Healthcare SH JW SC 3K 2nd Dec, 2024
Large potential market size
Based on our conversation with industry players and data from Indonesia Association of Medical Devices Manufacturer (ASPAKI), we estimate the current Indonesia medical device market size has reached more than USD3bn. On a per-capita basis, the value is still low compared to other countries (see Fig. 2), leaving significant upside for growth, in our view. We note that most of the Indonesia medical devices are imported (see Fig. 1) as local production does not have enough production capacity and has relatively low quality of products, in our view. We project Indonesia medical devices' revenue to record a 4.5% CAGR over 2019-2024F. Under Prabowo, we believe medical devices market value would expand faster in 2024F-26F, by a 7.8% CAGR, on the back of the national free medical check-up program. Local firms would likely lead in growth, gaining market share from imported products as we believe the government will increasingly prioritize companies with higher local content level (TKDN).
Growth acceleration from upcoming free medical check-up program
President Prabowo has introduced a national free medical check-up program under his Quick Win program, which we think can be a growth driver for the Indonesia medical check-up program industry. In 2025, tuberculosis eradication would be the main focus; this program will be conducted through early detection/case findings and treatment with an initial budget of IDR8tn. In 2022, Indonesia was the second-largest country with tuberculosis diseases (see Fig. 8). Moreover, the government will roll out free medical check-up program in 2025 for general diseases with an initial budget of IDR1.7tn; this program initially targets 52mn population and, hence we think finding the workforce to run medical check-up would be the next task. We calculate these programs can contribute at least 4-5% of total medical devices market value in 2025F. All the budgets are allocated under the Ministry of Health. In the next few years, we believe the budget for medical check-up program may increase gradually along with addition of new diseases eligible for free check-up added to the list.
More market share for local firms
In order to reduce import dependency, the government has imposed a higher minimum local content requirement policy (current minimum level is 40%) for medical devices. Note that all procurement of government healthcare facilities should prioritize higher local content products. The government also has developed an online central procurement system, e-Katalog, which enables suppliers and users to transparently monitor prices, product specifications, and local content levels. Products with a higher local content may get a better e-catalogue display, such as being placed on the front page, based on our observation. We believe the government will gradually raise the minimum local content. We also expect the government to diligently monitor and freeze imports of products in order to incentivize more players to produce locally.
Medical device sector’s growth opportunity
We expect growth acceleration in the medical devices sector under Prabowo. There are several medical devices players, including Enseval Putera Megatrading (EPMT IJ, Not rated), UBC Medical Indonesia (LABS IJ, Not rated), and Jayamas Medica Industri (OMED IJ, Not rated). EPMT has a complete low-high tech medical devices portfolio with the largest distribution network in Indonesia, according to management; currently, EPMT is one of the largest listed domestic medical devices players with sales potentially reaching ID LABS has expertise and capacity to produce rapid testing devices for tuberculosis, liver, and other general diseases. Lastly, OMED is a major producer for medical disposables and consumables, while R2tn in annualized 2024. It also has capacity in medical testing. On the other hand, Kalbe Farma (KLBF IJ, Buy), being the parent of EPMT, could be an option for investors to capture medical devices growth.
| # | Country | Est. Cases | Deaths |
| 1 | India | 2,820,000 | 331,000 |
| 2 | Indonesia | 1,060,000 | 134,000 |
| 3 | China | 748,000 | 28,000 |
| 4 | Philippines | 737,000 | 39,000 |
| 5 | Pakistan | 608,000 | 47,000 |
| 6 | Nigeria | 479,000 | 88,000 |
| 7 | Bangladesh | 379,000 | 42,000 |
| 8 | Congo | 314,000 | 34,000 |
| 9 | South Africa | 280,000 | 23,000 |
| 10 | Myanmar | 257,000 | 44,000 |
| Infant, Toddler, and Preschool (0-6 years old) | School Children and Adolescent (7-18 years old) | Adult and Elderly (> 18 years old) | ||
| Congenital Hypothyroidism | Hearing | Hearing | ||
| G6PD Enzyme Deficiency | Vision | Vision | ||
| Congenital Adrenal Hyperplasia | Dental Diseases | Dental Diseases | ||
| Critical Congenital Heart Disease | Mental Health | Mental Health | ||
| Growth (weight, height) | Obesity | Obesity | ||
| Development (motor, sensory, cognitive) | Hypertension | Hypertension | ||
| Hearing | Smoking Behavior | Diabetes Mellitus* | ||
| Vision | Fitness | Smoking Behavior | ||
| Dental Diseases | Anemia | Fitness | ||
| Mental Health | Diabetes Mellitus* | Stroke, Heart Disease* | ||
| Thalassemia* | Thalassemia* | Uro-nephrology* | ||
| Hepatitis B | Hepatitis B | Breast Cancer | ||
| Hepatitis C | Hepatitis C | Cervical Cancer | ||
| Cirrhosis, Liver Cancer | Cirrhosis, Liver Cancer | Cholesterol | ||
| Chronic Obstructive Pulmonary Disease/COPD | ||||
| Lung Cancer | ||||
| Note: | Osteoporosis | |||
| Located at health centers; screenings highlighted are conducted at school in new academic year | Functional Disorders in Daily Activities | |||
| Colon Cancer | ||||
| *) Once in a lifetime to family with close relatives to sufferer or carrier of thalassemia | Degenerative Diseases | |||
| Thalassemia* | ||||
| In Risk Group, | Hepatitis B | |||
| *) Indication of Obesity and HT, ≥ 40 year, all population | Hepatitis C | |||
| *) Indication of HT and DM | Cirrhosis, Liver Cancer | |||
INVESTMENT RATINGS
A rating of ‘Buy’, indicates that the analyst expects the stock to outperform the Benchmark over the next 12 months. A rating of ‘Neutral’, indicates that the analyst expects the stock to perform in line with the Benchmark over the next 12 months. A rating of ‘Reduce’, indicates that the analyst expects the stock to underperform the Benchmark over the next 12 months. A rating of ‘Suspended’, indicates that the rating, target price, and estimates have been suspended temporarily to comply with applicable regulations and/or firm policies. Securities and/or companies that are labelled as ‘Not Rated’ or ‘No Rating’ are not in regular research coverage. Benchmark is Indonesia Composite Index (‘IDX Composite’). A ‘Target Price’, if discussed, indicates the analyst’s forecast for the share price with a 12-month time horizon, reflecting in part of the analyst’s estimates for the company’s earnings, and may be impeded by general market and macroeconomic trends, and by other risks related to the company or the market in general.
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Sandy Ham (sandy.ham@verdhana.id)
Jody Wijaya (jody.wijaya@verdhana.id)
Samuel Christian (samuel.christian@verdhana.id)
saya
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