BNIS INVESTMENT NOTE PT Lippo Karawaci Tbk (LPKR) I N D O N E S I A Equity November 2nd, 2016 A n a l y s t : Maxi Liesyaputra Property maxi@bnisecuri es.co.id
Strong support from healthcare business LPKR’s profile PT Lippo Karawaci Tbk. (LPKR) is an integrated property company, consisting of development and recurring businesses. The develop- ment business is divided into four segments, which are townships, large scale integrated development, industrial and commercial properties and office projects. On the other side, the recurring busi- ness consists of hospitals (Siloam Hospitals, or SILO), commercial BUY (retail malls and Aryaduta Hotels) and asset management. LPKR has around 8,078 ha of development rights with a landbank inven- TP: IDR 1,130 tory of 1,322 ha. The locations of its property areas locations are well spread out in Karawaci (Lippo Village), Cikarang (Lippo Cika- Vola lity Risk : HIGH rang), Puri (St. Moritz), Kemang (Kemang Village), Makassar (Tanjung Bunga) and Karawang (San Diego Hills Memorial Park). Stock Data The company manages 44 malls, including Lippo Mall Puri and PX Current Price Rp 900 Pavillion, scattered throughout Indonesia, with total gross floor 52wk Range Rp 865-1,380 area (GFA) of 3.2 million sqm. LPKR also manages 9 Aryaduta Ho- YTD % Change -13.04% tels (total 1,970 rooms) throughout Indonesia with overall average Share Outstanding 23,077.7 mn occupancy rate of 65% as of June 30, 2016;with the largest hotel is Market Capitaliza on Rp 20,769.9 bn Hotel Aryaduta Jakarta (Central Jakarta) with 302 rooms, followed Floa ng Rate 68% by Hotel Aryaduta Semanggi at 274 rooms (South Jakarta). 1 Year Total Return -24.12% Beta 1.184 What is the Latest Issue? Major Shareholders Healthcare revenue supports LPKR’s performance Pacific Asia Holding 17.9% Public 68.0% LPKR has a well-diversified revenue portfolio, considerably differ- entiated, compared to other property players in Indonesia. Against 30.00% slowing domestic property growth, the company’s healthcare busi- 20.00% TotalTotal Retun Return
ness still shows steady improvement, rising significantly in 1H16 by 10.00% 28.6% YoY, to IDR 2.5 trillion, in 1H16 with a revenue contribution 0.00% of 50%, compared to a revenue contribution of 41.9% in 1H15. -10.00% Exhibit 1. Revenue composition in 1H16 -20.00%
-30.00% 3.7% Urban development LPKR JCI JAKPROP 8.4% Large scale integrated dev 22.8% 1,400 1,300 Retail malls TP: RpTP: 1,130 Rp 1,130 BUY 1,200 Healthcare 1,100 11.9% 1,000 50.0% Hospitality and infra 900
3.2% 800 Property and portfolio 700 mgt 600
Source: LPKR, processed by BNIS Research
PT BNI Securi es - Research Division
Catalyst
Planning to sell assets to REITS
In 4Q16 LPKR plans to sell the company’s assets to REITS (Real Estate Investment Trust) for Rp 1.7 trillion. Assets consist of Lippo Mall Kuta at Rp 800 billion, Lippo Plaza Yogyakarta and Siloam Hospital Yogyakarta, for a total of Rp 900 billion. This will be a significant improvement, compared to no asset sale to REITS in 2015. Through this asset sale plan, LPKR aims to have revised total marketing sales of Rp 5.2 trillion, from a previous Rp 6.6 trillion, with total property sales of Rp 3.5 trillion. Note that in 2014 LPKR sold assets to REITS amounting to Rp 3.3 trillion, unloading Lippo Mall Kemang in South Jakarta. Recommenda on Recommenda on: BUY with TP of Rp 1,130 per share
LPKR has a well-diversified revenue portfolio, along with separate locations, mainly in western Jakarta. The company handles various property products, including landed houses, apartments and even a memo- rial park. For recurring income, LPKR offers medical services through SILO across Indonesia, supported by increasing hospital numbers. Apartment launches have been successfully carried out in Lippo Cikarang which has been successful along with increasing demand for residential property in industrial areas.
Other recurring incomes are derived from Aryaduta hotels and retail mall management. The company also obtains fees from asset management in REIT, mall and hotel management and also town management services, leisure and restaurants. The various businesses enable LPKR to stoutly face any turbulence in the tricky property business. LPKR is traded at a forward 2017 PER and 2017 PBV of 26.4x and 1.1x respective- ly. We have a target price (TP) of Rp 1,130 for LPKR. The recommendation is BUY.
Exhibit 2. Portion of recurring income
68%
66% 65.3% 64%
62% 60%
58% 55.7% 56%
54% 52% 50% 1H15 1H16
Source: LPKR, processed by BNIS Research
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KEY POINTS Launching plan in 2H16 In 1H16 LPKR did not launch any property product. The company only sold existing products during the period, marking Rp 602 billion. In Oc- tober 2016 LPKR plans to launch Orange County Tower 6, located in Lippo Cikarang. Previously the company already launched Orange County Tower 5, with 100% sold out, following the successful launch of four Orange County Towers earlier, with 100% take up rate as well. For both Tower 5 and 6, featuring Japanese-style design, the company col- laborates with Mitsubishi Corporation of Japan. Mitsubishi oversees the design and architecture of of both towers, working with a Japanese contractor, Kajima.
Furthermore, the company also plans to launch Urban Homes in De- cember 2016,which targeting middle to middle low customers. The starting price is Rp 400 million per unit (36 sqm) which is approximately half the price of Millennium Village unit. LPKR plans to start the con- struction of Urban Homes in mid-2017.
SILO capital enhancement SILO plans to conduct a rights issue by issuing 145 million new shares. Proceeds will be used for funding capex of hospital expansion, general working capital and shareholder loan repayment. Currently SILO oper- ates 23 hospitals throughout Indonesia; the latest 3 are in Labuan Bajo, Buton and Samarinda. SILO has seven mature hospitals (Lippo Village, Kebon Jeruk, Surabaya, Jambi, Cikarang, Balikpapan) and MRCC Se- manggi, each with its own unique center of excellence. For example, MRCC has a Cancer, Lever and Emergency Center of Excellence, while Siloam Hospitals Surabaya has Fertility Treatment, Cardiology and Emergency Centers of Excellence. One advantage of SILO hospitals is that its hospitals accept BPJS Kesehatan (Healthcare and Social Security Agency). The company has 42 new hospitals throughout Indonesia in the pipeline as well. In 2016, SILO expects to complete the develop- ment of some hospitals, in Bogor, Bangka Belitung, Banjarmasin, Gunung Sahari, Bekasi Grand Mall and Jember. We believe that the healthcare business will keep on growing, along with increasing hospital units and healthcare awareness throughout Indonesian society. This will also support LPKR’s performance signifi- cantly, mostly when the property business goes flat.
Exhibit 3. Hospitals in Indonesia
No Owner 31-Dec-14 31-Dec-15 30-Jun-16 1 Ministry of Health 34 36 36 2 Province government 98 113 118 3 Municipal government 93 98 98 4 Distric government 463 469 472 5 Army/Police 170 170 170 6 Other ministries/ public companies 79 79 79 7 Private 1,472 1,525 1,584 Total 2,409 2,490 2,557
Source: Ministry of Health
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KEY POINTS
Exhibit 4. Beds to 1,000 population
3.5 2.95 3 2.84 2.84
2.5 2.16 2.01 2 1.63 1.5 0.97 1.02 1 0.5
0 Indonesia India Malaysia Thailand Singapore United USA China Kingdom
Source: LPKR presentation material
Improving total revenues LPKR posted 7.6% YoY higher total revenues in 1H16, at Rp 5.1 trillion, revenue in 1H16 to which the healthcare business contributed 50%, a significant im- provement increase of 28.6% YoY to Rp 2.5 trillion. Almost all of its rev- enue streams recorded a meaningful improvement as well. Only large- scale integrated development posted a decline, down 40.6% YoY to Rp 609.8 billion, which it was 11.9% contribu on to total revenues. Gross profit rose by 3.3% YoY to Rp 2.2 trillion in 1H16. On the other hand, the slight improvement in gross profit was mainly because in 1H16 LPKR posted a higher por on of recurring income (with a lower margin) compared to property development.
LPKR’s profit declined by 15.3% YoY to Rp 1 trillion, on the back of higher general and administra ve expenses, which soared by 30% YoY to Rp 1.1 trillion. The main problem of that was rental expense in- crease of 588% YoY to Rp 144.6 billion. Meanwhile, net finance ex- pense surged significantly, by 87.3% YoY to Rp 158.6 billion in 1H16. As a result, net profit declined by 35.8% YoY to Rp 497.8 billion in 1H16.
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KEY POINTS
Marketing sales achieve- LPKR posted marketing sales of Rp 753 billion in 9M16, with the high- ment in 9M16 est contributor was Lippo Cikarang at Rp 421 billion, followed by unique product SDH (San Diego Hills) at Rp 118 billion. The company also posted marketing sales of Rp 48 billion from condominiums.
The marketing sales achievement was only 21.8% of their target for property sales of Rp 3.45 trillion in FY16. LPKR expects to have Rp 1.7 trillion of its assets sold to REITS in 4Q16. In total, the company has a marketing sales target of Rp 5.2 trillion.
Exhibit 5. Marketing sales 9M16
Rp billion Project's name 9M16 Lippo Village 46 Lippo Cikarang Residential 353 Commercial Industrial 6 Delta Silicon 8 (JV) 62 Total LC 421 Holland Village Manado 36 Tanjung Bunga 65 San Diego Hills Memorial Park 118 Subtotal 685
Condominiums: Kemang Village 9 Millennium Village (LV) 10 Orange County (LC) 5 St. Moritz Jakarta 45 St. Moritz Makassar 7 Embarcadero (1) Holland Village (17) Monaco Bay (10) Subtotal 48
Offices: Lippo Offices Thamrin 20 Subtotal 20 Subtotal 753 Asset sold to REITS
Total marketing sales 753 Source: LPKR
Improvement in hotel busi- Currently LPKR operates 9 Aryaduta Hotels, with overall average occu- ness pancy of 65% as of June 2016. The company operates the new Aryadu- ta Hotel in Bandung with 254 rooms, thus totaling 1,970 rooms. In or- der to expand its hotel business, LPKR is developing Dali Hotel in Kuta, Bali (a three-star hotel). By comparison, Aryaduta Hotel is a five-star hotel
We see that while the hotel business only contributes a small portion of 3% to total revenues in 1H16, the company still accords special at- tention to it since the business earns recurring income continuously. It may support the company’s performance, mostly during slowing de- mand in the property business.
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KEY POINTS
Exhibit 6. Table of Aryaduta Hotels
Rooms Lippo Village 192
Jakarta 302
Medan 197 Pekanbaru 158 Manado 200 Semanggi 274 Makassar 224 Palembang 169 Bandung 254 Total 1,970
Source: LPKR
Attractive dividend player LPKR consistently pays dividends to its shareholders, even when the company is experiencing a slowing demand of domestic property busi- ness growth. Over the period of 2011-2015, the average dividend pay- out ratio was relatively attractive, at 21.2%.
Exhibit 7. Dividend payout ratio
28% 26% 25% 26% 25% 24% 22% 20% 18% 16% 15% 15% 14% 12% 10% 2011 2012 2013 2014 2015
Source: Bloomberg, LPKR, processed by BNIS Research
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KEY POINTS
Valuation We set valuation for LPKR by using the DCF method, WACC of 10.3%, which arrives at a target price (TP) of Rp 1,130 per share (25.6% upside potential from closing price on November 1, 2016). In our view, the outlook for the company is still positive, in our view, despite the com- pany continues to face slowing property demand growth since 2015. LPKR has a well-diversified business stream which will support the company’s revenue and performance growth. The company does not only depend on one type of recurring income, but has various recurring incomes, with the highest contribution from its healthcare business.
We see also the healthcare business shows remarkable improvement, its earning was Rp1.3 trillion in 2011, then rising to Rp 4.1 trillion in 2015. Therefore, LPKR is still in progress of improving and expanding its healthcare business, along with the addition of new hospitals.
LPKR also enjoys recurring income from hospitality and infrastructure (including hotels) and property and portfolio management. From the property business, LPKR sells high- and low-rise residential and indus- trial areas as well. Currently, LPKR is traded at forward 2017 PER and 2017 PBV of 26.4x and 1.1x, correspondingly. Thus, we set our BUY rec- ommendation for the stock, underpinned by LPKR’s prospective busi- ness and better earnings growth in the future.
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Key Figures
Figure 1. Healthcare revenue Figure 2. Marketing sales excluding REITS
Rp billion Rp billion 5,500 4,500 4,144 5,185 4,000 5,000 4,683 3,341 3,500 4,500 4,116 3,000 2,555 4,000 2,504 3,623 2,500 3,500 3,178 2,000 1,788 3,000 1,500 1,260 1,000 2,500 500 2,000 2011 2012 2013 2014 2015 1H16 2011 2012 2013 2014 2015
Source: LPKR Source: LPKR, processed by BNIS Research
Figure 3. Asia Pacific Property price Figure 4. Rental yield USD per sqm %
Malaysia 2,616 Taiwan 1.57 Indonesia 2,766 India 2.22 Cambodia 2,913 Hong Kong 2.82 Philippines 3,156 Singapore 2.83 Thailand 3,952 Malaysia 4.57 Taiwan 7,112 Japan 5.02 Japan 10,784 Thailand 5.13 India 11,455 Cambodia 5.33 Singapore 15,251 Indonesia 7.05 Hong Kong 22,814 Philippines 7.51
0 5,000 10,000 15,000 20,000 25,000 0.00 2.00 4.00 6.00 8.00
Source: Global Property Guide Source: Global Property Guide
Figure 5. Comparison of doctors to population Figure 6. Healthcare spending to GDP
Doctors/1,000 populations % to GDP 3.00 2.79 Indonesia 3.1 2.50 2.31 India 4.0 2.00 1.77 Malaysia 4.0 1.48 Singapore 4.6 1.50 1.26 China 5.6 1.00 0.74 Vietnam 6.0 0.30 0.31 0.50 South Korea 7.2 0.00 United Kingdom 9.1 Australia 9.4 USA 17.1
.00 5.00 10.00 15.00 20.00 Source: LPKR presentation material Source: World Bank, WHO 2016
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Summary of Financials
Income statement (Rp billion) Balance sheet (Rp billion)
2013 2014 2015 2016E 2017E 2013 2014 2015 2016E 2017E Revenue 6,666.21 11,655.04 8,910.18 11,135.74 12,675.29 Cash 1,855.16 3,582.88 1,838.99 1,906.02 2,213.80 Operating profit 1,943.02 3,437.77 1,490.33 2,117.31 2,477.34 Short-term investment 0.00 0.00 0.00 0.00 0.00 Interest expense (120.43) (186.91) (260.70) (205.41) (210.99) Accounts receivable 771.67 951.10 1,434.35 1,590.82 1,810.76 Pretax income 1,924.83 3,323.96 1,284.83 1,946.51 2,308.65 Other current assets 21,386.29 25,507.99 30,303.60 32,346.38 33,822.98 Minority interest (364.26) (583.70) (488.73) (389.30) (461.73) Total current assets 24,013.13 30,041.98 33,576.94 35,843.22 37,847.54 Net income 1,228.23 2,556.25 535.39 1,265.23 1,500.62 Fixed assets 2,810.89 3,208.76 2,731.53 2,868.11 3,011.51 Basic EPS 53.94 111.86 23.20 54.82 34.05 Total non-current assets 7,295.23 7,814.40 7,749.62 7,979.99 8,533.60 EBITDA 2,237.75 3,826.51 1,959.30 2,465.39 2,877.63 Total Assets 31,308.36 37,856.38 41,326.56 43,823.21 46,381.14 Liabilities and Shareholders' Equity Accounts payable 397.75 404.17 782.92 656.01 721.51 Short-term borrowings 16.72 185.98 1,010.43 1,299.09 1,674.33 Other short-term liabilities 4,432.80 5,218.74 3,063.53 3,308.11 3,692.01 Total Current Liabilities 4,847.27 5,808.89 4,856.88 5,263.20 6,087.85 Long-term borrowings 7,790.80 9,811.14 11,354.81 12,443.11 12,440.24 Other long-term liabilities 4,501.82 4,615.53 6,198.10 5,733.22 6,718.87 Total Long-Term Liabilities 12,292.62 14,426.66 17,552.91 18,176.34 19,159.11 Total Liabilities 17,139.89 20,235.55 22,409.79 23,439.54 25,246.96 Minority interest 1,384.85 2,033.25 2,522.62 2,314.90 2,314.90 Total Equity 12,783.61 15,587.58 16,394.14 18,068.98 18,819.29
Cash flow (Rp billion) Key Ratio Analysis
2013 2014 2015 2016E 2017E 2013 2014 2015 2016E 2017E Cash flow from operating activities Revenue (Rp billion) 6,666.21 11,655.04 8,910.18 11,135.74 12,675.29 Net income 1,228.23 2,556.25 535.39 1,265.23 1,500.62 Revenue growth (YoY) 8.2% 74.8% -23.6% 25.0% 13.8% Depreciation & amortization 294.73 388.74 468.96 348.08 400.29 Operating expense/revenue 67.9% 61.3% 57.7% 52.5% 52.8% Others (4,659.78) (3,508.90) (7,054.70) (2,081.58) (1,247.14) Net income (Rp billion) 1,228.23 2,556.25 535.39 1,265.23 1,500.62 Cash flow from operations (3,136.82) (563.91) (6,050.34) (468.27) 653.77 EPS (Rp/share) 53.94 111.86 23.20 54.82 34.05 EPS growth 15.8% 107.4% -79.3% 136.3% -37.9% Cash flow from investing activities Dividend per share (Rp) 14.05 16.68 3.50 8.22 9.75 Capital expenditure (883.25) (786.61) 8.27 (484.66) (543.70) Dividend yield 1.6% 1.9% 0.4% 0.9% 1.1% Cash flow from investing activities (1,518.19) (907.91) (172.76) (809.88) (953.90) Total Equity (Rp billion) 12,783.61 15,587.58 16,394.14 18,068.98 18,819.29 Total Assets (Rp billion) 31,308.36 37,856.38 41,326.56 43,823.21 46,381.14 Cash flow from financing activities EBITDA margin 33.6% 32.8% 22.0% 22.1% 22.7% Dividends paid (324.24) (384.94) (80.77) (189.78) (225.09) Operating margin 29.1% 29.5% 16.7% 19.0% 19.5% Change in borrowings 1,793.17 2,189.59 2,368.13 1,376.96 372.37 Net income margin 18.4% 21.9% 6.0% 11.4% 11.8% Cash flow from financing activities 3,172.70 3,199.42 4,479.82 1,345.18 607.91 Current ratio (x) 4.95 5.17 6.91 6.81 6.22 Net changes in cash (1,482.31) 1,727.59 (1,743.28) 67.04 307.78 Debt to assets (x) 0.55 0.53 0.54 0.53 0.54 Net debt to equity (x) 0.47 0.41 0.64 0.66 0.63 Cash at beginning of the year 3,337.36 1,855.16 3,582.88 1,838.99 1,906.02 DER (x) 1.34 1.30 1.37 1.30 1.34 Cash at the end of the year 1,855.16 3,582.88 1,838.99 1,906.02 2,213.80 PER (x) 16.69 8.05 38.79 16.42 26.43 PBV (x) 1.62 1.33 1.27 1.15 1.10 PEG (x) 1.05 0.07 -0.49 0.12 -0.70
Interim result (Rp billion) Capital history 1H15 1H16 yoy 1Q16 2Q16 Revenue 4,746.94 5,108.85 7.62% 2,605.20 2,503.65 Date Operating profit 1,225.60 1,038.00 -15.31% 570.30 467.70 13-Dec-10 Rights issue of 1 per 4 Net income 775.30 497.80 -35.79% 308.68 189.12 20-Dec-07 Stock split 5 for 2 EPS (Rp) 34.05 21.86 13.56 8.30 28-Jul-06 Stock split 1 for 2 28-Jun-96 IPO Operating margin 25.82% 20.32% 21.89% 18.68% Net margin 16.3% 9.7% 11.8% 7.6%
Source: Company, BNIS estimate
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MAIN OFFICE - JAKARTA PT BNI SECURITIES Sudirman Plaza, Indofood Tower 16th Floor, Jl. Jend. Sudirman Kav. 76-78 Jakarta 12910, Indonesia Phone: (62-21) 25543946 (Hun ng) Fax: (62-21) 57935831 e-mail: bnisec@bnisecuri es.co.id (General)
JAKARTA - Mangga Dua MALANG Pertokoan Mangga Dua Blok E4 No. 7 Jl. Buring No. 58 Malang Jl. Mangga Dua, Jakarta Utara Phone: (62-341) 321214, 321213, 341430 Phone: (62-21) 6123804/5 Fax: (62-341) 356876 Fax: (62-21) 6123806 e-mail: malang@bnisecuri es.co.id e-mail: manggadua@bnisecuri es.co.id DENPASAR JAKARTA - Wisma 46 Pertokoan Diponegoro Megah Blok. A5-A6, Lt. 2 Wisma BNI 46 Lantai 31 Kota BNI Jl. Diponegoro No. 100 Denpasar - Bali Jl.Jend Sudirman Kav.1 Jakarta 10220 Phone: (62-361) 264376 Phone: 021- 2515266 Fax: (62-361) 229170 Fax.021-5749837 e-mail: denpasar@bnisecuri es.co.id e-mail: wisma46@bnisecuri es.co.id
MEDAN JAKARTA - Puri Indah Puri Niaga 3 Blok M8 No. 1B Jl. Pemuda No. 12 Puri Kembangan, Jakarta Barat Phone: (62-61) 4579616 Phone: (62-21) 58357464 Fax: (62-61) 4579656 Fax: (62-21) 58357465 e-mail: medan@bnisecuri es.co.id e-mail: puriindah@bnisecuri es.co.id PALEMBANG BANDUNG Jl. Jend. Sudirman No. 132, Kotak Pos 165 PLG Jl. Perin s Kemerdekaan No. 3 Phone: (62-711) 3619662 Phone: (62-22) 4213375 Fax: (62-711) 3619663 Fax: (62-22) 4213376 e-mail: plb@bnisecuri es.co.id e-mail: bdg_pk@bnisecuri es.co.id PEKANBARU YOGYAKARTA BNI Cabang Pasar Pusat Jl.Jend Sudirman No.365 Pekanbaru 28282 Gedung BNI, Jl. Laksda Adi Sucipto No.137 Phone: (62-761) 46757, 839698 Phone: (62-274) 581001 Fax: (62-761) 856279 Fax: (62-274) 584023 e-mail: pekanbaru@bnisecuri es.co.id e-mail: yogya@bnisecuri es.co.id
SEMARANG SOLO Thamrin Square Blok B5 Jl. Slamet Riyadi No. 348 Jl.MH Thamrin No.5 Semarang Phone: (62-271) 729667 Phone: (62-24) 3566414-5, 64126413-7 Fax: (62-271) 729668 Fax: (62-24) 3581713 e-mail: solo@bnisecuri es.co.id e-mail: bnissmg@bnisecuri es.co.id
SURABAYA ACEH Jl. Pemuda No. 36 Jl.KH Akhmad Dahlan No.111 Lt.2 Phone: (62-31) 5320912 Banda Aceh Fax: (62-31) 5318425 Phone: (62-651) 31109 e-mail: surabaya@bnisecuri es.co.id Fax: (62-651) 31107
JAMBI BANJARMASIN Gd. BNI Cabang Jambi Gd. Bank BNI Antasari Lt. 2 Jl. Dr. Soetomo No 20 Jl. Pangeran Antasari No. 44 RT 008, Banjarmasin Phone: (62-741) 34100 Phone: (62-511) 3253735 Fax: (62-651) 34104 Fax: (62-651) 3253754 e-mail: jambi@bnisecuri es.co.id e-mail: banjarmasin@bnisecuri es.co.id
DISCLAIMER This document is not intended to be an offer, or a sa sfac on of an offer, to buy or sell relevant securi es (i.e. securi es men oned herein or of the same issuer and op ons, warrants or rights to or interest in any such securi es). The informa on and opinions contained in this document have been compiled from or arrived at in good faith from sources believed to be reliable. No representa on or warranty, expressed or implied, is made by BNI SECURITIES or any other member of the BNI Group, including any other member of the BNI Group from whom this document may be received, as to the accuracy or completeness of the informa on contained herein. All opinions and es mates in this report cons tute our judg- ment as of this date and are subject to change without no ce.
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