BUY. Lippo Karawaci EQUITY RESEARCH. Stable income through diversified products. TP: Rp880 (+19.7%) LPKR - Results Update - 10 October 2017

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1 BUY TP: Rp880 (+19.7%) Lippo Karawaci Stable income through diversified products Sector Bloomberg Ticker Share Price Performance Property LPKR IJ Last price (Rp) 735 Avg. daily T/O (Rpbn/USDmn) 53.2/3.9 3m 6m 12m Absolute (%) Relative to JCI (%) w High/Low price (Rp) 980/610 1,200 1, Outstanding shrs (mn) 23,078 Mkt. Cap (Rpbn/USDmn) 16,962/1,257 Estimated free float (%) 87.2 Major shareholders Pacific Asia Holding Ltd 10.1% Inti Anugrah 7.5% EPS Consensus Oct-16 Nov-16 Dec-16 Jan-17 Feb-17 Mar-17 Apr-17 May-17 Jun-17 Jul-17 Aug-17 Sep-17 Oct-17 LPKR Ciptadana Cons. % Diff 2017F F F Yasmin Soulisa ext. 799 soulisayasmin@ciptadana.com 0% -5% -10% -15% -20% -25% -30% -35% -40% -45% 1yr Rel. to JCI (RHS) 1H17 earnings flat, 2Q17 net profit expanded on other income Lippo Karawaci (LPKR) s net income came in at Rp487 bn in 1H17 on the back of Rp4.94 tn of revenue. The 1H17 revenue is relative flat, slightly reduced by 3% compared to 1H16 of Rp5.11 tn. EBIT is down by 23% YoY as the operating expenses soar to Rp1.4 tn from previous year of Rp1.3 tn. However the significant lower operating income is offset by a 53% YoY drop in interest expense hence 1H17 net income merely reduced by 2% YoY to Rp487 bn while profit margin steadied at 10%. Compare to our estimates, both revenue and net income fell below our expectation by only represent 40% and 33%, respectively, of our 2017 full year revenue and net profits estimation. Meanwhile, 2Q17 net profit rose by 142% QoQ to Rp345 bn which was largely helped by higher other income of Rp203 bn, a reversal from loss of Rp70 bn a year earlier. The 2Q17 revenue was down by 6% QoQ to Rp2.4 tn which led to operating profit declining by 11% QoQ to Rp322 bn. Siloam Hospitals generated 56% of total revenue in 1H17 Healthcare segment remained the largest contributor of LPKR s 1H17 revenue with Rp2.76 tn (+7.9% YoY). Gross margin from healthcare slightly reduced to 28% from previous year of 31% which we believe attributed to new hospitals opening in 1H17. The company added another eight Siloam Hospitals in 1H17 with a total bed capacity of 1,109 and 411 operational beds, strengthened its position as the largest hospital operator in Indonesia. The Meikarta project should start to contribute by 2H17 The latest massive urban development project in greater Jakarta, the Meikarta, is under Lippo Cikarang which is 54.4% owned by LPKR. The company booked Rp2.4 tn of marketing sales from Meikarta since its launching in Mei According to the company, with the current rate of development underway, Meikarta should recognize revenue at least 10-15% of the pre-sales by end of this year. In 1H17, the urban development segment delivered Rp686 bn (-41% YoY) of revenue or accounted for 14% of total revenue. Achievement of 84% of 2017 marketing sales The company targeted Rp3.15 tn of marketing sales to be booked in 2017 with Rp2.29 tn expected from residential properties. As of 1H17, residential sales amounted to Rp2.48 tn boosted by transaction from apartment units (Rp2.45 tn of marketing sales). LPKR booked Rp2.65 bn of marketing sales in 1H17 and expected another Rp6.85 tn from asset sold to REITS by the end of this year. In 2016, LPKR generated Rp2.14 tn of marketing sales. Maintain BUY with TP Rp880 This report marks change in analyst covering the stock. We still rate LPKR as a BUY as our new TP of Rp880 offers around 20% upside from current share price. Our F revenue forecasts are now 1% and 3% lower than previous estimates while the F net profits are reduced by 19% and 20%, respectively. We roll over our RNAV calculation to 2018 and our new RNAV/share is now Rp2,201. Our TP is based on 60% discount to our RNAV. Exhibit 1 : Financial Highlights Year to 31 Dec 2015A 2016A 2017F 2018F 2019F Revenue (Rpbn) 8,910 10,538 12,100 13,550 14,238 Operating profit (Rpbn) 1,727 1,746 2,443 3,262 3,829 Net profit (Rpbn) ,198 1,525 1,481 EPS (Rp) EPS growth (%) EV/EBITDA (x) PER (x) PBV (x) Dividend yield (%) ROE (%) Please see analyst certification and other important disclosures at the back of this report 2

2 Exhibit 2 : LPKR 1H17 Results (Rpbn) 1H17 1H16 YoY 2Q17 1Q17 QoQ FY17F 1H/17F Revenues 4,937 5,109-3% 2,396 2,541-6% 12,250 40% Cost of revenue (2,830) (2,807) 1% (1,368) (1,463) -7% Gross profit 2,106 2,302-9% 1,028 1,078-5% 5,658 37% Gross margin (%) Selling expenses (318) (275) 15% (198) (119) 66% G & A expenses (1,103) (1,051) 5% (508) (595) -15% Operating expenses (1,420) (1,326) 7% (706) (714) -1% Operating profit % % 2,443 28% Operating margin (%) Forex gain (loss) % 160 (34) n/a Interest income % % Interest expense (118) (209) -43% (61) (58) 5% Other income (exp) % 84 (9) n/a Total other inc (exp) % 203 (70) n/a Pre-tax profit % % Tax (219) (223) -2% (151) (68) 122% PBMI % % MI (113) (256) -56% (30) (84) -64% Net profit % % 1,471 33% Net margin (%) Revenue breakdown Urban development 687 1,163-41% % Large scale int. dev % % Retail malls % % Healthcare 2,758 2, % 1,346 1,412-5% Hospitality & inf % % Property & porto. mgt % % Gross profit margin Urban development 66% 58% 8% 72% 62% 10% Large scale int. dev. 45% 46% -2% 45% 45% 0% Retail malls 100% 98% 2% 100% 100% 0% Healthcare 28% 31% -3% 28% 28% -1% Hospitality & inf. 46% 51% -5% 44% 48% -3% Property & porto. mgt. 96% 96% 0% 96% 96% 0% Exhibit 3 : Forecast Changes New Original Diff (%) 2017F 2018F 2017F 2018F 2017F 2019F Financials (Rpbn) Revenue 12,100 13,550 12,250 13,975 (1) (3) Gross profit 5,950 6,594 5,658 6, Operating profit 2,443 3,262 2,635 3,177 (7) 3 Net profit 1,198 1,525 1,471 1,911 (19) (20) Margins (%) Gross profit Operating profit Net profit Source : Ciptadana Estimates Please see analyst certification and other important disclosures at the back of this report 3

3 Exhibit 4 : Income Statement Year to 31 Dec (Rpbn) 2015A 2016A 2017F 2018F 2019F Revenue 8,910 10,538 12,100 13,550 14,238 COGS -4,792-6,021-6,150-6,956-6,736 Gross profit 4,119 4,517 5,950 6,594 7,502 Oper. expenses -2,391-2,771-3,507-3,332-3,673 Oper. profit 1,727 1,746 2,443 3,262 3,829 EBITDA 2,170 2,214 2,976 3,857 4,485 Interest income Interest expense Other income (exp.) Pre-tax profit 1,491 1,771 2,240 2,976 3,450 Income tax ,007-1,502 Minority interest Net profit ,198 1,525 1,481 Exhibit 5 : Balance Sheet Year to 31 Dec (Rpbn) 2015A 2016A 2017F 2018F 2019F Cash & cash equivalent 1,839 3,250 3,731 4,179 4,391 Acct, receivables 1,434 1,823 1,303 1,514 1,727 Inventory 20,459 23,370 22,768 26,252 27,900 Other curr, asset 9,844 9,011 8,559 8,177 7,794 Total current asset 33,577 37,453 36,361 40,122 41,811 Fixed assets - net 3,149 3,527 3,845 4,101 4,296 Other non-curr.asset 4,447 4,361 4,217 4,342 4,346 Total asset 41,327 45,604 44,868 49,324 51,747 ST debt + curr. maturity 1,010 1,408 1,659 1,990 2,387 Acct, payable ,013 1,094 Advances received 5,212 4,648 7,155 7,983 7,487 Other curr. liab 2,200 2,520 2,767 3,254 3,625 Long term debt 11,355 12,149 10,023 10,361 10,768 Other non-curr, liab, 1,850 1,984 2,620 2,812 2,819 Total liabilities 22,410 23,529 25,121 27,414 28,181 Shareholder equity 16,394 18,572 15,264 16,447 17,122 Minority interest 2,523 3,503 4,483 5,463 6,443 Total liab + SHE 41,327 45,604 44,868 49,324 51,747 Exhibit 6 : Per Share Data (Rp) 2015A 2016A 2017F 2018F 2019F EPS BVPS DPS FCF per share Please see analyst certification and other important disclosures at the back of this report 4

4 Exhibit 7 : Cash Flow Year to 31 Dec (Rpbn) 2015A 2016A 2017F 2018F 2019F Net income ,198 1,525 1,481 Depreciation Chg in working cap. -3,984-3,264 1,200-3,579-1,779 Other 1,592 3,173 1,707 1, CF-Oper activities -1,414 1,259 4, Capital expenditure Others 826 1, CF-Investing activities ,289-1,389 Net change in debt 2,368 1,192-1, Net change in equity 663 1,335-4, Dividend payment Other financing -3,309-2,925 3,115 1,686 1,039 CF-Financing activities ,266 2,012 1,037 Net cash flow -1,743 1, Cash - begin of the year 3,583 1,839 3,250 3,731 4,179 Cash - end of the year 1,839 3,250 3,731 4,179 4,391 Exhibit 8 : Key Ratios Year to 31 Dec 2015A 2016A 2017F 2018F 2019F Growth Revenue (%) Operating profit (%) Net profit (%) Profitability Ratios Gross margin (%) Operating margin (%) EBITDA margin (%) Net margin (%) ROA (%) ROE (%) Liquidity Ratios Current ratio (x) Quick ratio (x) Cash conversion cycle (days) 1, , , , ,526.4 Activity Ratio Inventory turnover (days) 1, , , , ,511.9 Receivable turnover (days) Payable turnover (days) Solvency Ratio Interest cover (x) Debt to equity ratio (x) Net debt to equity (x) Please see analyst certification and other important disclosures at the back of this report 5

5 HEAD OF RESEARCH ANALYST ANALYST Arief Budiman Erni Marsella Siahaan, CFA Yasmin Soulisa Strategy, Automotive, Heavy Equipment, Banking Property, Plantations Construction, Shipping T ext 919 T ext 799 T ext 819 E siahaanerni@ciptadana.com E soulisayasmin@ciptadana.com E budimanarief@ciptadana.com ANALYST ANALYST ANALYST Kurniawan Sudjatmiko Nichelle Ongko Niko Margaronis Coal, Metal Mining, Oil & Gas and Services Media, Retail, Others Telecommunication, Tower, Healthcare T ext 739 T ext 740 T ext 734 E sudjatmikokurniawan@ciptadana.com E ongkonichelle@ciptadana.com E margaronisniko@ciptadana.com JUNIOR ECONOMIST ANALYST TECHNICAL ANALYST Imanuel Reinaldo Fahressi Fahalmesta Trevor Gasman T ext 820 Cement, Toll Road, Poultry T ext 934 E reinaldoimanuel@ciptadana.com T ext 735 E gasmantrevor@ciptadana.com E fahalmestafahressi@ciptadana.com RESEARCH ASSISTANT Sumarni T ext 920 E sumarni@ciptadana.com EQUITY SALES Co HEAD OF INSTITUTIONAL SALES Dadang Mulyana Plaza ASIA Office Park unit 2 Plaza ASIA Office Park unit 2 Jl. Jend. Sudirman Kav. 59 Jl. Jend. Sudirman Kav. 59 Jakarta Jakarta T ext 838 T ext 807 Co HEAD OF INSTITUTIONAL SALES The Fei Ming F F E mulyanadadang@ciptadana.com E thefeiming@ciptadana.com BRANCH OFFICES JAKARTA - MANGGA DUA JAKARTA - PURI KENCANA SURABAYA Komplek Harco Mangga Dua Perkantoran Puri Niaga III Intiland Tower Surabaya Rukan Blok C No.10 Jl. Puri Kencana Blok M8 No.2E Ground Floor Suite 5 & 6 Jl. Mangga Dua Raya Kembangan Jl. Panglima Sudirman Jakarta Jakarta Surabaya T T T F F F SEMARANG Gedung Menara Suara Merdeka 6th Floor Unit 02 Jl. Pandanaran No.30 Semarang T F Please see analyst certification and other important disclosures at the back of this report 6

6 Analyst Certification Each contributor to this report hereby certifies that all the views expressed accurately reflect his or her personal views about the companies, securities and all pertinent variables. It is also certified that the views and recommendations contained in this report are not and will not be influenced by any part or all of his or her compensation. Disclaimer This report does not constitute an offer to buy or sell any security/instrument, invitation to offer or recommendation to enter into any transaction. Nor are we acting in any other capacity as a fiduciary to you. When making and investment decision, you should d etermine, without reliance upon us or our affiliates, the economic risks and merits (and independently determine that you are able to assume these risks) as well as the legal, tax and accounting characterizations and consequences of any such transaction. In this regard, by accepting this report, you acknowledge that (a) we are not in the business of providing (and you are not relying on us for) legal, tax or accounting advice, (b) there may be legal, tax or accounting risks associated with any transaction, (c) you should receive (and rely on) separate and qualified legal, tax and accounting advice and (d) you should apprise senior management in your organization as to such legal, tax and accounting advice (and any risks associated with any transaction and our disclaimer as to these matters. The information contained in this report is based on material we believe to be reliable; however, we do not represent that it is accurate, current, complete, or error free. Assumptions, estimates and opinions contained in this report constitute our judgment as of the date of the document and are subject to change without notice. Any projections are based on a number of assumptions as to market conditions and there can be no guarantee that any projected results will be achieved. Past performance is not a guarantee of future results. PT CIPTADANA SECURITIES AND ITS AFFILIATES SPECIFICALLY DISCLAIMS ALL LIABILITY FOR ANY DIRECT, INDIRECT, CONSEQUENTIAL OR OTHER LOSSES OR DAMAGES INCLUDING LOSS OF PROFITS INCURRED BY YOU OR ANY THIRD PARTY THAT MAY ARISE FROM ANY RELIANCE ON THIS REPORT OR FOR THE RELIABILITY, ACCURACY, COMPLETENESS OR TIMELINESS THEREOF. Disclaimer: This document is not intended to be an offer, or a solicitation of an offer, to buy or sell relevant securities (i.e. securities mentioned herein or of the same issuer and options, warrants or rights to or interest in any such securities). The information and opinions contained in this document have been compiled from or arrived at in good faith from sources believed to be reliable. No representation or warranty, expressed or implied, is made by PT CIPTADANA SEKURITAS ASIA or any other member of the Ciptadana Capital, including any other member of the Ciptadana Group of Companies from whom this document may be received, as to the accuracy or completeness of the information contained herein. All opinions and estimates in this report constitute our judgment as of this date and there can be no assurance that future results or events will be consistent with any such opinions, forecasts or estimates. The information in this document is subject to change without notice; its accuracy is not guaranteed; and it may be incomplete or condensed. Please see analyst certification and other important disclosures at the back of this report 7