Prodia Widyahusada (PRDA.JK / PRDA IJ)

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1 Asia Pacific/Indonesia Equity Research Healthcare Facilities Rating OUTPERFORM Price (17-Jan-17, Rp) 5,700 Target price (Rp) 7,460 Upside/downside (%) 30.9 Mkt cap (Rp/US$ bn) 5,344 / 0.40 Enterprise value (Rp bn) 4,126 Number of shares (mn) Free float (%) wk price range (Rp) 6,600-5,100 ADTO-6M (US$ mn) 0.4 Target price is for 12 months. [V] = Stock Considered Volatile (see Disclosure Appendix) Research Analysts Share price performance Ari Jahja ariyanto.jahja@credit-suisse.com The price relative chart measures performance against the JSX COMPOSITE INDEX which closed at 5, on 17/01/17. On 17/01/17 the spot exchange rate was Rp13,350/US$1 Performance 1M 3M 12M Absolute (%) 7.3 Relative (%) 5.3 Prodia Widyahusada (PRDA.JK / PRDA IJ) INITIATION Leading clinical laboratory player We initiate on PT Prodia Widyahusada (PRDA) with an Outperform rating and Rp7,460 target price. PRDA is the leading clinical laboratory testing company with the largest private independent lab chain by revenue (35% share) and network size (252 outlets) in Indonesia. The stock s underperformance post IPO could provide a buying opportunity. Attractive clinical lab industry backdrop. Frost and Sullivan estimates Indonesia s clinical laboratory testing market at US$1.4 bn in 2015 and expects it to grow at a CAGR of 12.9% to reach US$1.8 bn by Within the overall market, Frost & Sullivan expects the private independent laboratory segment in which Prodia operates to grow at 16.3% CAGR, making it one of the fastest growing healthcare services markets in Indonesia. Investment positives: (1) Market leader with the largest labs network led by an experienced management team, (2) comprehensive test offerings through "hub and spoke" model, (3) improving top line driven by volume growth and pricing power, and (4) double-digit EBITDA growth on the back of margin expansion and operating leverage. All of these are supported by an attractive healthcare market. 1H16 was affected by tough comparisons, such as the unusually high volume in 1H15 driven by postponed corporate customer visits related to presidential elections in 2H14. Valuation. Our target price of Rp7,460 is derived using DCF (with a weighted average cost of capital of 10% and terminal growth of 5%. This implies a 2017 EV/EBITDA multiple of 24x, which suggests Prodia can trade in-between Indonesia hospitals, SILO and MIKA. We think this could be justifiable due to its 20%+ EBITDA growth profile. Key risks. (1) Slower-than-expected growth, (2) lower-than-expected operating efficiencies, (3) delays in expansion projects and execution, (4) intensifying competition, and (5) deteriorating brand recognition. Financial and valuation metrics Year 12/15A 12/16E 12/17E 12/18E Revenue (Rp bn) 1, , , ,756.6 EBITDA (Rp bn) EBIT (Rp bn) Net profit (Rp bn) EPS (CS adj.) (Rp) Change from previous EPS (%) n.a Consensus EPS (Rp) n.a EPS growth (%) (9.4) P/E (x) Dividend yield (%) EV/EBITDA (x) P/B (x) ROE (%) Net debt/equity (%) 23.8 Net cash Net cash Net cash Source: Company data, Thomson Reuters, Credit Suisse estimates DISCLOSURE APPENDIX AT THE BACK OF THIS REPORT CONTAINS IMPORTANT DISCLOSURES, ANALYST CERTIFICATIONS, LEGAL ENTITY DISCLOSURE AND THE STATUS OF NON-US ANALYSTS. US Disclosure: Credit Suisse does and seeks to do business with companies covered in its research reports. As a result, investors should be aware that the Firm may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single factor in making their investment decision.

2 Fixed cost (Rp bn) % of revenue Rp thousands Million visits Clinical lab testing market size (US$mm) 19 January 2017 Focus charts and tables Figure 1: Robust growth prospects for private independent labs Figure 2: Pioneer and dominant market leader by revenue (2015) 2,000 1,800 1,600 1,400 1,200 1, ,830 1, ,437 1, , , , E 2016F 2017F CAGR 11A-13A 13A-15E 15E-17F 14.8% 11.1% 16.3% 11.7% 12.4% 14.5% 8.2% 9.6% 11.1% Public clinical labs Private hospital labs Private independent labs Others (676 private standalone laboratories) 32% Next 5 players combined 33% Prodia 35% Source: Frost & Sullivan Source: Frost & Sullivan Figure 3: The largest owned/operated nationwide labs Figure 4: Upward trend in visits and revenue per visit 1, E 2017E 2018E Revenue per visit No of visits Source: Company data Source: Company data, Credit Suisse estimates Figure 5: Track record of growth with improving profitability 40% 35% 30% 25% 20% 15% 10% 5% 0% 12% 18% 10% 11% 14% 15% 11% 16% Source: Company data, Credit Suisse estimates 19% 21% 14% 25% 15% 17% 18% E 2017E 2018E EBITDA margin Revenue growth EBITDA growth 30% 25% 20% 15% 10% 5% 0% -5% -10% -15% -20% Figure 6: Fixed costs account for a high proportion of expenses, underscoring operating leverage potential 1,400 1,200 1, % % % Source: Company data, Credit Suisse estimates 64% 61% H15 1H16 COGS Opex % of revenue 68% 66% 64% 62% 60% 58% 56% 54% 52% 50% Figure 7: Summary of valuation based on various methodologies Valuation methodologies Valuation (Rp bn) Key assumptions Comments Discounted cash flows (DCF) Two-stage Rp7 tn 10Y forecast period, WACC of 10%, terminal growth rate of 5% Implied 2017E EV/EBITDA of 24x Source: Credit Suisse estimates Prodia Widyahusada (PRDA.JK / PRDA IJ) 2

3 Leading clinical laboratory player Attractive clinical lab industry backdrop The rising prevalence of chronic diseases, growing middle class, and greater awareness of the importance of preventative healthcare will continue to drive the growth of overall healthcare spending as well as demands for clinical lab services, for both more specialised tests used in treatment decisions and more preventative diagnostics. Interestingly, clinical lab test spending per capita was only US$5.1 in Indonesia, which compares to an average of US$16.9 in Thailand, Malaysia, and Vietnam. This implies a substantial catch-up potential. According to Frost & Sullivan, the market size of private independent lab testing could reach US$271 mn this year, representing ~1% of Indonesia s healthcare market (US$28 bn). Prodia generated US$91 mn revenue last year, implying a ~35% market share. The next five largest players only have a combined market share of 33%. The pioneer and market leader Key investment points: (1) market leader with the largest nationwide lab network led by an experienced management team, (2) comprehensive test offerings through "hub and spoke" model, (3) improving top-line outlook driven by volume growth and pricing power, and (4) double-digit EBITDA growth on the back of margin expansion and operating leverage. All of these are supported by an attractive healthcare market. As a market leading clinical laboratory, Prodia has been the first to introduce many clinical laboratory tests and technologies to Indonesia. The company intends to retain its market pioneer status by upgrading its ability to offer personalised medicines. Pertaining to geography, Greater Jakarta, Palembang, and Lampung ( Region III ) has been Prodia's largest driver, contributing 39% to total FY15 revenue. Meanwhile, esoteric tests only accounted for 3% of total test volume by service type, but contributed 15% to total revenue in Expect a double-digit growth profile Our estimates imply Prodia will be able to deliver 15% and 23% top-line and EBITDA growth in 2016E-18E CAGR, respectively. This will be driven by an uptick in the number of visits on higher utilisation of existing outlets, as well as network growth across various regions. Meanwhile, we anticipate continued pricing power which has been at least in-line with inflation. Also, importantly, we see gradual EBITDA margin expansion, driven by: (1) improving gross margin due to economies of scale, and (2) decreasing operating expenses as percentage of revenue, as Prodia can benefit from substantial operating leverage. For example, raw material expenses are the biggest cost item, which also include "internal" cost of referrals. Improved efficiencies in procurement and processing tests could result in a decline in raw material expenses as % of revenue (direct). Valuing Prodia: Rp7,460 TP, 30% upside Our target price of Rp7,460 is derived using DCF (with a weighted average cost of capital of 10% and terminal growth of 5%. This implies a 2017 EV/EBITDA multiple of 24x, which suggests Prodia can trade in-between Indonesia hospitals, SILO and MIKA. We think this could be justifiable due to its 20%+ EBITDA growth profile. The risks include: (1) Slowerthan-expected growth, (2) lower-than-expected operating efficiencies, (3) delays in expansion projects and execution, and (4) intensifying competition. Prodia Widyahusada (PRDA.JK / PRDA IJ) 3

4 Prodia Widyahusada (PRDA.JK / PRDA IJ) Price (17 Jan 2017): Rp5,700; Rating: OUTPERFORM; Target Price: Rp7,460; Analyst: Ariyanto Jahja Income Statement (Rp bn) 12/15A 12/16E 12/17E 12/18E Sales revenue 1,198 1,331 1,522 1,757 Cost of goods sold EBITDA EBIT Net interest expense/(inc.) 19 7 (32) (22) Recurring PBT Profit after tax Reported net profit Net profit (Credit Suisse) Balance Sheet (Rp bn) 12/15A 12/16E 12/17E 12/18E Cash & cash equivalents 45 1,362 1, Current receivables Inventories Other current assets Current assets 196 1,535 1,210 1,056 Property, plant & equip Investments Intangibles Other non-current assets Total assets 578 1,996 2,087 2,240 Current liabilities Total liabilities Shareholders' equity 126 1,413 1,525 1,643 Minority interests Total liabilities & equity 578 1,996 2,087 2,240 Cash Flow (Rp bn) 12/15A 12/16E 12/17E 12/18E EBIT Net interest Tax paid (18) (27) (43) (50) Working capital 2 (20) (15) (12) Other cash & non-cash items Operating cash flow Capex (322) (89) (441) (343) Free cash flow to the firm (163) 20 (263) (120) Investing cash flow (219) 1,254 (72) (41) Equity raised 25 1, Dividends paid (100) (18) (25) (41) Financing cash flow 63 (46) (456) (366) Total cash flow 2 1,317 (351) (184) Adjustments Net change in cash 2 1,317 (351) (184) Per share 12/15A 12/16E 12/17E 12/18E Shares (wtd avg.) (mn) EPS (Credit Suisse) (Rp) DPS (Rp) Operating CFPS (Rp) Earnings 12/15A 12/16E 12/17E 12/18E Growth (%) Sales revenue EBIT (8.5) EPS (9.4) Margins (%) EBITDA EBIT Valuation (x) 12/15A 12/16E 12/17E 12/18E P/E P/B Dividend yield (%) EV/sales EV/EBITDA EV/EBIT ROE analysis (%) 12/15A 12/16E 12/17E 12/18E ROE ROIC Credit ratios 12/15A 12/16E 12/17E 12/18E Net debt/equity (%) 23.8 (87.3) (60.9) (45.4) Net debt/ebitda (x) 0.17 (5.90) (3.68) (2.37) Source: Company data, Thomson Reuters, Credit Suisse estimates Company Background Prodia is the leading clinical laboratory testing company with the largest private independent lab chain by revenue (35% share) and network size (252 outlets) in Indonesia. The company offers more than 500 types of tests and services. Blue/Grey Sky Scenario Our Blue Sky Scenario (Rp) 8,140 Our blue sky target price is based on a more optimistic scenario which incorporates faster-than-expected revenue growth and EBITDA margin expansion potential. Our Grey Sky Scenario (Rp) 5,880 Our grey sky target price is based on a downside scenario which incorporates slower-than-expected revenue growth and EBITDA margin expansion potential. Share price performance The price relative chart measures performance against the JSX COMPOSITE INDEX which closed at 5, on 17-Jan-2017 On 17-Jan-2017 the spot exchange rate was Rp13,350/US$1 Prodia Widyahusada (PRDA.JK / PRDA IJ) 4

5 Table of contents Focus charts and tables 2 Leading clinical laboratory player 3 Attractive clinical lab industry backdrop... 3 The pioneer and market leader... 3 Expect a double-digit growth profile... 3 Valuing Prodia: Rp7,460 TP, 30% upside... 3 Attractive clinical lab industry backdrop 6 Frost & Sullivan's forecasts and GDP multiple analysis The pioneer and market leader 17 Expect a double-digit growth profile 22 Key forecasts Valuing Prodia: Rp7,460 TP 32 Key investment risks 35 Macroeconomic risks Regulatory risks Industry risks Regional risks Business risks Execution risks Management overview 43 Board of Commissioners Board of Directors Appendix 46 Financial statements 47 Prodia Widyahusada (PRDA.JK / PRDA IJ) 5

6 US$ mn CAGR US$ bn US$ mn 19 January 2017 Attractive clinical lab industry backdrop Frost and Sullivan values Indonesia s clinical laboratory testing market at US$1.4 bn in 2015 and expects it to grow at a CAGR of 12.9% to reach US$1.8 bn by Within the overall market, Frost & Sullivan expects the private independent laboratory segment in which Prodia operates to grow at a CAGR of 16.3% between 2015 and 2017, which makes it one of the fastest growing healthcare services markets in the rapidly developing Indonesia healthcare industry. Figure 8: Indonesia healthcare market will grow by 5% CAGR in 2015E-17F Figure 9: The clinical laboratory testing market is expected to grow faster 13% CAGR in 2015E-17F CAGR 5% E 2016F 2017F 2,500 2,000 1,500 1, CAGR 13% 1,830 1,596 1,437 1,299 1,175 1, E 2016F 2017F Indonesia healthcare market Clinical laboratory testing market Source: Frost & Sullivan Source: Frost & Sullivan Figure 10: Private independent laboratories testing market will grow even faster at 16.3% CAGR Figure 11: As an established market leader, Prodia has been growing in line with the industry CAGR 16.3% E 2016F 2017F 18% 16% 14% 12% 10% 8% 6% 4% 2% 0% 10.6% 12.9% Clinical laboratory testing market 11.1% 16.3% Private laboratory testing market 10.2% 12.7% Prodia Private independent laboratories testing market 13A-15A 15E-17E Source: Frost & Sullivan Source: Company data, Frost & Sullivan Prodia Widyahusada (PRDA.JK / PRDA IJ) 6

7 \ No. of clinical laboratories 19 January 2017 Figure 12: Prodia is the market leader of the independent clinical lab chain per 2015 revenue Figure 13: with the largest and most diversified laboratory network in the country Others (676 private standalone laboratories) 32% Prodia 35% Next 5 players combined 33% Prodia Kimia Farma Pramita Cito Parahita Biomedika Java Outside Java Total Source: Frost & Sullivan Source: Frost & Sullivan Figure 14: The prevalence of chronic diseases continues to increase; increasing DALYs in in Indonesia DALY refers to Disability-Adjusted Life Year. Source: Global Burden of Disease Study 2010 (Institute for Health Metrics and Evaluation, University of Washington) Clinical laboratory testing plays a central role in the healthcare value chain, providing critical information for medical decision-making by both individuals and medical practitioners, and serving both the public and private healthcare segments which make up the overall healthcare system. As more people are enrolled into the Jaminan Kesehatan Nasional ("JKN") programme and income levels rise, leading to more people obtaining access to private or other forms of healthcare insurance, there will be an increasing demand for quality healthcare services and faster disease screening. Growing income levels and healthcare accessibility combined with a rising incidence of communicable and non-communicable diseases such as cardiovascular disease, cancer and diabetes are expected to drive the clinical laboratory testing market. Prodia Widyahusada (PRDA.JK / PRDA IJ) 7

8 Figure 15: Clinical laboratories central role in healthcare value chain Source: Frost & Sullivan A clinical laboratory refers to a centre where tests are conducted on clinical specimens in order to obtain information about the health of a patient as pertaining to the diagnosis, treatment, and prevention of diseases. Clinical laboratory testing can be performed in many settings such as hospitals, clinics, and independent laboratories. The total clinical laboratory testing market is segmented into the public and private sectors. The private sector is composed of hospital laboratories, independent laboratories and clinics. The major chain private clinics with basic clinical laboratory equipment may conduct routine clinical laboratory tests such as glucose tests, urine tests and lipid profile; however, the vast majority of tests are outsourced to private independent clinical laboratories, either via doctor referrals or by referring samples which have been collected onsite. Private independent laboratories are further segmented into single independent laboratories and chains of laboratories. The public sector consists of public hospital laboratories, public independent laboratories and Puskesmas clinics. In 2015, there were a total of 3,428 registered clinical laboratories, of which 1,594 are owned by public hospitals, 917 are private independent laboratories and 917 are owned by private hospitals. About 80% of the total labs in Indonesia are located in the Sumatra and Java regions. Prodia Widyahusada (PRDA.JK / PRDA IJ) 8

9 Figure 16: Total clinical laboratory testing market segmentation (2015) Source: Frost & Sullivan Key growth drivers of Indonesian clinical laboratory testing market Universal Health Coverage (UHC) increases the demand for clinical laboratory testing: Greater Universal Health Coverage increases accessibility to healthcare services, leading to a rising number of the population seeking treatment and thereby increasing laboratory testing. The UHC scheme is expected to increase the demand for basic and specialised testing Rising incidence/prevalence of non-communicable diseases (NCDs) and communicable diseases (CDs): According to the World Health Organization, in 2014, cardiovascular, cancer and diabetes accounted for 56% of disease mortality in Indonesia, which also had one of the largest numbers of TB cases globally at 10%. Rising major illness of NCDs and CDs will drive the demand for cardiovascular tests, tumour markers, metabolic tests, malaria and TB tests. Rising awareness of preventive healthcare and rising disposable income to result in increasing demand for health check-ups: Rising personal disposable income will lead to higher spending on healthcare services including clinical testing. Frost & Sullivan predicts that there will be an increase in middle to high income earners seeking preventive health check-ups. Health check-ups are driven by walk-in patients and corporate clients which together contribute up to 50% of the total test volume of a private independent laboratory. Frost & Sullivan expects the number of people taking health check-ups to grow by ~2.2% on a yearly basis as more emphasis is given to the promotion of preventive health. Introduction of new specialised tests: A wider range of tests from routine tests to more specialised tests, including genomic platform with multiplexing capabilities able to support different classes of patients with precise diagnosis and speed up treatment consultation. Private clinical laboratory testing market in Indonesia From 2011 to 2015, the total private clinical laboratory testing market increased from US$386 mn to US$615 mn, representing a CAGR of 12.4%. Frost & Sullivan predicts the market to grow at a CAGR of 15.2% to US$817 mn by Although private hospital laboratories accounted for the largest share of the total private market (62%) in 2015, Frost & Sullivan predicts that private independent laboratories will grow faster than private hospital laboratories. Private independent laboratories will gain market share through an increase in the number of clinical laboratories country-wide and by capturing demand from different customer segments. Prodia Widyahusada (PRDA.JK / PRDA IJ) 9

10 Clinical lab testing market size (US$mm) US$ mn 19 January 2017 The private independent clinical laboratory market size by revenue grew from US$145 mn in 2011 to US$235 mn in 2015 and Frost & Sullivan predicts the market to grow at a CAGR of 16.3% to reach US$319 mn in 2017, thereby becoming one of the fastest growing healthcare services markets in Indonesia. There were 39 mn clinical tests performed in 2015 and the annual test volume is expected to further increase to 45 mn by 2017, representing a CAGR of 8.0%. Figure 17: Total clinical laboratory testing market size by revenue in Indonesia ( F) 2,500 2,000 1,500 1, % 4.0% 4.4% 1,175 1, % 1, % 5.8% 1,437 1, % 1,830 7% 6% 5% 4% 3% 500 2% 1% E 2016F 2017F Clinical laboratory testing market % of clinical laboratory spending out of total health expenditure 0% Source: Frost & Sullivan Figure 18: Private independent lab is the fastest growing segment among the clinical lab testing market 2,000 1,800 1,600 1,400 1,200 1, ,830 1, ,437 1, , , , E 2016F 2017F CAGR 11A-13A 13A-15E 15E-17F 14.8% 11.1% 16.3% 11.7% 8.2% 12.4% 9.6% 14.5% 11.1% Public clinical labs Private hospital labs Private independent labs Source: Frost & Sullivan With 70% of public and private hospitals in Indonesia located in Java and Sumatra, these regions have the highest number of total general practitioners and specialists, thereby representing the biggest source of referrals for clinical laboratory testing. These regions also have a high rate of urbanisation and a more affluent population, which creates greater access and demand for private clinical laboratory testing services. In 2015, 86% of total private clinical laboratory testing revenue was generated in Java and Sumatra. Key private independent laboratory players are also clustered in Java and Sumatra island. Independent laboratories in key cities in Java and Sumatra offer a wider range of clinical laboratory testing services and modern equipment, but most of Kalimantan, Sulawesi and Papua are largely under-served, indicating opportunities for high growth. Hence, there are opportunities for private, independent laboratories to increase their network in the under-served areas. Customers have a high regard for key players given their comprehensive service offerings and test quality. Although test prices may vary across provinces in Indonesia, the quality of tests performed by key players is perceived to be similar across the country. Prodia Widyahusada (PRDA.JK / PRDA IJ) 10

11 No. of labs % market share US$ mn 19 January 2017 Figure 19: Private clinical laboratories revenue by provinces of Indonesia (2015) Region I: Aceh and North Sumatera Region II: Central Sumatera Region III: Region IV: Greater West Java Jakarta, Palembang, and Lampung Region V: Region VI: Central Java East Java, Bali, and Nusa Tenggara Region VII: Region VIII: Kalimantan Sulawesi and Maluku Private hospital labs Private independent labs Source: Frost & Sullivan Figure 20: Prodia's market share by region in % 29% 25% 20% 19% 18% 15% 15% 14% 10% 5% 9% 9% 6% 0% Region I: Aceh and North Sumatera Region II: Central Sumatera Region III: Region IV: Greater West Java Jakarta, Palembang, and Lampung Region V: Region VI: Central Java East Java, Bali, and Nusa Tenggara Region VII: Region VIII: Kalimantan Sulawesi and Maluku * Market share refers to Prodia's total revenue divided by total private clinical laboratories' revenue (Private hospital labs & private independent labs). Source: Frost & Sullivan, company data, Credit Suisse estimates Figure 21: Number of private independent labs in Indonesia ( F) CAGR 4% E 2016F 2017F Private independent labs Source: Frost & Sullivan Prodia Widyahusada (PRDA.JK / PRDA IJ) 11

12 The private independent clinical laboratory market is highly fragmented and is composed of both chain laboratories and stand-alone laboratories. The chain laboratories are the leading market players in Indonesia. There are six leading players collectively accounting for about 68% of revenue and 62% of test volume of the overall private independent laboratory market in These major chain laboratories are undergoing geographic expansion beyond key cities and into underdeveloped areas, and their growth will further increase their market share in the overall private independent laboratory market. Private independent laboratories have four distinct customer segments, namely walk-in patients (patients who come without any referrals), doctor referrals (patients who are referred by their doctors), external referrals (patients and test samples referred from healthcare providers such as hospitals and other clinical laboratories), and corporate clients (customers/patients who are sponsored by a corporate company for their annual medical check-up programme). Private and public hospital labs find it more cost-effective to refer out low demand, specialised tests, such as microbiology, anatomical pathology and esoteric tests due to the high cost of the laboratory equipment. Hospitals usually have MoUs with one or more referral labs, where the key preference is usually private independent laboratories. On the other hand, private clinics usually perform Point of Care Testing (POCT) which includes routine tests such as glucose, lipid profile and urine tests conducted using POCT devices. In most cases, samples are withdrawn from the patients and referred out to hospitals or independent labs for clinical testing. Figure 22: Clinical laboratory market value chain Source: Frost & Sullivan In 2015, 38% of the test volume in private independent laboratories came from doctor referrals, followed by 27% from walk-ins; 23% of their customers are corporate clients who have tie-ups for their annual employee health check-ups and the remaining come through external referrals from other healthcare providers. In key cities, where major clinical laboratory testing chain laboratories are concentrated, in addition to patient walk-ins, doctor and external referrals, clinical laboratory testing providers can also form partnerships with corporates and insurance firms to provide test services for their employees and policy applicants. However, the majority of customers in non-key cities come from hospital and doctor referrals as there are limited clinical laboratory facilities in such areas and most of the tests are referred out to private independent laboratories. Prodia Widyahusada (PRDA.JK / PRDA IJ) 12

13 JKN contributed to the increase of patient volume and greater utilisation of public sector facilities, which has resulted in overcrowding, high occupancy rates and greater demand for laboratory testing in the public sector. The situation will likely get worse with the full implementation of JKN by To overcome these challenges, it is likely that more public hospitals will refer samples to private independent laboratories for clinical testing, resulting in the growth of external referrals for private independent laboratories. Moreover, as there is likely to be a switch of patients from the public sector to the private sector, doctor referrals will also increase in the private independent laboratories market. Although the standardisation of the Coordination of Benefits ("CoB") agreement between private insurers and JKN has been under negotiation since the implementation of JKN in 2014, it is expected to be finalised by the end of 2016, and so currently there is no indication that CoB will be able to be utilised in private independent laboratories. However, the CoB scheme would still create opportunities for private independent laboratories through collaboration with private hospitals through external referrals. Private hospitals without facilities to perform specialised or esoteric tests will be able to refer out these tests to private independent laboratories for those patients who require these tests and are covered through the CoB scheme. On average, corporate clients, private health insurance and out-of-pocket customers contribute almost equally to the test volume of private independent laboratories, with 34%, 32% and 31% respectively. Nevertheless, the majority of private insurance companies do not cover walk-in patients who come for health check-ups. Only 3% of test volumes are contributed by BPJS patients as there are limited partnerships between JKN and independent laboratories. JKN has collaborated with independent laboratories mainly for preventative diagnosis such as stage IVA (IVA) tests and Pap smear tests for cervical cancer. According to Frost & Sullivan, more key players are expected to partner with JKN in the future. Figure 23: Private independent laboratories test volume by customers (2015) Corporate clients 23% Walk-in customers 27% Figure 24: Private independent laboratories test volume by payor (2015) Private Health Insurance ("PHI") 32% BPJS 3% Out-of-pocket ("OOP") 31% External referrals 12% Doctor referrals 38% Corporates 34% Source: Frost & Sullivan Source: Frost & Sullivan Frost & Sullivan's forecasts and GDP multiple analysis According to Frost & Sullivan, private independent labs is the fastest growing segment among the clinical lab testing market in Indonesia, with 2013A-15E and E CAGR of 11.1% and 16.3%, respectively. Prodia Widyahusada (PRDA.JK / PRDA IJ) 13

14 No. of labs 19 January 2017 Figure 25: Private independent lab is the fastest growing segment among the clinical lab testing in market in Indonesia in 11A-17E 2,000 1,800 1,600 1,400 1,200 1, ,830 1, ,437 1, , , , E 2016F 2017F CAGR 11A-13A 13A-15E 15E-17F 14.8% 11.1% 16.3% 11.7% 12.4% 14.5% 8.2% 9.6% 11.1% Public clinical labs Private hospital labs Private independent labs Source: Frost & Sullivan Figure 26: Volume mix private independent laboratories tests (2016F) Figure 27: Volume mix private independent laboratories test volume by payor (2016F) Corporate clients 23% Walk-in customers 27% Private health insurance 32% Out-of-pocket (OOP) 31% External referrals 12% Doctor referrals 38% Corporates 34% JKN 3% Source: Frost & Sullivan Source: Frost & Sullivan Prodia plans to continue introducing new tests, which include new esoteric tests. Esoteric tests only accounted for 3% of total volume by service type, but contributed 15% to total revenue in Routine and non-lab tests accounted for 90% and 7% of total volume, respectively. Key types of routine tests include: lipid profile, hematology kidney function, liver function, thyroid panel, glucose, HbA1c, urinalysis, coagulation testing, and endocrinology panel. Major types of esoteric tests include: nutrition panel, trace element testing, vitamin D testing, autoimmune panel, molecular-genetic testing, and osteoporosis panel. Interestingly, the number of esoteric tests grew at 12.2% CAGR in Gene-based and esoteric tests are useful for physicians in the diagnostic process, to establish a prognosis and to monitor a therapy. Commonly ordered esoteric tests include viral and bacterial detection tests, drug therapy monitoring tests, genetic tests, and complex cancer evaluating tests. Esoteric tests occasionally require a professional hands on approach from highly-skilled technical personnel, often utilise more sophisticated technology, equipment or materials and are generally ordered less frequently than routine tests. Many smaller labs, including some hospital labs do not see enough volume for specific tests within this category and will outsource genomic and esoteric tests to larger national players or niche specialty labs. In addition to Surabaya, the company will be opening additional new regional reference labs in Medan, Makassar, and Semarang. These regional reference labs will serve as regional hubs for local clinical labs and other outlets. These labs will be 24/7 to accommodate urgent and time-sensitive diagnoses. They will offer all of Prodia's routine tests and certain esoteric tests that are in demand in that region (such as hormone panels, molecular diagnostics, and microbiology tests). Prodia Widyahusada (PRDA.JK / PRDA IJ) 14

15 Real GDP YoY growth No. of visits YoY growth. Volume YoY growth Inflation YoY growth Revenue per visit growth Pricing YoY growth 19 January 2017 As demonstrated in the graphs below, we found that real GDP growth correlates with the number of visits growth, while revenue per visit/test is in line with inflation. Figure 28: Historical comparison of real GDP growth vs number of visits growth Figure 29: Historical comparison of inflation vs. revenue per visits growth 6% 5% 4% 3% 2% 1% 0% 5.0% 4.8% 5.0% 3.1% 3.4% 0.7% M16 6% 5% 4% 3% 2% 1% 0% 20% 18% 16% 14% 12% 10% 8% 6% 4% 2% 0% 6.4% 6.4% 4.3% 8.9% 6.3% 7.2% M16 7% 6% 5% 4% 3% 2% 1% 0% No. of visits growth Real GDP growth Revenue per visit growth Inflation Source: Company data, CEIC, Credit Suisse estimates Source: Company data, CEIC, Credit Suisse estimates Figure 30: Our simple back test using GDP multiple on actual number of visits growth 4.0% 3.5% 3.0% 2.5% 2.0% 1.5% 1.0% 0.5% 0.0% 3.1% 1.5% 3.4% 1.6% M16 0.7% 0.3% Figure 31: Our simple back test using GDP multiple on actual revenue per visit growth 13.0% 12.0% 11.0% 10.0% 9.0% 8.0% 7.0% 6.0% 5.0% 8.9% 6.3% 10.1% 7.2% 12.5% 8.9% M16 Actual GDP-implied Actual GDP-implied Source: Company data, CEIC, Credit Suisse estimates Source: Company data, CEIC, Credit Suisse estimates Prodia Widyahusada (PRDA.JK / PRDA IJ) 15

16 Figure 32: Our benchmarking analysis on real GDP growth and inflation to number of visits growth and revenue per visit growth Volume M16 AVERAGE No. of visits growth 3.1% 3.4% 0.7% Real GDP growth 5.0% 4.8% 5.0% No. of visits / Real GDP 0.6x 0.7x 0.1x 0.5x Pricing M16 AVERAGE Revenue per visit growth 6.3% 7.2% 8.9% Inflation 6.4% 6.4% 4.3% Rev. per visit / Inflation 1.0x 1.1x 2.1x 1.4x If we apply macro forecast: Annual 2016E 2017E Real GDP growth forecast 5.2% 5.4% No. of visits growth 2.5% 2.6% Inflation forecast 4.0% 4.7% Revenue per visit growth 5.6% 6.5% Source: Company data, CEIC, Credit Suisse estimates Prodia Widyahusada (PRDA.JK / PRDA IJ) 16

17 The pioneer and market leader Established in 1973, Prodia is the leading clinical laboratory testing company with the largest private independent lab chain by revenue (35% share) and network size (252 outlets) in Indonesia. It has the only lab in Indonesia with College of American Pathologists ("CAP") accreditation. The company offers customers and healthcare providers 500 types of clinical laboratory tests and services for use in prevention, diagnosis, monitoring and treatment of diseases and other health conditions. In 2015 and 1H16, Prodia collected approximately 14.0 mn tests and processed 7.0 mn, from approximately 2.4 mn customer visits of which 1.2 mn were processed. Prodia employs a "hub and spoke" network that is centred around the Prodia National Reference Laboratory ("PNRL") in Jakarta. As of 1H16, the Prodia network includes 128 clinical laboratories (including PNRL), one Prodia Health Care clinic ("PHC Clinic") and one clinic that provides specialty services, as well as 115 points of care ("POC") outlets where it operates in doctor's offices and seven laboratories in partner hospitals. Prodia wholly owns and operates all of the clinical laboratories, the PHC Clinic and the specialty clinic. Through the "hub and spoke" model, whereby specimens are collected across multiple locations for delivery to a local clinical laboratory or the PNRL for centralised clinical laboratory testing, Prodia can ensure greater quality and reliability and economies of scale and offers a scalable platform for the continued growth of the business. Figure 33: Prodia provides a comprehensive range of services throughout its extensive laboratory network Source: Company data Prodia Widyahusada (PRDA.JK / PRDA IJ) 17

18 Million visits Rp bn 19 January 2017 Figure 34: No. of labs/outlets owned by Prodia Figure 35: Prodia's near-term expansion plan Labs / outlets Additions New regional reference labs 4 New clinical labs 33 Improvement on clinical labs 24 Conversion of clinical labs to Prodia 39 Health Care ("PHC") clinics New Point-of-Care ("POC") 20 per year New hospital labs 5 per year New specialty clinics 13 Source: Company data Source: Company data Prodia's management team has extensive experience in the healthcare industry, and under its leadership, the company has grown over the last several years. The number of total customer visits in its network increased at a CAGR of 3.2% from 2.2 mn in 2013 to 2.4 mn in During the same period, Prodia's revenues grew at a CAGR of 10.2% from Rp986 bn in 2013 to Rp1,198 bn in 2015 and EBITDA was grown at a CAGR of 15.3% from Rp132 bn in 2013 to Rp175 bn in Figure 36: No. of customer visits was grown by 3.2% CAGR in 13A-15A Figure 37: Prodia's standalone revenue and EBITDA growth CAGR 3.2% H15 1H16 2,000 1,800 1,600 1,400 1,200 1, CAGR Revenue = 10.2% EBITDA = 15.3% 1,081 1, H15 1H16 No of visits Revenue EBITDA Source: Company data Source: Company data Prodia Widyahusada (PRDA.JK / PRDA IJ) 18

19 No. of employees Turnover rate % of total employee No. of outlets 19 January 2017 Figure 38: Greater Jakarta, Palembang and Lampung region has the most outlets in 1H16 Figure 39: and the region also contributes 40% to Prodia's revenue in the same period Central Sumatera 4% North Sumatera 5% West Java 8% Sulawesi and Maluku 11% Kalimantan 4% Greater Jakarta, Palembang, and Lampung 40% 0 Region I: Aceh and North Sumatera Region II: Central Sumatera Region III: Region IV: Greater West Java Jakarta, Palembang, and Lampung Region V: Region VI: Central Java East Java, Bali, and Nusa Tenggara Region VII: Region VIII: Kalimantan Sulawesi and Maluku Central Java 12% East Java, Bali, and Nusa Tenggara 16% Source: Company data Source: Company data Prodia employed 3,648 personnel in 1H16, which includes 31 staff members with PhDs or master's degrees in biomedical science, 234 medical doctors, 781 medical technologists and over 400 phlebotomists. Its employee turnover rate was 5.6% in FY15. To ensure the supply of the best talent, Prodia collaborates with 23 medical faculties to develop its medical professional recruitment pipeline, and partners with 54 educational institutions to recruit recent medical technologist graduates. Prodia applies cost-of-living adjustments to the salaries of its employees every year. Figure 40: No. of employees by functions 6,000 5,000 4,000 3,000 2,000 1, , , % 5.6% 3,684 3,615 3, ,297 1,307 1,337 1,199 1,216 1,226 1, H16 Support staff Doctors* Operational** Marketing Others Turnover rate 7.0% 6.0% 5.0% 4.0% 3.0% 2.0% 1.0% 0.0% Figure 41: Education background of Prodia's employees (1H16) 50% 45% 40% 35% 30% 25% 20% 15% 10% 5% 0% 47.4% 24.6% 4.6% Diploma Bachelor's degree PhD & Master degree * Includes general practitioners, clinical pathologists, and doctors who are hired to advise as medical consultants at Prodia's headquarters ** Includes phlebotomists, medical technologists, laboratory scientists, radiographers, and others. Source: Company data. Source: Company data Prodia Widyahusada (PRDA.JK / PRDA IJ) 19

20 Rp mn % of revenue 19 January 2017 Figure 42: Employee productivity level has risen in the past three years % 28% 27% 27% 30% 25% % 15% % 100 5% H16 0% Avg. sales per employee Salaries expense % of revenue Source: Company data Focus on the development of next-generation diagnostic technologies for precision medicine. As a pioneer and market leading clinical laboratory in Indonesia, Prodia has been the first to introduce many clinical laboratory tests and technologies to Indonesia. For example, it invested in, and upgraded, its ability to offer precision medicine services, also known as personalised medicine. Precision medicine is an emerging approach for disease treatment and prevention that takes into account an individual's genetic makeup, environment and lifestyle when prescribing treatment. With precision medicine, an individual is treated in accordance with his or her specific characteristics, with the hope that such treatments will be more effective, given that treatments determined to be ineffective for certain types of individuals can be avoided. The key to the successful offering of precision medicine is the availability of diagnostic information, such as individual gene sequencing. Prodia has a solid foundation for precision medicine with its existing laboratories that focus on advanced molecular diagnostics, chromatography-mass spectrometry, anatomical pathology and immunology and flow cytometry), among others, which are the fundamental technologies of precision medicine. The spin-off transaction and sale and lease transactions Prodia undertook a number of transactions to focus on its core clinical laboratory services business. In particular, in 2015, the company undertook a series of transactions to sell off its interest in the spun-off subsidiaries to its parent, Prodia Utama. While subsidiaries of the company, the spun-off subsidiaries were at an early stage of development and as a result were generally not yet profitable. Excluding the results of the spun-off subsidiaries, Prodia's operating income and income for the periods prior to their disposal would have been higher and its expenses would have been lower. In addition, the company's total assets would have been lower. The total consideration paid to the company by parent Prodia Utama was Rp32.2 bn. Since the transaction was conducted among entities under common control, the company incurred no additional tax liability for this transaction. In addition, because this transaction was between entities under common control, the company recorded a Rp25.4 bn increase in the additional paid-in capital, which represents the difference between the company's share on net asset value of the spun-off subsidiaries of Rp6.8 bn and the disposal price of Rp32.2 bn. Prodia's financial statements as of, and for, the year ended 31 December 2015 reflect the inclusion of the financial results of the spun-off subsidiaries for the period up to the date on which the disposals took effect as "portion of subsidiary loss before disposal". However, the financial results of the spun-off subsidiaries are consolidated with the relevant line items for the years ended 31 December 2013 and Accordingly, the company's final statements for the year ended 31 December 2015 are not directly comparable to the financial statements as of, and for, the years ended 31 December 2013 and 2014, which include the effects of a full year of operations of such subsidiaries. For more information, see "Presentation of Financial Information and Comparability of Results", below. Prodia Widyahusada (PRDA.JK / PRDA IJ) 20

21 In addition, in November 2015 Prodia divested a number of its properties to related thirdparties and leased the premises back (the "Sale and Lease Transactions"). The Sale and Lease Transactions covered 12 properties, including its headquarters and the PNRL building in Jakarta, the real estate and buildings for Surabaya regional reference laboratory and seven clinical laboratory buildings, and the real estate for Semarang and Medan regional reference laboratories and one clinical laboratory. The company employed an independent party to assess the value of these properties and the terms of the Sale and Lease Transactions, including, among others, the rental amount payable by it. The real estate and buildings were sold for a total amount of Rp435.2 bn, of which it received Rp353.0 bn in 2015 and recognised Rp82.2 bn as rent prepayment in the first six months of Prodia has currently leased nine of the properties for a period of seven years for a total aggregate rent of Rp24.2 bn annually. In respect of the remaining three properties, it is currently developing the facilities of two onsite, including Medan regional reference laboratory, in accordance with build-operate-transfer agreements with the respective affiliate landowner. The last property will be the site of Semarang regional reference laboratory and will be developed in the future. All of these transactions were undertaken on an arm's length basis. The company used the proceeds from the sales to pay back bank loans, including loans undertaken in 2013 for the purchase of some of these properties, reduce financial liabilities and pay dividends to the company's shareholders. As a result, long-term financial liabilities decreased from Rp122.7 bn as of 31 December 2014 to Rp50.4 bn as of 31 December Due to these transactions, the company also reduced interest expense relating to these bank loans and recognised gain on sales of fixed assets from the proceeds of the sales. Prodia's current liabilities to third parties for rental expense also increased. Its financial cost decreased by 61.5% to Rp3.7 bn (US$0.3 mn) for the six months ended 30 June 2016 from Rp9.6 bn for the six months ended 30 June The company's rental expense for building, vehicle and office supplies increased by 87.0% to Rp30.1 bn (US$2.3 mn) for the six months ended 30 June 2016 from Rp16.1 bn for the six months ended 30 June Prodia Widyahusada (PRDA.JK / PRDA IJ) 21

22 Expect a double-digit growth profile Our estimates imply Prodia will be able to deliver 15% and 23% top-line and EBITDA growth in E CAGR, respectively. This will be driven by an uptick in the number of visits on higher utilisation of existing outlets, as well as network growth across various regions. Meanwhile, we anticipate continued pricing power which has been at least in line with inflation. Also, importantly, we see gradual EBITDA margin expansion, driven by: (1) improving gross margin due to economies of scale, and (2) decreasing operating expenses as a percentage of revenue, as Prodia can benefit from substantial operating leverage. For example, raw material expenses are the biggest cost item, which also includes "internal" cost of referrals. Improved efficiencies in procurement and processing tests could result in a decline in raw material expenses as a % of revenue (direct). 1H16 was affected by tough comparisons, such as the unusually high volume in 1H15 driven by postponed corporate customer visits related to the presidential elections in 2H14. We expect a sequential improvement due to seasonality on higher volumes of corporate health checks and an uptick after the slowdown in oil and gas/mining. On expenses, there was an additional month of salary related to holiday allowances that fell in June vs July last year. Prodia's revenue CAGR of 10.2% in was driven by a combination of price increases (revenue per visit) and volume (number of visits) at 6.8% and 3.2% CAGR, respectively. The number of visits rose over the past three years due to higher utilisation of existing outlets as well as growth of its network across various regions. In terms of regions, Greater Jakarta, East Java, and Central Java were the key contributing regions. Region III (Greater Jakarta, Palembang, and Lampung) has 65 outlets as of 1H16 and accounted for 39% of 2015 revenue. Revenue per visit growth came at least in line with inflation. Prodia's revenue primarily comprises payments in the form of cash (from walk-in customers and customers with doctor referrals) or credit (from corporate customers and external referral customers), as a result of provision of clinical laboratory testing and preventive healthcare services. These are net of the discounts that the company provided to its customers and sales returns resulting from tests where it collected payment up-front but provision of services has been cancelled. In 2013 and 2014, Prodia recognised revenue from fees derived from revenue sharing agreements with hospitals and doctors in respect of the laboratories in hospitals and POC outlets as marketing management fees. In 2015, these revenues were recognised as revenues from laboratory. Cost of revenue as a % of total revenue rose to 42.7% in 2015 from 38.9% in 2013 due to salaries and reference cost from third parties. However, cost of revenue stabilised in 2015 and 1H16. It is important to note that the cost of raw materials has seen a constant decrease from 17.2% of revenue in 2013 to 14.8% in 1H16. Prodia Widyahusada (PRDA.JK / PRDA IJ) 22

23 Rp thousands Million visits CAGR YoY growth YoY growth % of revenue 19 January 2017 Figure 43: Prodia's standalone revenue has been consistently growing at ~10% in the past two years Figure 44: Meanwhile, standalone EBITDA margin has been resilient at mid-teens level 20% 18% 16% 14% 12% 10% 8% 6% 4% 2% 0% 18% 12% 11% 10% 10% 1% H16 70% 60% 50% 40% 30% 20% 10% 0% 61% 58% 57% 58% 59% 13% 14% 15% 17% 15% H15 1H16 Revenue EBITDA Gross profit EBITDA Source: Company data Source: Company data Figure 45: Prodia has been growing in line with the industry in the past two years Figure 46: mainly driven by pricing 18% 16% 14% 12% 10% 8% 6% 4% 2% 0% 10.6% 12.9% Clinical laboratory testing market 11.1% 16.3% Private laboratory testing market 10.2% 12.7% Prodia 16% 14% 12% 10% 8% 6% 4% 2% 0% Sources of Prodia's top-line growth 15% 14% 11% 11% 10% 9% 9% 6% 7% 9% 3% 3% 5% 6% 2% E 2017E 2018E 13A-15A 15E-17E Volume Pricing Source: Frost & Sullivan, Company data, Credit Suisse estimates Source: Company data, Credit Suisse estimates Figure 47: Prodia's revenue per visit has increased at 6.8% CAGR in the past three years Figure 48: while the number of visits grew by 3.2% during the same period CAGR 6.8% CAGR 3.2% H15 1H H15 1H16 Revenue per visit No of visits Source: Company data Source: Company data Prodia Widyahusada (PRDA.JK / PRDA IJ) 23

24 % of revenue % of revenue Rp thousands 19 January 2017 Figure 49: Tests conducted at Prodia by type of service in 2015 Figure 50: Esoteric tests generate the biggest revenue compared to other type of tests Esoteric 3% Routine 90% Non-laboratory 7% Revenue per test by type of service Routine Esoteric Non-laboratory Source: Company data Source: Company data, Figure 51: Opex accounts for ~50% of Prodia's revenue 60% 50% 40% 30% 20% 10% 0% 48.3% 48.8% 47.6% 48.1% 47.8% 3.3% 3.1% 3.0% 2.7% 2.5% H15 1H16 Marketing G&A Figure 52: Salaries and consultant fees are main drivers of Prodia's G&A expense 50% 40% 30% 20% 10% 0% Salaries & allowance 48.3% 48.8% 47.6% 48.1% 47.8% 14.9% 15.2% 14.0% 3.2% 2.6% 3.7% 2.9% 5.2% 2.7% 3.1% 11.2% 12.5% 7.2% 4.8% 2.8% 2.7% 4.6% 2.9% 5.7% 4.1% 5.9% 6.1% 5.9% 5.2% 5.9% 16.3% 14.8% 13.8% 13.6% 13.4% H15 1H16 Depreciation & amortization Building, vehicle, & office inventories rent Others Consultant Electricity, water, & telecommunication Employee benefits cost Total Source: Company data, Credit Suisse research Source: Company data, Credit Suisse research Meanwhile, EBITDA grew faster than its top line at 13.6% CAGR with 80 bp margin expansion to 14.6% on the back of increasing test volumes and efficient cost control. Margin climbed further to 15.5% in 1H16. The bulk of marketing expenses are driven by scientific marketing, which comprise a large educational component, rather than general marketing to promote services indirectly to potential customers. Pertaining to EBITDA calculation, one of the large components of addback in addition to depreciation and amortisation is the provision of post-employment benefits, which includes non-cash employee benefits expenses. On the positive side, Prodia has an experienced and stable staff team with a low turnover rate at 6.5% in 2014 and 5.6% in The company has worked with 23 medical faculties to develop its medical professional pipeline. Also, it cooperates closely with 54 educational institutions across Indonesia to recruit recent medical technologist graduates. Despite an increase in its non-cash, postemployment benefit expense, operating expense as a % of revenue was flattish between 2013 and 2015, reaching 50.6% by The company engages an independent actuary to estimate the actual provision of post-employment benefits. Prodia plans to allocate sufficient fund reserves for post-employment benefits, therefore liabilities will not rise as high as in previous years. Prodia Widyahusada (PRDA.JK / PRDA IJ) 24

25 Days 19 January 2017 Figure 53: Details of Prodia's historical standalone EBITDA EBITDA breakdown (Rp bn) H15 1H16 Net income Depreciation - Cost of Revenues Depreciation - G&A Provision for post-employment benefits Allowance for impairment in value Portion of subsidiaries loss before disposal Taxes Interest expense (income) Other expense (income) EBITDA Source: Company data Speaking of capex, the amount rose substantially in 2015 over 2014 (Rp321.8 bn vs Rp50.9 bn) mainly due to the acquisition of land and finished buildings for its clinical outlets. 1H16 came in at Rp46.2 bn, or just 51% of the capex target of Rp90 bn. We estimate this figure could increase to Rp bn in 2017, however. As a reminder, the company plans to open four regional reference labs; up to 33 additional clinical labs; up to 20 new POC collection centres per year; and five new hospital labs per year. Moreover, management aspires to maintain market leadership in next generation technology by providing precision medicine lab services, which will be based on a diversified clinical diagnostics platform and scientific talent. The company has developed long-term relationships with healthcare practitioners and the medical and scientific community, which generated an ongoing source of referrals and scientific breakthroughs. Prodia s net debt to EBITDA ratio has been stable at below 1x as the company utilised proceeds from the disposal of fixed assets to related parties to reduce its financial liabilities. Net debt was Rp23 bn as of 1H16, with interest rates in the 11-12% range. Net working capital has been relatively stable in , in the Rp54-61 bn range. The number came in at Rp59 bn in 1H16. Figure 54: Prodia's overall cash conversion cycle has increased in 1H H16 AR days AP days Inventory days Cash cycle Source: Company data, Credit Suisse research Prodia's ROE declined in 2014 to 42.1% but improved to 47.9% in On an invested capital perspective, Prodia has been generating ~30% ROIC since 2014, which is inbetween Indonesia hospital peers, MIKA and SILO. Prodia Widyahusada (PRDA.JK / PRDA IJ) 25

26 ROIC EBITDA margin 19 January 2017 Figure 55: Prodia's ROIC came in between Indo hospital companies such as MIKA & SILO Figure 56: meanwhile its EBITDA margin was in the mid-teens ROIC comparison EBITDA margin comparison 80% 70% 60% 62.0% 62.3% 58.1% 72.3% 40% 35% 30% 33.9% 34.3% 34.8% 37.8% 50% 40% 30% 37.0% 28.1% 29.9% 30.5% 25% 20% 15% 18.9% 18.4% 18.7% 18.8% 13.4% 13.7% 14.6% 15.5% 20% 10% 4.4% 8.5% 8.8% 12.0% 10% 5% 0% H16 0% H16 MIKA Prodia SILO MIKA SILO - NOR Prodia Source: Company data, Credit Suisse research Key forecasts Highlights Source: Company data, Credit Suisse research Revenue: We forecast Prodia's revenue to grow at 15% CAGR in E, driven by an uptick in demand for clinical laboratories testing and price increases given its strong competitive positioning. Key drivers include year-over-year growth in the number of tests, number of tests per customer visit, and revenue per visit. EBITDA: We estimate Prodia's EBITDA to grow at 23% CAGR in E, driven by 15% top-line growth and higher operating efficiencies. Current opex level of ~50% of revenue will gradually decline on the back of economies of scale. Figure 57: Key forecasts assumptions Fundamentals Summary 2013A 2014A 2015A 1H E 2017E 2018E CAGR ( ) No. of tests ('000) % % Change Yr/Yr -3.0% 2.2% 2.2% 4.0% 7.0% 8.0% Test per visit % % Change Yr/Yr 0.0% -1.1% 0.0% 2.0% 2.0% 2.0% No. of visits ('000) 2,236 2,305 2,383 1,192 2,429 2,548 2, % % Change Yr/Yr 3.1% 3.4% 0.7% 2.0% 4.9% 5.9% Average revenue / visits (Rp k) % % Change Yr/Yr 6.3% 7.2% 8.9% 9.0% 9.0% 9.0% Key Financials 2013A 2014A 2015A 1H E 2017E 2018E CAGR ( ) Total Revenue (Rp bn) 986 1,081 1, ,331 1,522 1, % % Change Yr/Yr 10% 11% 10% 11% 14% 15% Gross profit (Rp bn) , % % Change Yr/Yr 4% 10% 12% 14% 16% 17% EBITDA (Rp bn) % % Change Yr/Yr 12% 18% 1% 19% 21% 25% Net income (Rp) % % Change Yr/Yr -4% -9% 24% 41% 62% 16% EPS (Rp) % Change Yr/Yr 41% 62% Capital expenditures (Rp bn) % of revenue 7% 5% 27% 7% 7% 29% 20% Key Ratios 2013A 2014A 2015A 1H E 2017E 2018E Gross Margin 61.1% 58.0% 57.3% 58.5% 58.9% 59.7% 60.6% EBITDA Margin 13.4% 13.7% 14.6% 15.5% 15.7% 16.6% 17.9% Net Debt to Equity 0.9x 0.7x 0.2x 1.1x net cash net cash net cash Return on Equity (ROE) 66.3% 36.0% 39.5% 67.4% 5.9% 8.8% 9.5% Return on Invested Capital (ROIC) 37.0% 28.1% 29.9% 30.5% 56.9% 27.1% 18.3% Source: Company data, Credit Suisse estimates Prodia Widyahusada (PRDA.JK / PRDA IJ) 26

27 Million visits Rp thousands YoY growth 19 January 2017 Figure 58: We estimate Prodia's top-line to grow by ~15%, which is mainly driven by pricing 16% 14% 12% 10% 8% 6% 4% 2% 0% Sources of Prodia's top-line growth 15% 14% 11% 11% 10% 9% 9% 6% 7% 9% 3% 3% 5% 6% 2% E 2017E 2018E Volume Pricing Source: Company data, Credit Suisse estimates Volume growth We think rising awareness of preventive healthcare and rising disposable income could result in increasing demand for health check-ups. Walk-in patients and corporate clients together contribute up to 50% of the total test volume of a private independent lab. Frost & Sullivan expects the number of people taking health check-ups to grow by ~2.2% on a yearly basis. Our 2% volume growth forecast for 2016 takes into account the 0.7% YoY growth in the number of visits in 1H16. We project volume growth to accelerate to 5-6% starting 2017 onwards, primarily on the back of clinical lab openings starting in 2H17. After the recent opening of the Surabaya regional reference lab, next up will be Makassar (fully operational by 4Q16), Medan (4Q17), and Semarang (2018). These regional reference labs will serve as regional hubs for local clinical labs and other outlets to capture a higher volume of doctor referrals and external referrals. Pricing growth We model annual revenue per visit growth to be ~9% from 2016 onwards, in line with 1H16 levels. As a frame of reference, revenue per visit grew by 6.8% CAGR in Higher utilisation of esoteric tests and the launch of new tests could be tailwinds, although the company does not disclose the margin profile for different types of tests. Generally, margins for esoteric tests are lower when they are first offered. However, as these become more mainstream and routine, margins improve on the back of higher volumes. Figure 59: We forecast Prodia's number of visits to grow by 5.4% CAGR in E Figure 60: and revenue per visit to grow by 9% CAGR in the same period CAGR 5.4% 2.7 CAGR 3.2% E 2017E 2018E CAGR 9% CAGR 6.8% E 2017E 2018E No of visits Revenue per visit Source: Company data, Credit Suisse estimates Source: Company data, Credit Suisse estimates Prodia Widyahusada (PRDA.JK / PRDA IJ) 27

28 % YoY growth % of revenue 19 January 2017 EBITDA growth could be faster than revenue growth Since 2013, EBITDA margin improved by ~200 bp to 15.5% by 1H16 due to economies of scale achieved from increasing test volumes and efficient cost control. That said, we model cost of revenues to slightly decline to 42.5% and 42% in 2017 and beyond, respectively, which reflects an improvement relative to 1H16 levels of 42.7%. Meanwhile, we model G&A as % of total revenue to modestly decline to 50% in 2017 onwards compared to 1H16 levels of 50.2%. Furthermore, we forecast marketing expense to be flattish at 0.2% of revenue. Figure 61: We expect EBITDA to grow faster than its revenue Figure 62: driven by margin improvement 30% 25% 20% 18% 19% 21% 25% 70% 60% 50% 40% 61.1% 58.0% 57.3% 58.9% 59.7% 60.6% 15% 10% 5% 12% 14% 15% 10% 11% 11% E 2017E 2018E 30% 20% 10% 0% 13.4% 13.7% 14.6% 15.7% 16.6% 17.9% E 2017E 2018E Revenue growth EBITDA growth Gross margin EBITDA margin Source: Company data, Credit Suisse estimates Source: Company data, Credit Suisse estimates Decline in raw material expenses as % of revenue (direct), driven by efficiencies in procurement and processing tests As a reminder, costs of raw materials, which include the reagents, chemicals and other consumables used in clinical testing services, have been the company s largest expense, representing 15.8% and 14.8% of total revenues, for 2015 and 1H 2016, respectively. Prodia seeks to continue to reduce costs as a percentage of revenues given its economies of scale as the largest clinical laboratory network. The company has a centralised procurement system, and because it purchases significant volumes of test kits, reagents and other supplies, favourable rates for raw materials are possible. Moreover, the company could benefit from operational efficiencies. For example, because it tests large batches of samples at a time, the amount of reagent and chemicals used on a per sample basis can be reduced. Pertaining to foreign exchange rates exposure, the cost of raw materials and other supplies are indirectly affected. While Prodia pays the vendors in Rupiah, many vendors source their reagents, chemicals and other supplies from overseas. Stable to decreasing salaries as % of revenue (direct/indirect cost) on the back of more predictable wage increases On the slightly negative side, the company has experienced cost pressures in relation to employee costs, such as employee benefits and salaries. In 2014 and 2015, the Indonesian government implemented JKN, the universal insurance programme, which comprises Badan Penyelenggara Jaminan Sosial ("BPJS") Kesehatan, the universal health insurance scheme, and BPJS Ketenagakerjaan, the universal pension scheme. That said management intends to keep salaries as % of revenue flat to slightly decreasing. The company has factored in the necessary increase in the number of employees, as well as wage inflation. Since the government changed the rule to peg minimum wage increases to inflation, this item is arguably more predictable, and could be kept fixed as a % of revenue. Prodia Widyahusada (PRDA.JK / PRDA IJ) 28

29 Days Rp bn % of revenue % of revenue 19 January 2017 Figure 63: Raw material costs as % of revenue to decline on the back of efficiencies in procurement and processing tests Figure 64: Salaries % of revenue will increase, we expect consulting fee to be lower in E % 18% 45% 16% % 14% 35% 12% % 10% 25% 8% % 6% 15% 4% 50 10% 2% E 2017E 2018E 5% 0% 0% E 2017E 2018E Marketing Salaries - COGS Raw materials Raw materials % of revenue Salaries - G&A Consulting fee - G&A Source: Company data, Credit Suisse estimates Source: Company data, Credit Suisse estimates Excerpt of balance sheet assumptions Accounts receivables As a reminder, 67% of Prodia's revenues are generated from walk-in customers and doctor referrals, collected via cash out-of-pocket. The remaining 33% come from external referrals and corporate clients, of which A/R payment collection is in the days range in order to be competitive. We currently forecast A/R days to be ~24 days for Prodia. Figure 65: Prodia's revenue split (2015); 67% of it came from walk-in customers and doctor referrals Figure 66: Prodia's receivable days has declined since 2013 Corporate clients 16% Walk-in customers 34% External referrals 17% Doctor referrals 33% E 2017E 2018E AR days AP days Inventory days Cash cycle Source: Company data, Source: Company data, Credit Suisse estimates Debt We apply a blended cost of debt assumption of 11% to arrive at Prodia's interest expense, which is in the range of the stated borrowing's rate from the banks. Prodia's debt is comprised of IDR-denominated bank loans. Meanwhile, we estimate a debt-to-equity ratio of below 1x in E. Prodia Widyahusada (PRDA.JK / PRDA IJ) 29

30 Capex (Rp bn) 19 January 2017 Figure 67: Summary of Prodia's bank loans, as of 1H16 Facility Source: Company data Outstanding in 1H16 (Rp bn) Commited amount (Rp bn) Capital expenditure Purpose Interest rate Maturity PT Bank Pan Indonesia First agreement Working capital Floating rate of 11.5% p.a 12-Aug-20 Second agreement Investment of land and building in Floating rate of 11.5% p.a 28-May-20 Kembangan, West Jakarta Third agreement Refinancing the asset of land and Floating rate of 11.5% p.a 12-Aug-20 building in Lebak Bulus, South Jakarta PT Bank Danamon Indonesia First tranche KRK Facility Fixed rate of 12% p.a Jul-17 Second tranche Working capital Fixed rate of 12% p.a Jul-16 Third tranche Purchase and construction of land and Fixed rate of 12% p.a 28-Jun-23 building PT Bank Central Asia First tranche n.a 6 Working capital Fixed rate of 11.75% p.a 24-May-17 Second tranche n.a 20 Construction of building in Surabaya Fixed rate of 11.75% p.a 19-Nov-20 Prodia guides towards ~Rp1.1 tn of total capital expenditure within E, which will be mainly used for opening of new outlets. YTD progress remains on track, as it has realised Rp46.1 bn of capex in 1H16 equivalent to 52% of its full year target. Figure 68: Prodia's planned capex allocation in E E 2017E 2018E = Rp 784bn = Rp 872bn Opening of new outlets Investment in new equipment Source: Company data Prodia Widyahusada (PRDA.JK / PRDA IJ) 30

31 Dividend (Rp bn) Payout Rp bn 19 January 2017 Figure 69: Prodia's historical capex allocation; land and buildings has been the key driver of capex Figure 70: Prodia's free cash flows (FCF) appear to be manageable H15 1H E 2017E 2018E Land and buildings Electronics Equipments Others Total OCF Capex FCF Source: Company data Source: Company data Post-employment benefits liabilities Prodia engages an independent actuary to estimate the actual provision of postemployment benefits. The company recognises the amount of the net defined benefit liability at the present value of the defined benefit obligation at the end of the reporting period less the fair value of plan assets which were calculated by independent actuaries using the Projected Unit Credit method. Present value benefit obligation is determined by discounting the benefit. Current service cost, past service cost and gain or loss on settlement, and net interest on the net defined benefit liability (asset) are recognised in profit and loss. The remeasurement of the net defined benefit liability (assets) comprises actuarial gains and losses, the return on plan assets, and any change in effect of the asset ceiling are recognised in other comprehensive income. Prodia plans to allocate sufficient fund reserves for post-employment benefits. Therefore, post-employment liabilities will not increase as high as in previous years. Dividend The company's key considerations for dividend disbursement are annual profitability, growth prospects and the following year's capex and working capital requirements. Going forward in E, management intends to pay dividend at a maximum rate of 30% of consolidated net income for the previous year, starting from Figure 71: Prodia plans to distribute dividend at a maximum rate of 30% of consolidated net income for the previous year, starting from % % % 57 30% H16 Guidance 160% 140% 120% 100% 80% 60% 40% 20% 0% Dividend Dividend payout ratio Source: Company data Prodia Widyahusada (PRDA.JK / PRDA IJ) 31

32 Terminal growth rate (%) Terminal growth rate (%) 19 January 2017 Valuing Prodia: Rp7,460 TP, 30% upside DCF methodology: Our target price is derived using standard DCF approach and providing sensitivities based on cost of equity and terminal growth rate assumptions. Peer valuation: We apply an implied EV/EBITDA multiple range to our forecasts to arrive at a fair equity value range for Prodia as well. Figure 72: Summary of valuation based on various methodologies Valuation methodologies Valuation Key assumptions Comments Discounted cash flows (DCF) Two-stage Rp7 tn 10Y forecast period, WACC of 10%, terminal growth rate of 5% Implied 2017E EV/EBITDA of 24x Peer valuation EV/EBITDA calculation Rp tn Multiple range of 22x - 26x Source: Credit Suisse estimates DCF methodology: We employ a two-stage discounted cash flow (DCF) methodology to arrive at a fair equity value of Rp7tn. We value Prodia's free cash flow by dividing it into two stages: growth stage ( ) during the high capital expenditure phase, and mature stage ( ) when growth stabilises. We assume a weighted average cost of capital (WACC) of ~10%. Terminal growth rate: We believe % is an appropriate range. This is approximately in-line with Indonesia s long-term GDP growth forecast. Figure 73: Sensitivity of fair equity value (Rp bn) to weighted-average cost of equity (%) and terminal growth rate (%) under our two-stage DCF methodology Equity value (Rp bn) WACC (%) 6, % 9.5% 10.0% 10.5% 11.0% 4.0% 7,476 6,804 6,245 5,772 5, % 8,018 7,230 6,586 6,049 5, % 8,694 7,750 6,994 6,376 5, % 9,562 8,399 7,493 6,768 6, % 10,718 9,232 8,116 7,247 6,552 Equity value (US$ mn) WACC (%) 8.9% 9.4% 9.9% 10.4% 10.9% 4.0% % % % % Source: Credit Suisse estimates Prodia Widyahusada (PRDA.JK / PRDA IJ) 32

33 Terminal growth rate (%) Terminal growth rate (%) Terminal growth rate (%) Terminal growth rate (%) 19 January 2017 Figure 74: Sensitivity of fair equity value (Rp/share) to weighted-average cost of equity (%) and terminal growth rate (%) under our two-stage DCF methodology Equity value (Rp/share) WACC (%) 0 9.0% 9.5% 10.0% 10.5% 11.0% 4.0% 7,975 7,258 6,661 6,157 5, % 8,552 7,712 7,025 6,452 5, % 9,274 8,266 7,460 6,801 6, % 10,200 8,958 7,992 7,219 6, % 11,433 9,847 8,657 7,730 6,988 Source: Credit Suisse estimates Figure 75: Implied valuation multiples based on DCF sensitivity Implied 2017E EV/EBITDA (x) WACC (%) 9.0% 9.5% 10.0% 10.5% 11.0% 4.0% 25.9x 23.2x 21.0x 19.1x 17.5x 4.5% 28.0x 24.9x 22.4x 20.2x 18.4x 5.0% 30.7x 27.0x 24.0x 21.5x 19.5x 5.5% 34.1x 29.5x 26.0x 23.1x 20.7x 6.0% 38.7x 32.8x 28.4x 25.0x 22.2x Implied 2017E P/B (x) WACC (%) 9.0% 9.5% 10.0% 10.5% 11.0% 4.0% 4.3x 3.8x 3.5x 3.2x 2.9x 4.5% 4.6x 4.1x 3.7x 3.3x 3.1x 5.0% 5.1x 4.5x 4.0x 3.6x 3.2x 5.5% 5.7x 4.9x 4.3x 3.8x 3.4x 6.0% 6.4x 5.4x 4.7x 4.1x 3.7x Implied 2017E P/E (x) WACC (%) 9.0% 9.5% 10.0% 10.5% 11.0% 4.0% 47.6x 42.7x 38.6x 35.2x 32.2x 4.5% 51.5x 45.8x 41.1x 37.2x 33.9x 5.0% 56.4x 49.6x 44.1x 39.6x 35.8x 5.5% 62.8x 54.3x 47.7x 42.4x 38.1x 6.0% 71.2x 60.4x 52.2x 45.9x 40.9x Source: Credit Suisse estimates Peer valuation methodology The main challenge with deriving the appropriate valuation multiple ranges for Prodia is the lack of appropriate pure-play comparables. It appears that the market is awarding tertiary players with higher multiples in general, expecting higher sustainable growth rates and profitability profiles. Implied 2017 EV/EBITDA of 24x suggests that Prodia trades in-between the Indonesia listed hospitals such as Siloam and Mitra Keluarga.. Prodia Widyahusada (PRDA.JK / PRDA IJ) 33

34 Figure 76: Implied EV/EBITDA (x) valuation 2017E 2017E EBITDA (Rp bn) 252 Low Base High EV/EBITDA multiple 22x 24x 26x Enterprise value (Rp bn) 5,549 6,054 6, E Net debt (Rp bn) Equity value (Rp bn) 6,489 6,994 7,499 Source: Credit Suisse estimates Figure 77: Healthcare service providers valuation snapshot Stock Ticker Current Target CS Market cap EV/EBITDA (x) P/E (x) EV/EBITDA CAGR FY16 - FY18 ROE price (LCY) price (LCY) rating (US$ mn) FY16 FY17 FY16 FY17 growth (x) Revenue EBITDA (%) Indonesia Clinical laboratories / testings Prodia Widyahusada PRDA.JK 5,700 7,460 O % 23% 9 Hospitals Mitra Keluarga Karyasehat MIKA.JK 2,500 3,110 O 2, % 20% 23 Siloam International Hospitals SILO.JK 12,050 12,840 O 1, % 25% 4 Consumer healthcare Kalbe Farma KLBF.JK 1,490 1,350 U 5, % 15% 22 PT Kino Indonesia KINO.JK 3,300 2,360 U % -16% 22 Regional Clinical laboratories / testings Dr Lal Path Labs* DLPA.NS 1,095.0 NA NC 1, % 25% 28 Thyrocare* THYO.NS NA NA 504 NA NA NA NA NA NA NA NA Hospitals and healthcare IHH* IHHH.KL 6.3 NA NC 11, % 16% 5 KPJ* KPJH.KL 4.2 NA NC % 13% 10 Raffles Medical Group RAFG.SI O 1, % 12% 12 Bangkok Dusit Medical Services BDMS.BK O 9, % 10% 15 Bumrungrad Hospital Pcl BH.BK O 3, % 10% 29 Chularat Hospital CHG.BK N % 20% 19 Bangkok Chain Hospital BCH.BK O 1, % 23% 12 Apollo Hospitals Enterprise APLH.NS 1,167 1,320 N 2, % 10% 12 Global Clinical laboratories / testings LabCorp of America LH O 13, % 9% 21 Quest Diagnostics DGX N 12, % 2% 8 Sonic Healthcare* SHL.AX 21 NA NC 6, % 6% 0 Hospitals and healthcare Ramsay Health Care RHC.AX N 10, % 11% 27 Healthscope HSO.AX 2 2 N 3, % 4% 11 HCA Holdings, Inc. HCA O 30, % 4% Universal Health Services, Inc. UHS N 11, % 6% 16 LifePoint Health, Inc. LPNT N 2, % 7% 8 Tenet Healthcare Corporation THC N 1, % 6% 29 Note: Priced as of 17 January O = Outperform, N = Neutral, U = Underperform, NC = Not Covered. Source: RAVE, company data, Bloomberg estimates for Not covered stocks, Credit Suisse estimates for rated companies. Prodia Widyahusada (PRDA.JK / PRDA IJ) 34

35 Key investment risks Figure 78: Summary of Prodia's key investment risks Source: Credit Suisse research Macroeconomic risks Dependence on disposable income and increasing general health awareness and willingness to spend on healthcare of Indonesia's population Prodia's ability to attract individual customers is largely dependent on the country s disposable income and increasing general health awareness of Indonesia's general population. Its key sources of income are walk-in customers and customers who are referred to it by doctors. Such customers generally pay for medical diagnostics out-ofpocket. The growth of these customers is dependent on brand recognition, wider acceptance of Prodia's business in the communities in which it operates and its ability to compete effectively within the industry all of which may be negatively affected by a wide variety of reasons. For example, individual decisions regarding when to access healthcare services may be impaired by the absence of a developed health insurance sector or the lack of appropriate government programmes to cover the costs of healthcare. Moreover, given the small proportion of people in Indonesia covered by health insurance, customers in Indonesia generally are responsible for all or part of the cost of clinical laboratory services on an out-of-pocket ("OOP") basis, which means that a decrease in disposable income that can be allocated for healthcare services, or even the perception thereof, such as during times of economic downturn, can lead to a reduction in individuals' expenditures for healthcare services. In addition, the current increasing trend in health awareness and demand for preventive healthcare services may continue, but it may also be reversed. These reasons may affect Prodia's ability to maintain or increase growth in walk-in customers, which may adversely affect the business, financial condition, results of operations and prospects. Regulatory risks The implementation and expansion of national health insurance ("JKN") might negatively affect Prodia's business On 1 January 2014, JKN became effective across Indonesia and, among other things, requires all Indonesian residents, including foreigners working in Indonesia for more than six months, to register themselves with JKN and be covered by the national health insurance programme. The implementation of JKN is still in its early innings and the Prodia Widyahusada (PRDA.JK / PRDA IJ) 35

36 overall impact on the healthcare industry is still not fully known, and changes may negatively affect the business. The Indonesian government has stated that it expects all private hospitals and clinics in Indonesia to serve patients covered by JKN by Although it is not currently mandatory for all private hospitals and clinics to be healthcare providers under JKN, it is mandatory for private hospitals and clinics in some cities and many private hospitals and clinics in Indonesia have already started participating. Although Prodia cannot predict the effect that participation in JKN would have on the business, it believes that customers using JKN currently do not have coverage for many of Prodia's diagnostic tests, especially the higher value, more complex tests. However, to the extent that changes in JKN would cover all or most of its services in the future and patients do seek Prodia's services, it is likely that its revenue per test and revenue per patient would be lower for patients covered by JKN given the fee limitations that would apply, which could have an adverse effect on the company's revenues and margins. In addition, the implementation of JKN could also impact Prodia's business in other ways. For example, Prodia believes that the introduction of JKN caused certain patient segments to utilise certain government health services instead of hospitals where it provides clinical laboratory services. It is possible that more patients may do the same in the future, which could further impact Prodia's patient volumes. Since the implementation of JKN is still in the early stages, there is significant uncertainty about the effect that its implementation will have and any changes the government may make in the future. Further changes to JKN, or its implementation, could materially and adversely affect Prodia s business, financial condition, results of operations and prospects. Prodia relies on the regulatory licences of other parties at POC outlets and hospital laboratories Under Indonesian regulations, the operation of a specimen collection point or a hospital laboratory falls under the licensing of the relevant doctor's clinic or hospital. As it operates POC outlets in doctor's clinics and laboratories in hospitals, the operations of these outlets fall under the respective clinic or hospital licence. If the hospitals or doctor's clinics that host its outlets are unable to maintain their licences, Prodia may be obliged to close the respective outlet or cease operations in that area, which may materially and adversely affect its business, financial condition, results of operations and prospects. Failure to comply with privacy laws and regulations may negatively impact its profitability and cash flows Prodia must comply with privacy laws and regulations with respect to the use, storage and disclosure of protected patient health information, as well as laws pertaining to the electronic transmission of such information, such as the Regulation of the Minister of Health No. 36/2012 on Medical Confidentiality vis-à-vis Law No. 29 of 2004 on Medical Practice and Law No. 36 of 2009 on Health, the Minister of Health Regulation No. 269/MENKES/PER/III/2008 on Medical Record and Law No. 11 of 2008 on Electronic Information and Transaction. In the ordinary course of its business, the company receives certain personal information about its customers and its patients, including by electronic means. Accordingly, Prodia depends upon its internal information technology system for the storage and transmission of such confidential information. A compromise in its security systems that results in customer or patient personal information being obtained by unauthorised persons or its failure to comply with the security requirements for use, storage and/or transmission of sensitive information could adversely affect the company's reputation with its customers and result in litigation against it or the imposition of penalties and fines, all of which may materially and adversely impact its business, results of operations, financial condition and liquidity. Prodia Widyahusada (PRDA.JK / PRDA IJ) 36

37 Changes in or non-compliance with government regulations could negatively impact the business Prodia's clinical laboratories, specialty clinics and POC collection centres, clinical pathologists, phlebotomists, medical technologists and other Healthcare professionals are subject to laws and regulations, including, but not limited to, those relating to licensing, facility inspections and waste disposal. There may be periodic inspections by governmental and other authorities to ensure continued compliance with such laws and regulations. Prodia is required to possess various licences or approvals from regulators to carry out its operations, including, among others, general corporate licences, establishment licences and operational licences, equipment licences and certain clinical licences. Furthermore, it is not in compliance with the 2014 Negative List and 2016 Negative List (each as defined below) in relation to the PHC Clinic in Pekanbaru. Under Indonesian regulations, clinics are categorised as (1) clinics that provide general healthcare services for customers and (2) clinics that provide specialised healthcare services for customers. In September 2015, Prodia obtained a clinic licence for general healthcare services from the government of Pekanbaru for, and began operations of, the PHC Clinic. Under the Minister of Health Regulation No. 9 of 2014 on Clinics ("Regulation 9"), this licence is referred to as a basic clinic licence (izin klinik pratama). However, under Presidential Regulation No. 39 of 2014 ("2014 Negative List"), which was valid when it obtained the clinic licence (for Pekanbaru) and began operations of PHC Clinic, and Presidential Regulation No. 44 of 2016 ("2016 Negative List"), which amends the 2014 Negative List, foreigners are prohibited from owning interests in clinics that exclusively provide general healthcare services to customers. As the company (1) had some foreign ownership through Bio Majesty, which was incorporated in Singapore, when it began operations of PHC Clinic and (2) currently has some foreign ownership, Prodia (1) was not in compliance with the 2014 Negative List when it began operations of PHC Clinic and (2) currently is not in compliance with the 2016 Negative List. To comply with the 2016 Negative List, the company is in the process of applying to the Minister of Health to upgrade the licence at this clinic to a clinic licence that would give it the qualification to provide both specialised and general healthcare services, which are activities it can carry out under the 2016 Negative List. Under Regulation 9 such a licence is referred to as a main clinic licence ("izin klinik utama"). The 2016 Negative List would not apply to the company so long as it is not controlled by a foreign party. If Prodia is unable to obtain a main clinic licence and the government enforces the 2016 Negative List against the company, it may be prohibited from operating its existing PHC Clinic and its existing basic clinic licence for this PHC Clinic may be revoked. Industry risks Prodia operates in a competitive and fragmented business environment The clinical laboratory services industry in Indonesia is competitive and fragmented. Factors upon which Prodia competes with other clinical laboratory service providers include, among others, its ability to offer services similar to, or superior to, those of its competitors; the breadth of the testing offerings; acceptance of its products and services by healthcare providers; the geographical reach of its network; its ability to process samples and report data accurately and in a timely manner; its historical experience and customer relationships; and the quality of its facilities. Moreover, the competitive business environment of the industry is compounded by the fact that Prodia competes with all clinical laboratory service providers in Indonesia, including, among others, hospital-based laboratories; independent clinical laboratories; smaller-scale providers or diagnostic healthcare companies with a more established local or regional presence in certain geographies; international competitors that may establish or expand existing operations in Indonesia; and new entrants, including other healthcare providers, pathology and Prodia Widyahusada (PRDA.JK / PRDA IJ) 37

38 radiology laboratories and preventive care providers, each of which are already located in regions in which it operates or will operate in the future. In addition, while Prodia competes directly with hospitals and other healthcare providers for customers, because it is the only clinical laboratory service provider with access to, or that can provide, certain esoteric tests, some of Prodia's clinical laboratory service competitors may also send referrals to it for certain tests. Prodia's inability to compete effectively upon any one or more of these and other factors, as well as with the multitude of players in the industry, could have a material and adverse effect on the business. Prodia may not be able to develop and successfully market new tests and services Prodia's success depends on its ability to anticipate industry trends and identify, develop and market in a timely and cost-effective manner new clinical laboratory tests and valueadded services that meet customer demand. For example, Prodia was the first clinical laboratory in Indonesia to introduce Apolipoprotein B protein tests for lipid profiles, infectious disease tests, hormone tests, and osteoporosis markers. Developing new tests in a timely and cost-effective manner can be challenging, particularly because there is no existing demand in Indonesia for these new tests and the successful commercialisation of the new tests depends on customer acceptance of such tests. The understanding of the market and evolving customer preferences may not lead to new tests that are commercially successful. The company may also experience delays or be unsuccessful in any stage of service development, introduction or implementation. It may not be able to successfully market new tests or its end customers may not be receptive to these. Regional risks Prodia's laboratories are concentrated in Java, making it sensitive to regulatory, economic, environmental and competitive conditions and changes in that region While Prodia is present across Indonesia, the majority of its services are located on the island of Java (which it geographically segments as Regions III to VI in its financial statements), with the PNRL, 73 clinical laboratories, 93 POC outlets and six laboratories in hospitals located in Java. Prodia's operations in Java have historically accounted for a substantial portion of its revenue. For the year ended 31 December 2015, Regions III to VI accounted for 75.2% of the revenue from external customers. This concentration makes it particularly sensitive to regulatory, economic, environmental and competitive conditions and changes in those areas. Any material change in the current payment procedures or regulatory, economic, environmental or competitive conditions in those areas could have a significant effect on the business, financial condition, results of operations and prospects. Business risks Prodia's ability to maintain its brand equity is fundamental. The reputation of the "Prodia" brand is fundamental to all aspects of the business. The "Prodia" brand, in turn, is dependent upon the quality of, and customer confidence in, its clinical laboratory services, which are impacted by several factors, including its ability to maintain or improve the quality and efficiency of its existing clinical laboratory tests and services and its ability to introduce new tests and services with a high level of quality and efficiency and to maintain good relationships with, and acceptance by, healthcare professionals and other healthcare providers. In addition, the quality and reputation of its services can be adversely impacted if its clinical pathologists, phlebotomists, medical technologists and other healthcare professionals are not properly and adequately trained; if they make errors in the handling and labelling of patient samples as well as in the operation of its complex clinical laboratory equipment, even if properly trained; if they misuse or ineffectively use the complex clinical laboratory equipment in its laboratories; or if they inadequately extract specimens from patients, causing bodily harm or affecting Prodia's ability to properly conduct the required testing. Prodia Widyahusada (PRDA.JK / PRDA IJ) 38

39 Failure on maintaining good relationships with high-quality healthcare professionals might adversely affect its business Prodia maintains customer relationships with numerous primary care physicians, specialist physicians and other healthcare professionals. Revenues from doctor referrals accounted for 33.0%, 34.7%, 33.3%, 34.9% and 35.7% of total revenues in 2013, 2014 and 2015 and in the six months ended 30 June 2015 and 2016, respectively. The company believes that the demand of the tests and services depends significantly on these healthcare professionals' confidence in, and recommendations of, its services. The Indonesian Medical Code of Ethics prohibits the payment of fees to doctors for referrals, which may cause the loss of such doctors freedom and independence of their profession. Nonetheless, Prodia rents space from physicians and clinics for use of space for its operations in their offices and clinics for Prodia's POC outlets, and it has revenue sharing arrangements with hospitals for its hospital laboratories. In addition, Prodia sponsors events and conferences targeted at doctors and their scientific research. A significant part of Prodia's marketing efforts are focused on educating physicians and healthcare professionals on the latest developments in clinical laboratory and in healthcare, generally. Failure to maintain these existing relationships, develop new relationships and/or sustain a high-quality, professional reputation would result in a decrease in the number of customers referred to it and, therefore, a decrease in its revenue. If Prodia's marketing and outreach programmes with doctors are not effective in building doctor loyalty or are discontinued, the company might lose some or all of the revenue attributable to those doctors. Technological advances may reduce demand for Prodia's services Advances in technology may lead to the development of more cost-effective technologies or non-invasive clinical laboratory tests that are more convenient and less expensive than Prodia's current services, such as point-of-care testing equipment that can be operated by doctors or other healthcare providers in their offices or by customers themselves without requiring the services of clinical laboratories. The development of such technology and its use by Prodia's customers could reduce demand for its clinical laboratory services and negatively affect the company's income. Furthermore, manufacturers of laboratory equipment and test kits could seek to increase their sales by marketing point-of-care laboratory equipment to physicians and by selling test kits approved for home use to both physicians and customers. Increased testing by physicians in their offices and home use by customers could affect the market for Prodia's laboratory testing services and negatively affect its income. For instance, it may be unable to competitively price tests that currently form a substantial portion of Prodia's revenue if technological developments lead to these tests being conducted at the point-of-care, or if certain specialised tests become routine, as this would affect Prodia's ability to charge a premium for such tests. Moreover, advancements in the availability of testing equipment that can be operated locally and that does not require free-standing clinical laboratories or advancements in self-testing kits that can be operated by customers themselves for such tests could also result in a decrease in the volume of tests, from which the company receives a substantial portion of its revenue. For example, in 2013, 2014 and 2015 and in the six months ended 30 June 2015 and 2016, 34.7%, 33.2%, 34.2%, 35.1% and 35.9% of total revenues were from walk-in customers not referred by a doctor or corporate clients, and these customers could opt for self-testing if available. Any of these scenarios may have a significant adverse effect on the business, financial condition, results of operations and prospects. Prodia Widyahusada (PRDA.JK / PRDA IJ) 39

40 Dependence on third-party manufacturers for the testing equipment and reagents The company obtains its testing equipment and reagents from third-party suppliers under lease agreements and reagent supply agreements. The majority of reagents are produced by overseas suppliers, as there are only a limited number of local producers. Prodia's agreements with these providers are typically for three- to five-year terms and specify fixed prices in Rupiah, subject to certain adjustment mechanisms. If procurement costs for foreign-produced consumables or the price of equipment increase, for example due to depreciation of the Rupiah, suppliers may demand to renegotiate their supply contracts with Prodia regardless of the contractual terms. If Prodia fails to achieve favourable pricing on reagent supplies or equipment rental or is unable to pass on any cost increases to the payers, its profitability could be materially and adversely affected. In addition, if there is any disruption in the supply of foreign reagents, either due to any logistical issue or rules or regulations on the import of certain chemicals, it may not be able to obtain the relevant reagents or chemicals at a reasonable price, or at all. Technological advances, limited suppliers related to clinical laboratory equipment, could adversely affect the business Prodia uses sophisticated and expensive clinical laboratory equipment in its laboratories to perform clinical laboratory tests. Clinical laboratory equipment often needs to be upgraded, as innovation can rapidly make existing equipment obsolete or unable to provide services that customers require or demand. Replacement, upgrading or maintenance of equipment may involve significant costs. Clinical pathologists, phlebotomists, medical technologists and other healthcare professionals will also need to be trained on how to use the new equipment. If the company is unable to keep up with technological advances, its doctors, corporate clients and customers may turn to other clinical laboratories with more advanced equipment, and its competitive edge will be reduced, which may have a material adverse effect on the business, financial condition, results of operations and prospects. The company currently obtains its clinical laboratory equipment from various vendors through either lease agreements or reagent supply arrangements, while it usually purchases other supporting equipment. For most clinical laboratory equipment, Prodia prefers to use one major supplier for each type of clinical laboratory equipment. The company seeks to develop long-term partnerships with global major diagnostic and medical equipment manufacturers to support the migration, transition and commissioning of the laboratories under development as well as support its currently operating laboratories. The company sources its clinical laboratory equipment from six main suppliers: Roche, Abbott, Siemens, Biomerieuex Biorad and Sysmex (either directly or through their local distributors). It has developed long-term relationships with these manufacturers and its other suppliers, but it does not have long-term agreements in place. Prodia outsources some of the tests that it offers to third-party laboratories Prodia has agreements with the NUH Laboratories and Quest, which together give it access to up to 3,000 tests that it does not perform. It also has agreements with other clinical laboratories in Indonesia, including potential competitors, to whom it refers certain tests. For certain tests that it offers to its customers, it believes that it is more cost-effective to outsource the performance of such tests to these laboratories than to perform such tests itself. For the year ended 31 December 2015, such outsourced tests represented 2.1% of its total revenues. The company conducts reviews and assessments of its thirdparty laboratories in order to determine their ability to continue to meet their obligations to it. However, the company does not have control over the actions of such third-party laboratories and cannot guarantee that they will continue to perform such services to satisfaction. Accordingly, it is exposed to the risk that its third-party laboratories may be unable to fulfil their contractual obligations. Any failure by its third-party laboratories to perform as required under its contractual obligations or any termination of such arrangements may materially and adversely affect its operations if it is unable to find suitable replacement laboratories in a timely manner or at all. Prodia Widyahusada (PRDA.JK / PRDA IJ) 40

41 Prodia has significant amount of employee benefit liabilities As an employer in a human capital intensive service business, the company has incurred significant employee benefit liabilities. In addition, recent changes in Indonesian rules and regulations, such as the implementation of BPJS Ketenagakerjaan, the universal pension scheme, have resulted in increased employee benefit liabilities. The company's long-term employee benefit liabilities increased from Rp172.3 bn as of 31 December 2013 to Rp323.1 bn as of 30 June Before 2012, the company mostly financed the payment of its employee benefit liabilities directly out of its cash flows. However, in 2012, it instituted a defined benefit asset programme managed by a professional asset management company. In the years ended 31 December 2013, 2014 and 2015, it contributed Rp20.0 bn, Rp5.0 bn and Rp5.0 bn, respectively, to the benefit asset programme (which was recorded as severance insurance premium on the company's profit and loss statement). In order to control or reduce its employee benefit liabilities, it may have to make additional contributions to its employee benefit assets, which would reduce the cash flow available for other uses, and could have an adverse effect on its business, financial condition, operations and prospects for any particular reporting period. Prodia depends on certain kinds of routine and esoteric tests for a large portion of revenue Prodia derives a portion of its revenue from esoteric tests and a certain subset of routine tests. The esoteric tests, which generally have a higher price than routine tests, accounted for approximately 2.5% to 3.2% of the total number of tests the company performs each year, but contribute to a higher portion of total revenues. In addition, certain routine tests, such as haematology tests, also contributed to a portion of revenues. While, as of 30 June 2016, the company has a portfolio of approximately 500 tests, it still expects this subset of esoteric and routine tests to continue to constitute a significant portion of revenues in the future. Nonetheless, Prodia's brand positioning and revenue generated from such specific test segments may be adversely affected by various factors that may be beyond its control. For instance, it may be unable to price the tests it is reliant on competitively due to a variety of reasons, including an increase in the cost of the technology required to conduct such tests, an increase in its operating costs, or certain specialised tests becoming routine which would affect the company's ability to charge a premium for such tests. Further, advancements in the availability of testing equipment that can be operated locally and that does not require clinical laboratories or advancements in self-testing kits that can be operated by customers themselves could also result in a decrease in the volume of tests that are conducted at Prodia's laboratories. In light of the reliance on these tests, these factors may have a significant adverse effect on the company's business, financial condition, results of operations and prospects. Prodia's business is subject to seasonality. Prodia experiences seasonal fluctuations in its revenue and profitability. It generally experiences a higher volume of demand and earns more revenue in the second half of the year than in the first half, as a result of increased volumes of corporate health check-ups, which are typically undertaken at the end of the year. Indonesian festivals and holidays also have an effect on the business, as it typically experiences lower volumes during Ramadan, which is a month of fasting, which could affect the results for specimens taken during this period. Such fluctuations in revenue and profitability could have a material adverse effect on the business, financial condition, results of operations and prospects for any particular reporting period. Prodia Widyahusada (PRDA.JK / PRDA IJ) 41

42 Execution risks Prodia may be unable to successfully implement or manage its expansion strategy As part of the growth strategy, Prodia plans to construct and open several new clinical laboratories, including four additional reference laboratories and up to 33 additional clinical laboratories, in addition to upgrading and relocating several existing clinical laboratories. It will also begin offering preventive health and wellness services at a number of its clinical laboratories. This will require huge capital investments and cash outlays, which is likely to impact operational results during the lab s construction period and the initial period. Business interruptions at PNRL may affect its ability to process tests Prodia performs a portion of its clinical laboratory tests at the PNRL, including more complex tests and substantially all the specialised tests it currently offers. In 2013, 2014 and 2015, it performed ~11.4%, 11.4% and 11.0% of tests at the PNRL. The normal functioning of Prodia's business depends significantly not just on its employees, but on the continuous and uninterrupted functioning of PNRL. In particular, Prodia relies on automatic testing equipment, such as its Siemens WorkCell machine, which performs many routine blood tests quickly and efficiently. If PNRL sustains business interruptions or otherwise fails to function, in whole or in part, because of fire, natural disaster or other factors or accidents beyond the company's control, its capacity to provide clinical laboratory services may be materially and adversely affected or suspended for an indefinite period of time. While it has built a regional reference laboratory in Surabaya and plans to build three additional reference laboratories in the next few years, Prodia does not expect these laboratories to have the same range of tests/services as the PNRL. If PNRL services are disrupted, Prodia may decide to outsource a large volume of clinical tests, its ability to correctly and efficiently deliver testing results may be compromised, it may lose customers and may face significant increases in costs for test processing, transport and logistics. Any failure, malfunction or partial or complete destruction of PNRL would materially and adversely affect its business, financial condition, results of operations and prospects. Failure of hub-and-spoke model The specimen collection process is highly distributed, fragmented, and labour-intensive, and dependent on the skill and focus of front-end employees and transportation providers, such as independent couriers, which is exacerbated by the fact that Indonesia is a large archipelago. Any mix-ups, losses or errors in the sample collection process can result in erroneous or non-results and adversely affect the business. Prodia depends on the smooth transportation of specimens from different sources to its laboratories, the logistics of which are subject to various uncertainties and risks. A key challenge in the operation of a laboratory network is the maintenance of sample integrity and turnaround time when tests are conducted by laboratories far away from the specimen collection point or otherwise difficult to reach from the POC outlet. The timely pick-up, transportation and delivery of specimens depend on numerous factors beyond the company s control, including weather and road conditions and transportation schedule delays. Disruptions of transportation services because of weather-related problems, strikes, lock-outs, terrorism, inadequacies in road infrastructure and port facilities, or other events could impair its ability to receive test samples or any other supplies and generate test results to its customers in a timely manner. In addition, as Prodia relies on third-party courier services for some of its intercity and inter-regional deliveries, it may sometimes experience loss of specimens, delays and inefficiencies that are not within its control. Prodia Widyahusada (PRDA.JK / PRDA IJ) 42

43 Management overview Prodia is led by a strong management team. Please find below a brief summary of the board members: Figure 79: Summary of Prodia's management team Name Position Age Source: Company data Board of Commissioners Andi Wijaya, President Commissioner Date of Appointment Joined Prodia since Board of Commissioners Andi Wijaya President Commissioner Founder Endang W. Hoyaranda Commissioner Joseph Luhukay Independent Commissioner Scott Merrillees Independent Commissioner Gunawan Prawiro Soeharto Commissioner Founder Board of Directors Dewi Muliaty President Director Tetty Hendrawati General Affairs Director and / Independent Director Andri Hidayat Operations Director Liana Kuswandi Finance Director Indriyanti Rafi Sukmawati Marketing Director Dr Andi Wijaya has been President Commissioner of the company since He was previously the President Director of the company from its inception in 1988 to He is also a founder of, and currently the President Commissioner of, its affiliate companies: Prodia CRO, POHI, Prostem, Proline and Innodia. In addition to his business career, Dr Wijaya concurrently had a career as an academic lecturer and scientific researcher. His academic positons include being the head of the biochemical study programme, postgraduate programme of Hasanuddin University and roles as a clinical chemistry lecturer at Institut Teknologi Bandung and Padjajaran University. In his career, he has mentored numerous master s and doctoral degree students at several public and private universities. As a result of his research, he has published over 250 articles in national and international academic journals. Dr Wijaya received his bachelor's degree from Institut Teknologi Bandung in 1963 and obtained his doctorate in molecular biology from the University of Munster, Germany, in He also received his Master of Business Administration degree from the University of California, Los Angeles, in Dr Wijaya has received numerous awards for his contributions to laboratory sciences in Indonesia, including the Clinical Laboratory Management Association Award for most outstanding contribution to the profession of clinical laboratory management; the Golden Academy Award from the National Academy of Clinical Biochemistry of the United States; the International Order of Merit IBC Cambridge, in honor of an outstanding contribution to the profession and development of clinical biochemistry; the Doctor Honoris Causa in Biomedical Science from the University of Birmingham in the United Kingdom; the Gold Record of Achievement in Science from the North American Chinese Clinical Chemists Association; Satya Karya Bhakti Pendidikan, an award for contribution in education, in appreciation of his service at the Padjadjaran University and Ganesha Widya Jasa Utama for agent of change and agent of development from Bandung Institute of Technology. Dr Wijaya is also a founder, and has served as an advisory board member, of the Indonesian Society of Atherosclerosis and Vascular Diseases, Indonesian Society for the Study of Obesity and Indonesian Association for Clinical Chemistry. Prodia Widyahusada (PRDA.JK / PRDA IJ) 43

44 Endang W Hoyaranda, Commissioner Ms. Endang W Hoyaranda has been a Commissioner since She has been the President Director of the company Utama since She began her career as a lecturer at the Institute Teknologi Bandung in She joined the company in 1983 as a research and development manager. She was the company s operations director from and its president director from Ms. Hoyaranda received her bachelor's degree from the Institut Teknologi Bandung in 1976 and her pharmacy degree from Institut Teknologi Bandung in In addition to her career at the company, she also served as a standing committee or executive board member of several laboratory medicine associations at the national as well international level, including Persatuan Ahli Teknologi Laboratorium Medik Indonesia (Indonesian Association of Medical Laboratory Technologists), Lembaga Sertifikasi Profesi Tenaga Laboratorium Penguji Indonesia (Indonesian Institute for Certification of Professional Laboratory Examiners), Himpunan Kimia Klinik Indonesia(Indonesian Association for Clinical Chemistry), the Indonesia Association for the Study of Medicinals, the ASEAN Association for Clinical Laboratory Sciences, the Asia Association of Medical Laboratory Scientists, the Asia Pacific Federation for Clinical Biochemistry and Laboratory Medicine and the International Federation of Clinical Chemistry and Laboratory Medicine. Ms. Hoyaranda was awarded the BNSP Competency Award in 2008 and the Woman Executive of the Year award at the 2013 BioPharma Industry Awards. Joseph Luhukay, Independent Commissioner Mr Joseph Luhukay has been Commissioner since He served as the deputy president director of Bank Danamon from He was a partner at IndoConsult, a consulting firm in Indonesia, from He was the President Director of PT Bank Lippo, Tbk from He has also served as a partner at Ernst & Young, the chief operating officer of the Jakarta Initiative Task Force, a joint-indonesian, World Bank initiative, and the chief operating officer of Bahana Pembinaan Usaha Indonesia, a government owned investment bank, among others. In 2006, he was also appointed by presidential decree to serve as an executive member of the National Council on Information & Communications Technologies, an advisory body tasked with advising the president of Indonesia on policy and strategy matters. From , Mr Luhukay was the Independent Commissioner and Audit Committee Chairman, Board of Commissioners of Bank BNI, one of the largest lenders in Indonesia. Mr Luhukay received his bachelor's degree in electrical engineering from the University of Indonesia in 1972 and obtained his master's and doctoral degrees in computer science from the University of Illinois at Urbana-Champaign in 1982 and 1983, respectively. Scott Merrillees, Independent Commissioner Mr Scott Merrillees has been Commissioner since He has over 20 years of experience working in Indonesia as a specialist in equity research, equity capital markets and banking. He has extensive experience working in Indonesia s capital markets, with roles as the head of Indonesian equity research at James Capel (later part of HSBC), Morgan Grenfell (later part of Deutsche Bank) and UBS. He was the president director of BNP Paribas Securities Indonesia from and head of Southeast Asian natural resources banking for ANZ Bank from He was also a director of Borneo Lumbung Energi & Metal from , director of Berau Coal & Energy from and director and audit committee member of Bumi Plc from Mr Merrillees received his bachelor s degree in accounting and Indonesian studies from the University of Melbourne in Prodia Widyahusada (PRDA.JK / PRDA IJ) 44

45 Gunawan Prawiro Soeharto, Commissioner Mr Gunawan Prawiro Soeharto has been Commissioner since He was one of the original founders of the company. He began his career as a pharmacist in Solo. Mr Soeharto was the founding marketing director of the company and served from inception to He also served as a lecturer at the Atma Jaya Faculty of Pharmacy in Solo. Mr Soeharto received his bachelor's degree in pharmacy 1964 from the Atma Jaya Faculty of Pharmacy. He also serves various social foundations, and is a patron of Yayasan Pendidikan Warga, a vocational school in Solo, that established the STIKES pharmacy college, in Solo. Mr Soeharto has been the chairman of the board of STIKES since He also serves as a board member of Yayasan Kesehatan Panti Kosala, a foundation that has been operating a chain of hospitals in Central Java since Board of Directors Dewi Muliaty, President Director Dr Dewi Muliaty has been the President Director of the company since She began her career at the company in 1988 as a technical assistant manager in the quality control lab. She also served as the business development manager from and research and development manager from Dr Muliaty received her bachelor's degree in 1987 and a Pharmacist Professional Certificate in 1988, each from Padjadjaran University. She received her doctorate in biomedical science from Sultan Hasanuddin University in Dr Muliaty has published numerous research papers on biomedicine. Tetty Hendrawati, General Affairs Director and Independent Director Ms. Tetty Hendrawati has been the General Affairs Director of the company since She has served as the Independent Director since She began her career at the company in 1988 as the deputy head of the Denpasar branch for technical quality control. She also served as the operations director from Ms. Hendrawati received her bachelor's degree in 1987 and a Pharmacist Professional Certificate in 1988, each from the Bandung Institute of Technology. She received her master's degree in biomedical science from Hasanuddin University in She has also published research on biomedicine. Andri Hidayat, Operations Director Dr Andri Hidayat has been Operations Director since He began his career at the company in 1997 as assistant manager of technical quality assurance. He also served as the regional head of Aceh and Sumatra Utara from 2005 to 2013 and managed various IT projects from Dr Hidayat received his bachelor's degree in 1996 and a Pharmacist Professional Certificate in 1997, each from Padjadjaran University. He received his master's degree and a doctorate in biomedical science from Hasanuddin University in Mr Hidayat has published numerous research papers on biomedicine. Liana Kuswandi, Finance Director Ms. Liana Kuswandi has been the Finance Director of the company since She began her career at Tarumanegara University as a lecturer of accounting on the economics faculty. She also served as a lecturer at UPH University from 2001 to 2006 and served as the head of the accounting programme from Ms. Kuswandi received her bachelor's degree from the Tarumanegara University in 1996 and obtained her master's degree in finance from RMIT University in Indriyanti Rafi Sukmawati, Marketing Director Ms. Indriyanti Rafi Sukmawati has been the Marketing Director of the company since She began her career at the company in 1996 as an assistant manager of marketing. She also served as head of the PNRL from Ms. Sukmawati received her bachelor's degree in 1995 and her Pharmacist Professional Certificate in 1996, each from Padjadjaran University. She obtained her doctorate in medical science from Hasanuddin University in Ms. Sukmawati has published numerous research papers on biomedicine. Prodia Widyahusada (PRDA.JK / PRDA IJ) 45

46 Appendix Figure 80: Prodia's current ownership structure Source: Company data Prodia Widyahusada (PRDA.JK / PRDA IJ) 46