51) (56) (58) (66)
RE 7,633 8,901 10,231 11,743 13,587
Total Equity 8,500 9,817 11,161 12,729 14,646 Net profit 1,659 1,869 2,001 2,145 2,548
TOTAL LIABILITIES & EQUITY 11,315 12,425 13,991 15,804 18,136 EPS (Rp) 37 41 44 47 56
CASH FLOW STATEMENT 2013A 2014A 2015F 2016F 2017F KEY FINANCIAL RATIOS 2013A 2014A 2015F 2016F 2017F
Net profit 1,734 1,920 2,065 2,221 2,623 Growth (%)
Depreciation & Amortization 235 255 308 185 200 Revenue 25.0 17.3 8.5 6.4 11.4
Change in WC (727) (935) (257) (249) (291) Gross profit 17.7 17.5 10.4 5.7 13.8
Others 44 (184) 179 (26) (19)
Operating Profit 12.7 14.9 8.3 5.5 18.7
Net Operating Cash Flow 1,286 1,055 2,295 2,130 2,513
EBITDA 13.3 14.3 9.4 0.9 18.1
Net Profit 17.0 10.7 7.6 7.6 18.1
Change in fixed assets - net (630) (926) (787) (815) (804)
Others (301) (171) (8) (209) (41)
Profitability (%)
Net Investing Cash Flow (931) (1,097) (795) (1,024) (845)
Gross margin 47.9 48.0 48.8 48.5 49.6
Operating margin 16.3 15.9 15.9 15.8 16.8
Change in borrowings - net 64 380 (288) - (16) EBITDA margin 18.0 17.5 17.7 16.8 17.8
Change in equity 12 746 50 13 56 Net Profit margin 12.7 12.0 11.9 12.0 12.7
Change in other liabilities 27 20 3 22 19 ROAA 19.6 18.5 17.4 16.8 17.6
Dividend payment (916) (901) (810) (891) (1,110) ROAE 25.0 24.2 22.5 21.2 22.0
Adjustment 25 (636) 13 - -
Net Financing Cash Flow (787) (392) (1,032) (855) (1,051) Solvency (x)
Current ratio 3.4 2.8 3.4 3.4 3.6
Change in cash (432) (433) 468 251 617 Quick ratio 2.3 1.7 2.1 2.1 2.3
DER 0.0 0.1 0.0 0.0 0.0
Cash at the beginning period 2,291 1,860 1,426 1,895 2,145 EBITDA coverage 140.1 97.9 59.0 99.6 130.7
Cash at the ending period 1,860 1,426 1,895 2,145 2,762 Net debt to equity Net cash Net cash Net cash Net cash Net cash
Source: Company data and Lautandhana
Research
Notes:
The definitions of Lautandhana Research for Investment Ratings:
- BUY : +15% and above, over the next 12 months
- Neutral : -15% to +15%, over the next 12 months
- SELL : -15% and worse, over the next 12 months
28 SEPTEMBER 2015 PT KALBE FARMA TBK
P a g e | 13
APPENDICES
Manufacturing Infrastructure
Source: Company data
PT Lautandhana Securindo Wisma KEIAI 15th Floor
Jl. Jendral Sudirman Kav. 3
Jakarta 10220
Tel : +6221 5785 1818
Fax : +6221 5785 1717
BRANCH OFFICE
Pluit Medan
Kawasan CBD Pluit Blok A No.20 Kampus STMIK-STIE MIKROSKILL
Jl. Pluit Selatan Raya No.1 Jl Thamrin no. 140
Jakarta 14440 Medan
Tel : +6221 66675345
Fax : +6221 66675234
Mangga Dua Kelapa Gading
Mangga Dua Square Blok F No.23 Sentra Bisnis Artha Gading
Jl. Gunung Sahari Raya No.1 Jl. Boulevard Artha Gading Blok A6B No. 7
Jakarta 14420 Jakarta Utara 14240
Tel : +6221 62313288 Tel : +6221 45856402
Fax : +6221 62311365 Fax : +6221 45873961
Karawaci Puri
Karawaci Office Park Blok L No. 29-30 Rukan Grand Taman Aries Niaga
Lippo Karawaci Tangerang Jl. Taman Aries – Kembangan Blok G 1 No. 1 I
Banten 15115 Jakarta Barat 11620
Tel : +6221 55770718 Tel : +6221 2931 9515
Fax : +6221 55770719 Fax : +6221 2931 9516
Bandung Gading Serpong
Komplek Paskal Hyper Square Blok C No. 15 Ruko Paramount Centre Blok A No. 2
Jl. Pasir Kaliki No. 25 - 27 Jl. Raya Kelapa Dua, Tangerang
Bandung 40181 Banten 15810
Tel : +6222 86061027 Tel : +6221 29014800 / 29014731
Fax : +6222 86060684 Fax : +6221 2901 4656
Medan Surabaya
Jalan Kartini No.5 Jl. Diponegoro 48D-E
Medan 20152 Surabaya 60264
Tel : +6261 451 8855 Tel : +6231 562 2555
Fax : +6261 451 6836 Fax : +6231 567 1398
DISCLAIMER
This report has been prepared by PT. Lautandhana Securindo on behalf of itself and its affiliated companies and is provided for information purposes
only. Under no circumstances is it to be used or considered as an offer to sell, or a solicitation of any offer to buy. This report has been produced
independently and the forecasts, opinions, and expectations contained herein are entirely those of PT. Lautandhana Securindo.
While all reasonable care has been taken to ensure that information contained herein is not untrue or misleading at the time of publication, PT.
Lautandhana Securindo makes no representation as to its accuracy or completeness and it should not be relied upon as such. This report is provided
solely for the information of clients of PT. Lautandhana Securindo who are expected to make their own investment decisions without reliance on this
report. Neither PT Lautandhana Securindo nor any officer or employee of PT Lautandhana Securindo accept any liability whatsoever for any direct or
consequential loss arising from any use of this report or its contents. PT Lautandhana Securindo and/or persons connected with it may have acted
upon or used the information herein contained, or the research or analysis on which it is based, before publication.