Property groups focusing on healthcare

With health concerns growing amongst Indonesia’s increasing middle class, property groups are also increasingly looking towards the health care business to boost recurring income.

At present, there are 2,337 hospitals scattered throughout South East Asia’s most populous nation, of which just over 30% are private hospitals, as reported by the latest data from the Health Ministry.

Amongst the privately operated are Siloam International Hospitals, opearted by Lippo Karawaci, one of the major listed property developers in Indonesia.

Lippo Karawaci has risen to be the country’s largest private hospital operator following its investments in health care services starting to pay off.

The president director of Lippo Karawaci, Ketut Budi Wijaya claimed hospitals have become the major contributor towards their recurring income. This is as Lippo Karawaci’s health care unit has rapidly expanded, from operating just four hospitals during 2010 to 17 at present, representing a more than fourfold increase in four years.

The latest hospital is Siloam Purwakarta, West Java, opened early last month. It accommodates 203 beds.

Lippo Group is one of the many major local businesses — alongside Ciputra, Kalbe Farma, Mayapada, Omni, Pakuwon Jati and Sinar Mas — that have started to expand further into the Indonesian hospital business over the past few years.

Lippo Karawaci entered the health care sector during 1996 with the establishment of Siloam Gleneagles Lippo Karawaci in Tangerang. Over the years, its hospital operations have come to compete and even surpassed Lippo Karawaci’s traditional revenue source — u r ban development.

During the first half of this year, the health care business generated almost 40% of total revenue, more than that of the urban development business, which generated 27%.

Lippo Karawaci’s health care business revenue increased by 31% to Rp1.57trillion ($133million) in the period from January to June, in comparison to a year earlier, primarily driven by the revenue increase from new hospitals.

Outpatient visits rose by 19% in the period, as in-patient care admissions rose by 29%.

Revenues from Lippo Karawaci traditional business in urban development also increased by 31% to Rp1.12trillion, owing to the higher revenues from the company’s industrial estate business in Cikarang, West Java.

Solid revenue increase from its health care units also contributed to Lippo Karawaci’s 23% increase in profit to Rp673billion.

Lippo Karawaci is now aiming to maintain the momentum with intentions to manage total of 40 hospitals by 2017.

This business has also grown inorganically, following the acquisition of two hospitals in Bali, last year — BIMC Kuta and BIMC Nusa Dua — last year, in an attempt to attract Australian tourists, alongside the highest international visitors to the world-renowned island destination.

Both hospitals have Australian accreditation for health care, aiding the medical tourism demand from Australia.

This year, Lippo Karawaci is looking into adding four to five more hospitals in Indonesia with plans to establish new hospitals in Kupang (East Nusa Tenggara) and Medan (North Sumatra).

Analysts, including as Albert Saputro of Deutsche Bank, have conveyed optimism towards Lippo Karawaci’s ambitious expansion plans, however a degree of skepticism within the operational aspect remains.

Hospitals tend to expand faster by revenue during the first stage, although high operating costs are likely to keep its profit margin relatively low.

Progress has so far been good, however the first part of establishing hospitals is easy. The next stage expansion that remains to be proven.

Standard Chartered said in a report to clients in March that there is potential growth for health care providers in Indonesia.

During 2012, Indonesia had a ratio of 1.0 hospital bed per 1,000 persons, which was noticeably lower in comparison to competitive hospital operators in Malaysia and Thailand, at 1.6 and 2.0 respectively, according to Standard Chartered.

They believe this is an indication of a strong growth opportunity for private hospitals, particularly given increasing incomes and under-penetration within second- and third-tier cities.

It was also predicted that Indonesia’s health care spending per capital is to increase to $229 each year in 2018 and $402 in 2023, from $107 last year.

It is further expected growing incomes will continue to be the primary driver for health expenditure growth.

Lippo Karawaci’s rivals in the property business, such as the Ciputra Group and Pakuwon Jati did not want to miss the opportunity, with both targeting higher recurring income by expanding their health care business.

The Ciputra Group made its entrance into the health care business during 2012, as it commenced operations on Ciputra Hospital within its Citra Raya residences in Tangerang.

Last year, the property group announced plans to grow its hospital chain, aiming to establish up to ten hospitals in five years.

Surabaya based, Pakuwon Jati also acquired a hospital, Usada Insani last year, situated in Tangerang with a 350 beds.

The hospital is currently a complementary business, contributing no more than 5% of Pakuwon’s overall revenue.

Although, the property developer remains open for any possible opportunity for expansion.