Lippo Karawaci (LHS) Indonesia Company Guide

Transcription

1 Indonesia Company Guide Version 3 Bloomberg: LPKR IJ Reuters: LPKR.JK Refer to important disclosures at the end of this report DBS Group Research. Equity 18 Jul 2016 FULLY VALUED Last Traded Price: Rp1,170 (JCI : 5,083.54) Price Target : Rp1,025 (12% downside) (Prev Rp990) Potential Catalyst: Faster monetisation of revamped projects Where we differ: One of the negative calls amid BUY recommendations Analyst Edward Ariadi Tanuwijaya edward.tanuwijaya@id.dbsvickers.com Price Relative 1, , , , , Rp Jul-12 Jul-13 Jul-14 Jul-15 Jul-16 (LHS) Relative JCI INDEX (RHS) Relative Index Forecasts and Valuation FY Dec (Rpbn) 2015A 2016F 2017F 2018F Revenue 8,910 10,428 10,878 12,507 EBITDA 2,225 2,551 2,824 2,970 Pre-tax Profit 1,491 2,108 2,207 2,203 Net Profit 535 1,302 1,365 1,280 Net Pft (Pre Ex.) 690 1,302 1,365 1,280 Net Pft Gth (Pre-ex) (%) (68.0) (6.2) EPS (Rp) EPS Pre Ex. (Rp) EPS Gth Pre Ex (%) (68) 89 5 (6) Diluted EPS (Rp) Net DPS (Rp) BV Per Share (Rp) PE (X) PE Pre Ex. (X) P/Cash Flow (X) nm EV/EBITDA (X) Net Div Yield (%) P/Book Value (X) Net Debt/Equity (X) ROAE (%) Earnings Rev (%): Consensus EPS (Rp): Other Broker Recs: B: 3 S: 6 H: 10 Source of all data: Company, DBS Vickers, Bloomberg Finance L.P Look for the value within Maintain FULLY VALUED call, as we nudged our RNAV assumptions slightly by 2% to Rp1,460/sh (from Rp1,437/sh previously) to reflect lower country risk-free rate (RFR) in WACC calculations, considering declining trend of 10-year Indonesia government bond yield. Subsequently, our TP rises slightly to Rp1,025. Expect anaemic earnings growth. LPKR s indicative YTD marketing sales have not differed much from 1Q s achievement and hence, it will face a monumental task to achieve its full-year guidance. Given its muted revenue growth and sliding margins (due to changes in revenue mix), we forecast LPKR s earnings (excluding unrealised forex gain loss and asset sales to REITs) to grow a mere 2.7% CAGR between 2013 and 2017F. Its earnings had somewhat hit the ceiling in Subsidiaries are the better play now. 1) LPCK has better earnings growth and its marketing sales are the major contributor to LPKR s despite LPKR having three other urban developments and a few smaller residential and commercial projects in its portfolio. In addition, its valuation is highly attractive at a 64% discount to RNAV and 6x FY16F PE. 2) SILO is a direct exposure to Indonesia s healthcare story and possesses better growth potential going forward. Valuation: Our target price of Rp1,025 is at a 31% discount to our basecase RNAV (based on its adjusted 8-year average). LPKR is currently trading at a 20% discount to RNAV (narrower than its 8-year average of 44%) and 20.7x FY16F PE (at around its mean forward PE). Key Risks to Our View: Better take-up than expected on LPKR launches. Better project execution and turnaround in demand may cause marketing sales to exceed our conservative target. Better-than-expected growth of investment properties. There may be an upside to our conservative estimates for LPKR s expansion in retail mall and hospital segments. LPKR s investment properties are heavily dependent on its two Singapore-listed REITs to expand its retail mall and hospital segments. At A Glance Issued Capital (m shrs) 23,078 Mkt. Cap (Rpbn/US$m) 27,001 / 2,072 Major Shareholders (%) Pacific Asia Holding Ltd 17.9 Metropolis Propertindo Utama 5.3 Free Float (%) m Avg. Daily Val (US$m) 5.2 ICB Industry : Real Estate / Real Estate Investment & Services ed: TH / sa: MA

2 LPKR: RNAV summary Portfolio City Category Value (Rpbn) Stakes Full Value (Rpbn) % of total Landbank (ha) Urban Developments Lippo Village (incl. Millennium Village) West Jakarta Residential 11, % 11, % 153 Lippo Cikarang (incl. Orange County development) East Jakarta Industrial 7,532 54% 14, % 509 Tanjung Bunga Makassar Makassar Residential 1,519 50% 3, % 315 San Diego Hills East Jakarta Memorial Park 1, % 1, % 97 Subtotal 22,165 Large Scale Integrated Development Kemang Village South Jakarta Mixed-use 1,643 90% 1, % 6.2 St. Moritz West Jakarta Mixed-use 2, % 2, % St. Moritz Makassar Mixed-use % % City of Tomorrow Surabaya Mixed-use % % New projects (Apartment & Residential & Jakarta Office) Office % % Others (land, retail space inv. & other dev) % % Subtotal 6,022 Hospitals Subtotal 8,107 70% 11, % Retail malls Retail space inventory % % Subtotal 700 Hotels Aryaduta Lippo Village 681 FREIT % Aryaduta Jakarta, Medan and Pekanbaru 1, % 1, % Subtotal 2,355 REIT units 5,871 FREIT & LMIRT 5, % 50,433 Net Debt 11,530 RNAV 33,690 Fully Diluted Share base (m) Fully Diluted RNAV per share 1,460 Source: DBS Vickers Page 2

3 Dec-07 Apr-08 Aug-08 Dec-08 Apr-09 Aug-09 Dec-09 Apr-10 Aug-10 Dec-10 Apr-11 Aug-11 Dec-11 Apr-12 Aug-12 Dec-12 Apr-13 Aug-13 Dec-13 Apr-14 Aug-14 Dec-14 Apr-15 Aug-15 Dec-15 Apr-16 Company Guide CRITICAL DATA POINTS TO WATCH Earnings Drivers: Marketing sales achievement Property developers recognise non-recurring revenue from marketing sales in the prevailing years. We expect revenue to expand at 12% CAGR over F (excluding one-off asset sales) given the current project pipeline and that marketing sales grew at 19% CAGR over However, we foresee marketing sales for its existing developments to be slow for the next three years (below the achievement in 2014). Despite having three urban developments, two large-scale mixed-used developments and a few smaller residential and commercial projects in the pipeline, marketing sales in the next three years will still much dependent on the projects of its subsidiary Lippo Cikarang (given its good take-up rates and niche market). More dependent on healthcare revenue going forward Revenue contribution from the healthcare segment has surged to 47% of LPKR s consolidated revenues, following aggressive expansion (+34% CAGR) over We expect the segment to contribute more as other segments continue to moderate. LPKR is unique and ahead of other developers in tapping on healthcare needs in Indonesia, which is under-penetrated relative to the regional countries. 5,237 4,489 3,741 2,992 2,244 1, Rp bn 12,000 10,000 8,000 6,000 4,000 2,000 0 Rp bn 3,535 3,035 2,535 2,035 Marketing sales (Rpbn) 5,185 4,078 3,888 3,623 3,357 Sales Trend 80.0% 60.0% 40.0% 20.0% 0.0% -20.0% Total Revenue Revenue Growth (%) (YoY) Proftability Trend Lower profitability as a result of entry into healthcare segment Property development (both landed and high-rise) had been generating high gross margins (over 50%) in the past three years. But revenue contribution has slipped over the years due to aggressive expansion into the healthcare segment (which has lower GP margins). We expect healthcare to contribution more to LPKR s consolidated revenue in the next few years, which means consolidated margins will continue to slide. 1,535 1, Operating EBIT Pre tax Profit Net Profit 30.0% 25.0% Margins Trend Unrealised forex loss to wipe out net earnings on paper Although its US$ global bonds are hedged with collar options, LPKR faces a staggering unrealised accounting forex loss (this accounts more than 10% of its FY15 pretax profit). Company Background LPKR operates five businesses, namely township, healthcare, retail mall, hospitality and portfolio management. It has listed subsidiaries in Lippo Cikarang (LPCK) and Gowa Makassar Tourism Development (GMTD), and stakes in First REIT and LMIRT (both listed in Singapore). 20.0% 15.0% 10.0% 5.0% 80% 60% 40% Operating Margin % Net Income Margin % Disc to RNAV Trend Average 44% 20% 0% -20% -40% Source: Company, DBS Vickers Page 3

4 Balance Sheet: Net gearing to increase from current level given expansion plan for investment properties. LPKR started its transformation into a high-rise developer a few years ago, and therefore, gearing has been rising and will hover at more than 65% ahead. Asset-light strategy for investment property segment. The investment properties include retail malls and hospitals. LPKR recycles capital by divesting assets to its Singapore-listed REITs (i.e. hospitals to First REIT and retail malls to Lippo Malls Indonesia Retail Trust). Share Price Drivers: Marketing sales achievement and pipeline Marketing sales achievement is a good indicator for all Indonesian property developers (including LPKR) as it gives leading indication for the revenue generation for the next 2-3 years (depending on the revenue recognition). Execution of aggressive healthcare The hospital segment, under subsidiary Siloam (SILO), has to catch up with its aggressive plan to have more than 50 operational hospitals and clinics in portfolio by the end of Possible increase in hedging cost from US$ debt LPKR is exposed to IDR weakness due to its global US$ bonds. LPKR has US$803m bonds on its balance sheet and has fullyhedged the principal through call spreads. Hedging cost may increase beyond reasonable levels if the USD/IDR exchange rate breaches the existing call spreads. Leverage & Asset Turnover (x) Gross Debt to Equity (LHS) Asset Turnover (RHS) Capital Expenditure Rpbn Rpm 1, , , , , Capital Expenditure (-) 25.0% 20.0% 15.0% 10.0% 5.0% ROE (%) Key Risks: Stricter regulations for high-rise developments. Plot ratio approval and balanced ratio rules, when strictly implemented, could potentially slow property demand. Liquidity tightening could slow demand further. Potential interest rate hike. Property demand is sensitive to and is negatively correlated to interest rate movements. Exposure to US$, both financially (i.e. debt in balance sheet) and operationally (i.e. higher material cost, especially for highrise projects with higher US$-linked items), is a risk amid the weak IDR environment. Strict implementation on potential revision to housing development balance ratio (of low, middle and luxury houses). If implemented strictly and retroactively, this could potentially mean additional costs for property developers and more complicated property development planning. Capital-intensive projects require large funding. High-rise and hospital developments require large upfront capital. External financing costs have to be kept in check. 0.0% Forward PE Band (x) (x) Jul-12 Jul-13 Jul-14 Jul-15 PB Band (x) (x) Jul-12 Jul-13 Jul-14 Jul-15 +2sd: 33.6x +1sd: 27x Avg: 20.5x -1sd: 13.9x -2sd: 7.3x +2sd: 4.32x +1sd: 3.53x Avg: 2.74x -1sd: 1.95x -2sd: 1.16x Source: Company, DBS Vickers Page 4

5 Key Assumptions FY Dec Marketing sales 5,185 3,623 3,889 4,078 3,357 Segmental Breakdown FY Dec Revenues (Rpbn) Land lots ,406 1,194 1,758 Residential+shophouse 1,288 1, Memorial Park Apartment 1, ,503 1,267 1,117 Others 8,104 5,693 6,997 7,980 9,033 Total 11,655 8,910 10,428 10,878 12,507 Gross Profit (Rpbn) Land lots ,055 Residential+shophouse Memorial Park Apartment Others 3,349 2,243 2,797 3,179 3,220 Total 5,397 4,119 4,737 4,834 5,235 Gross Profit Margins (%) Land lots Residential+shophouse Memorial Park Apartment Others Total Apartments sales and hospitals (recurring revenue) are the revenue drivers going forward Income Statement (Rpbn) FY Dec Revenue 11,655 8,910 10,428 10,878 12,507 Cost of Goods Sold (6,258) (4,792) (5,691) (6,044) (7,272) Gross Profit 5,397 4,119 4,737 4,834 5,235 Other Opng (Exp)/Inc (2,119) (2,391) (2,711) (2,719) (3,127) Operating Profit 3,278 1,727 2,026 2,114 2,108 Other Non Opg (Exp)/Inc Associates & JV Inc 8.20 (13.1) Net Interest (Exp)/Inc (122) (177) (334) (346) (343) Exceptional Gain/(Loss) 397 (155) Pre-tax Profit 3,696 1,491 2,108 2,207 2,203 Tax (556) (467) (521) (544) (625) Minority Interest (584) (489) (285) (298) (297) Preference Dividend Net Profit 2, ,302 1,365 1,280 Net Profit before Except. 2, ,302 1,365 1,280 EBITDA 3,688 2,225 2,551 2,824 2,970 Growth Revenue Gth (%) 74.8 (23.6) EBITDA Gth (%) (39.7) Opg Profit Gth (%) (47.3) (0.3) Net Profit Gth (Pre-ex) (%) 71.2 (68.0) (6.2) Margins & Ratio Gross Margins (%) Opg Profit Margin (%) Net Profit Margin (%) ROAE (%) ROA (%) ROCE (%) Div Payout Ratio (%) Net Interest Cover (x) Revenue surged because of proceeds from oneoff asset sale (Rp3.3tr) to REITs Source: Company, DBS Vickers Page 5

6 Quarterly / Interim Income Statement (Rpbn) FY Dec 1Q2015 2Q2015 3Q2015 4Q2015 1Q2016 Revenue 2,447 2,300 2,012 2,151 2,605 Cost of Goods Sold (1,247) (1,243) (1,046) (1,256) (1,434) Gross Profit 1,200 1, ,171 Other Oper. (Exp)/Inc (573) (480) (694) (644) (664) Operating Profit Other Non Opg (Exp)/Inc (21.7) 123 Associates & JV Inc (21.6) 1.00 Net Interest (Exp)/Inc (27.6) (27.6) (43.5) (78.3) (87.8) Exceptional Gain/(Loss) (3.7) 26.1 (808) Pre-tax Profit (564) Tax (101) (137) (48.6) (181) (88.2) Minority Interest (143) (139) (96.1) (111) (146) Net Profit (708) Net profit bef Except (163) 309 EBITDA Growth Revenue Gth (%) (55.8) (6.0) (12.5) EBITDA Gth (%) (66.0) (8.0) (52.7) (8.3) Opg Profit Gth (%) (66.0) (8.0) (52.7) (8.3) Net Profit Gth (Pre-ex) (%) (67.3) (21.2) (69.9) nm nm Margins Gross Margins (%) Opg Profit Margins (%) Net Profit Margins (%) (35.2) Decimated by unrealised forex loss. Balance Sheet (Rpbn) FY Dec Net Fixed Assets 3,519 3,149 4,493 5,302 5,954 Invts in Associates & JVs Other LT Assets 4,295 4,601 5,119 5,961 6,889 Cash & ST Invts 3,529 1,839 1, Inventory 16,579 20,459 23,559 24,825 26,106 Debtors 951 1,434 1,304 1,360 1,563 Other Current Assets 8,983 9,844 9,844 9,844 9,844 Total Assets 37,856 41,327 45,640 48,029 51,336 ST Debt 186 1,010 1,010 1,010 1,010 Creditor Other Current Liab 8,332 7,771 10,585 11,093 12,645 LT Debt 9,811 11,355 11,148 11,256 11,179 Other LT Liabilities 1,502 1,491 1,714 1,971 2,267 Shareholder s Equity 15,588 16,394 17,616 18,787 19,863 Minority Interests 2,033 2,523 2,807 3,105 3,403 Total Cap. & Liab. 37,856 41,327 45,640 48,029 51,336 Non-Cash Wkg. Capital 17,776 23,184 23,363 24,131 23,899 Net Cash/(Debt) (6,468) (10,526) (10,837) (11,530) (11,209) Debtors Turn (avg days) Creditors Turn (avg days) Inventory Turn (avg days) , , , ,486.4 Asset Turnover (x) Current Ratio (x) Quick Ratio (x) Net Debt/Equity (X) Net Debt/Equity ex MI (X) Capex to Debt (%) Z-Score (X) Net gearing to remain relatively high due to hospital expansion and its continuing transformation into more of a high-rise developer Source: Company, DBS Vickers Page 6

7 Cash Flow Statement (Rpbn) FY Dec Pre-Tax Profit 3,696 1,491 2,108 2,207 2,203 Dep. & Amort Tax Paid (556) (467) (521) (544) (625) Assoc. & JV Inc/(loss) Chg in Wkg.Cap. (3,405) (5,407) (179) (768) 232 Other Operating CF (629) (501) (285) (298) (297) Net Operating CF (484) (4,386) 1,648 1,307 2,374 Capital Exp.(net) (333) (355) (1,611) (1,309) (1,075) Other Invts.(net) Invts in Assoc. & JV Div from Assoc & JV Other Investing CF (648) (89.8) (552) (795) (1,072) Net Investing CF (324) 44.9 (1,879) (1,806) (1,849) Div Paid (320) (380) (80.0) (195) (204) Chg in Gross Debt 2,190 2,368 (207) 108 (77.5) Capital Issues Other Financing CF Net Financing CF 2,483 2,651 (287) (86.2) (282) Currency Adjustments Chg in Cash 1,674 (1,690) (518) (585) 244 Opg CFPS (Rp) Free CFPS (Rp) (35.4) (205) 1.59 (0.1) 56.3 Source: Company, DBS Vickers Target Price & Ratings History Rp S.No. Date Closing Price T arget Price Rating 1: 10 Aug HOLD 2: 03 Sep HOLD 3: 01 Dec HOLD 4: 05 Jan FULLY VALUED 5: 19 Feb FULLY VALUED 6: 03 Mar FULLY VALUED 7: 29 Apr FULLY VALUED 8: 24 Jun FULLY VALUED Jul-15 Nov-15 Mar-16 Jul-16 Note : Share price and Target price are adjusted for corporate actions. Source: DBS Vickers Page 7

8 DBS Vickers recommendations are based an Absolute Total Return* Rating system, defined as follows: STRONG BUY (>20% total return over the next 3 months, with identifiable share price catalysts within this time frame) BUY (>15% total return over the next 12 months for small caps, >10% for large caps) HOLD (-10% to +15% total return over the next 12 months for small caps, -10% to +10% for large caps) FULLY VALUED (negative total return i.e. > -10% over the next 12 months) SELL (negative total return of > -20% over the next 3 months, with identifiable catalysts within this time frame) Share price appreciation + dividends GENERAL DISCLOSURE/DISCLAIMER This report is prepared by PT DBS Vickers Securities Indonesia. 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