PT Daewoo Securities Indonesia
The most integrated property company
Lippo Karawaci (LPKR) has several lines of business streams which separates the company from the rest. Other than its core property business, the company is also exposed to healthcare business, hotel management and funeral homes (non-core businesses). LPKR has property assets in Lippo Village, Lippo Cikarang and Tanjung Bunga, and Makassar (South Sulawesi). In our view, LPKR’s non-core businesses complement the company’s overall performance and act as fat buffers amid unfavorable property market situations. The contribution from healthcare business is becoming larger every year, despite relatively stagnant performances from its hotel and funeral home businesses.
The next growth engine: Hospital business
Growing health awareness motivates LPKR to drive its healthcare business further. The company is in its early stage of developing 46 hospitals under the brand name “Siloam Hospital”. Due to slowing property market growth (both residential and commercial), LPKR’s performance improvement is strongly supported by healthcare business which is evident by its increasing portion to its total revenue. As of 9M15, healthcare business contributed IDR3r to the company’s revenue (an increase by 24.8% YoY), compared to the total revenue growth of 10.4% YoY to IDR6.8tr. Healthcare business contribution to total revenue came in at 45% in 9M15 compared to 39% a year earlier.
Stable revenue growth with CAGR of 28%
LPKR delivered revenue growth of 28% CAGR (excluding assets sold to REITS) over the last 4 years (2010 ~ 2014). Healthcare business growth posted a solid 34% CAGR during the same period. We see that LPKR optimizes its healthcare business for complementing its overall business model and buffering earnings volatility stemming from its property business. Initiate coverage with a Trading Buy call We initiate LPKR on Trading Buy rating with target price of IDR1,175 by using DCF method (16.3% upside potential), with WACC of 11.1%. Key risk to our recommendation is lower than expected growth of property sales.