In addition to the sector of construction which we’ve discussed last week, in
the last fe days I often receive questions (by email) about the prospect of
Kalbe Farma (KLBF), Tempo Scan Pacific (TSPC), etc., aka pharmaceutical stocks,
related to the government program that called Social Security of Health (Badan Penyelenggara Jaminan Sosial Kesehatan,
or BPJS Kesehatan, it’s more and
less similar to Obama’s Healthcare), which has been running since the beginning
of 2014. Then, after Jokowi sworn in as President on 20 October yesterday,
shortly afterwards he launched his program of 'magic cards', one of which called
Indonesia Healthy Card (Kartu Indonesia
Sehat, or KIS), which may make
you curious, how about its impact on the stocks of pharmaceutical in Indonesia
Stock Exchange (IDX). Well, before that, let us first discuss the theme of
'health' from the beginning.
As a country, the constitution of the Republic of Indonesia requires the
government to provide the most basic needs of society, ie education and health. So
even though the two 'commodities' (education and health) are often being used
as subjects of political campaign by the candidates of legislator, senator, regent,
mayor, governor, or President (in the elections), usually with 'free' labels,
but after they are elected, these officials are supposed to provide affordable education
and health (does not need to be free at all, except for poor people who really
can not afford) for all Indonesian people in the area where he was in charge,
even though he had never promise it before (in his political campaign).
Again, in the constitution, since Indonesia proclaimed its
independence on August 17, 1945, then the issues of education and health of all people in the area became the responsibility of the new Government.
However, in its practice, the Government requires a long process to achieve
these goals (affordable
education and
healthcare for all citizens). In terms of health, the program of healthcare was first
launched in the Soeharto era, precisely
in 1968, under the name Organizing Body of Healthcare Fund (Badan Penyelenggara Dana Pemeliharaan Kesehatan/BPDPK). This program aims to provide a
kind of insurance for civil servants and pension recipients (of
civil servants and armed forces), and
members of his or her family.
So, if you think that BPJS
Kesehatan is the first program of healthcare by the Government of Indonesia, now you know that GOI had launched its predecessor since 46 years earlier. We might say that BPJS is the latest form, which is expected to be better than its predecessors, of programs of healthcare by the Government.
Back to the history of the health program. As was mentioned above, when it
was created in 1968, the Government's health program covered only civil
servants, retirees, and their
family members. In 1984, the coverage expanded,
where state officials and their families are also covered by the program. In 1991, the
directors, commissioners, and employees of state-owned enterprises also including the coverage. In 1992, the
Health Insurance Company
(PT Asuransi Kesehatan, or Askes) was established as a healthcare
company of the state. Although formed as a company, but PT Askes is almost like a non-profit organization because it only focus on the provision of healthcare for its members (this
is different from a private insurance company that would focus on commercial profits).
PT Askes allowed to contribute nothing to the government as its sole shareholder, as long as the company can carry out
their jobs effectively, which provides health services to the holders of Health Insurance Card (Kartu Askes).
By the end of the 90s, the holders of Kartu Askes were still limited to civil servants, military,
retirees, state officials, and employees of state-owned enterprises (and may
also the members of the police and local officials), but not commoners. You may say
that Kartu Askes was still a privilege
for certain circles, but not reach the entire community.
Then, at the reign of President Susilo Bambang Yudhoyono (SBY), precisely in 2005, the Government established the Poor Health Insurance
program. PT Askes, who had never cover the poor before, launched the Health Insurance Card for the Poor (Kartu Askeskin). At this point, if you are belong
to families who can not afford a healthcare, you would be able to receive healthcare service for free from the government (or by paying small premiums), although you are not civil servants.
But of course, just because the government launched Kartu Askeskin, it does not mean that the whole of the poor in
Indonesia can immediately obtain the benefits, because the implementation
of the program would take time. However, based on my own observations, in some areas such as Cirebon and Bandung (because I
often come over there), the poor people are able to receive medical treatment for free at the nearest health center. Those of you who live in big
cities and playing stocks every day may never directly see the free healthcare, because you might not receive it as well (because you’re not
poor, are you?). Bu
I could
say that President SBY
has left a legacy that deserves to be
appreciated in the field of healthcare for the people.
Then in the beginning of 2014, the President changed the name of PT Askes
into BPJS Kesehatan, and its healthcare coverage expanded to all Indonesian citizens without exception.
Even for foreigners who living
in Indonesia for more
than six months, they are also required to be a
member of BPJS. So starting in 2014, whoever you are, civil servants or not, poor or not, you are entitled to health services from the
Government by paying a premium of approximately Rp60,000 (US$ 6) per month only (varies depending on the level of coverage). As
for the poor, they do not need to pay any premium aka
free. Of course, once again, when the program launched, it does
not mean that it can directly reach all citizens. If the process
goes well, then in 2019,
all of the Indonesian citizens will
become members of
BPJS Kesehatan.
And what about the Indonesia Health Card (Kartu Indonesia Sehat, or KIS)
which was launched by President Jokowi, in early November?
If BPJS Kesehatan already have a legal basis in the form of law, the
source of funds is clear (from the paid-in capital), and the
implementation in the field is also clear (using the principle of mutual aid, where some members pay the fee for the poors through the premiums of Rp60,000
per month earlier), then the KIS is totally
different. Including you may also
still confused, what's the difference betwee KIS with BPJS. So I think that, if the focus is on how the impact of the healthcare
programs to the pharmaceutical shares on the
Stock Exchange, then we
may focus on
BPJS only.
Okay, so how do we calculate prospects of pharmaceutical stocks related to BPJS?
The fundamental difference between BPJS
and Askes as its
predecessor, as discussed above, is the
scope of services, where BPJS (is expected to) serve all Indonesian
citizens without exception. Say, from
250 million citizens of Indonesia, about 100 million of them are poor people,
so that they may
receive the healthcare service from BPJS for free. Then the other 100 million people are middle and lower class, which could pay a premium of Rp25,000 - 42,500 per month (we take the average Rp35,000, or US$ 3.5). And the remaining 50 million are the middle and upper class, who can pay a premium Rp60,000 (US$ 6) per month. So the turnovers are:
1. Rp35,000 x 100 million x 12 months, equal to Rp42 trillion per year,
plus
2. Rp60,000 x 50 million x 12 months, equal to Rp36 trillion per year.
So the total is around Rp78 trillion per year! Or equal to US$ 7 billion per year. We can say that, assuming that
BPJS do not take any profit unless for its operational costs, this is the figure of additional
revenue potential for
health care companies throughout Indonesia, including pharmaceutical companies, of course, if the program is running optimally. You also have to notice that
the value of the premium between Rp25,000 - 60,000 per month, it could be raised or lowered
according inflation etc, so in the subsequent years, the above figure could increase.
However, do not forget the phrase 'if the program is running optimally'
above. In the first one or two years of implementation, BPJS may reach 20 – 30%
of the population only, so the revenue would fell to Rp16 – 24 trillion. Also do not forget that, it is not pharmaceutical companies who receive the fund, but hospitals,
health centers, doctors,
pharmacies, and optics. So the revenue received by KLBF
et al is after the
revenue for hospitals, health
centers, and pharmacies. Let say, the margin for pharmaceutical
companies is around 70%, so
the figure would fell further to Rp11 – 17 trillion.
The revenue is then divided to approximately 200
pharmaceutical companies in Indonesia, depending on their market share respectively. If we take KLBF as the example, which is the largest pharmaceutical
company in the Stock Exchange with a market share of 12%, then the additional revenue potential to be received by KLBF due to BPJS is about Rp1.3 - 2.0 trillion (US$ 130 – 200 million).
And what is the value of income of KLBF? Until the third quarter
of 2014, it was Rp12.3 trillion, or Rp16.4 trillion if annualized, grew 7.5% compared to
the same period in 2013. If the additional revenue of
Rp1.3 - 2.0 trillion was realized, then it means KLBF revenue would increase by
approximately 10 – 12%
growth beyond the existing growth (bringing the total growth of more than 20% per annum), or significant enough.
The problem is, especially
for us as investors, KLBF is the only
pharmaceutical company whose performance is consistent in IDX (so we can hope
that BPJS will actually contribute positively to the performance of the company),
but on the other hand the
valuation of the stock was so high.
So if you use the
approach of value investing, then
this stock can not be taken. More sensible option might be Tempo Scan Pacific (TSPC). However, with PER of 18.4 times at the
price of Rp3,000 per share, then it’s not an undervalue stock too. Sido Muncul (SIDO) may also be interesting, but it does not including
the company that receive benefits from BPJS because they did not produce drugs to treat
the disease, but rather to food supplement (Kuku Bima) and
soft drugs (Jamu Tolak
Angin). If
you want a pharmaceutical company
whose performance is good and consistent, then Darya Varia Laboratories (DVLA)
was also good, but unfortunately the shares are illiquid. For
Kimia Farma (KAEF), the problem is the same with KLBF: Overvalue! And what about the Indofarma (INAF)? Well, the company is in loss, so I do not want to take the risk.
So well, I'm not sure.. if in construction I could take Nusa Raya Cipta (NRCA), then at the pharmacy sector, I have not seen any interesting stocks, even though prospects seemed so real as the implementation of the
program has been well so far. But
like I said before, as long as the stock that we seek does not have strong fundamentals, or the valuation is not low, then the outlook is does not mean anything. We'll
see if there is any of the stocks mentioned above that
dropped to affordable levels, or if the company actually recorded a sharp
increase in revenue and profit as expected.
I’m sorry if you did not find what you’ve been
looking in this article, but I was just trying to be as honest as I can :)
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