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Tuesday, August 23, 2011

Lippo Karawaci - Deeper look into Cikarang

by Analyst Sarina Lesmina
CLSA Securities

Lippo Karawaci (LPKR IJ) has a well diversified portfolio of mixed use commercial project, township developments, national hospital chain and industrial parks. Sarina takes a closer look at the industrial park in Lippo Cikarang (LPCK IJ).

LPKR has done very well – land sales achieved are already 81% of LPCK’s FY target. Yes, share price has already tripled YTD but this is coming from no base. Land prices here in Bekasi, east of Jakarta have gone up by at least 40% YTD. One of our colleagues in the Jakarta office, after months of watching prices move up, finally closed the transaction – but 40% more expensive when first offered in the market at the beginning of the year.

Our co-worker made the decision after learning that an independent appraiser confirmed the value of the house - BCA mortgage is the most conservative when appraising.

On Sarina’s estimate, LPCK valuation is still attractive – now trading at 54% disc to NAV and about 7x 2011 PE. Put another way, LPCK sales contribution to the group has soared to 17% in 1H2011 but still has a market cap of only US$160m or 7.5% of parent LPKR’s market cap

What’s the risk? LPCK currently has about 136 ha of industrial landbank left. LPCK is working on replenishment and has identified over 1,100 ha for acquisition. Acquisition price will be the key, making sure LPCK does not overpay.

Key Points from the report:

· LPCK’ contribution to group earnings increased to 17% in 1H11 from 6% in 2010 and 2% four years ago.
· 1H sales of LPCK were already 23% higher than FY10 sales, and 81% of company’s FY target of Rp860bn.
· 168% YoY increase in sales of LPCK which contributed 43% to total LPKR sales. This drove LPKR’s marketing sales +91% YoY in 1H11 to Rp1.6tn.
· Healthcare business now contributes 16% of LPKR earnings, property development contributes 44%. Will see an increase in healthcare contribution as LPKR delivers 20 more hospitals in the next five years from current seven.
· LPKR now trades at 35% disc to our NAV estimate, while LPCK trades at 54% discount.
· We increase earnings forecast for 2012-13 by 5-6% to reflect higher sales.

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