Indonesian Pharmaceutical Companies in Focus: Kimia Farma
State-controlled pharmaceutical company Kimia Farma is expected to show steadily improving corporate earnings in the years ahead supported by Indonesia's universal healthcare scheme (in Indonesian: Jaminan Kesehatan Nasional or JKN) that was implemented by the social security agency Badan Penyelenggara Jaminan Sosial Kesehatan (BPJS) in early 2014. The scheme aims to provide all Indonesian citizens with access to a wide range of health services. Obviously, local pharmaceutical companies are in a great position to benefit from this program.
Danareksa Sekuritas estimates that revenue of Kimia Farma is to rise 12.3 percent (y/y) to IDR 5.5 trillion (approx. USD $417 million) in 2016. In the following years, revenue and profit are expected to maintain momentum supported by the company's expanding network of branches and health clinics across the archipelago, as well as growing production capacity, and the company's expansion toward the upstream sector (it is constructing facilities to produce raw materials for medicines and other pharmaceutical products).
Up to March 2016, Kimia Farma owned 736 pharmacies, 332 health clinics, and 43 laboratories. However, the company has high ambitions. It wants to add 100 pharmacies and 50 health clinics in the years ahead in order to cater to rising demand across Indonesia supported by the government's universal healthcare scheme (JKN).
In 2015 Kimia Farma announced it decided to invest up to USD $70.9 million in a new pharmaceutical manufacturing facility in Banjaran Industrial Estate, Bandung (West Java). The new plant, expected to become operational in 2018, will produce herbal medicines for both the domestic market and export markets. It is partly funded through the issuance of medium term notes worth IDR 200 billion.
Kimia Farma also set up a joint venture with the local unit of South Korea- based Sungwun Pharmacopia Co Ltd (this local unit is Sungwun Pharmacopia Indonesia) to build a medical salt factory in Lippo Cikarang Industrial Estate in Bekasi (West Java). This plant is designed to produce active pharmaceutical ingredients (part of which is to be exported to the USA and Japan).
Future Projection Kimia Farma's Financial Highlights:
| 2014 | 2015 | 2016F | 2017F | 2018F | |
| Net Sales | 4,521.0 | 4,860.4 | 5,460.0 | 6,229.0 | 7,134.0 |
| Net Income | 255.9 | 248.8 | 276.0 | 305.0 | 361.0 |
| EBITDA | 353.0 | 358.0 | 433.0 | 530.0 | 621.0 |
| P/E Ratio (x) | 25.6 | 26.3 | 23.7 | 21.5 | 18.1 |
| PBV (x) | 3.9 | 3.6 | 3.2 | 2.8 | 2.5 |
in billion IDR rupiah except stated otherwise
Source: Danareksa Sekuritas (13/07/2016)
By building upstream facilities, Kimia Farma reduces its need for imports of raw materials (reducing risks of foreign exchange losses), while it can also become a supplier of raw materials to other pharmaceutical companies in Indonesia.
Danareksa Sekuritas advises investors to purchase shares of Kimia Farma. It set its target price for Kimia Farma's shares at IDR 1,370 a piece. On Wednesday's trading day (13/07) shares of Kimia Farma did not move. However, so far this year the company's shares have surged a whopping 33.91 percent.
Kimia Farma - KEAF:
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