20170526 lippo karawaci what does meikarta project mean for lpkr
Global Research
26 May 2017
First Read
Lippo Karawaci
Equities
What does the Meikarta project mean for LPKR
Indonesia
Real Estate
Meikarta take-up indicates potential presales upward revision
Our meeting with Lippo and our channel check on the ground render us with optimism
that the 2017E organic presales goal may be attained sooner than expected, implying
upside risks to its 2017E goal of Rp3.1tn (UBS's Rp2.2tn). Albeit Lippo is not yet
revealing its Meikarta launching receipt, they are upbeat that most of the booking fee
entries (NUP) of 16.8k in the mid-May 2017 grand launching could be secured. Our
channel check supports this view with 31% take-up of NUP in four days since the
launch. We reiterate our BUY rating on rising pre-sales (32% CAGR 2016-19E) and
overdone worries on the hospital venture.
Why we think potential presales upward revision likely
Our talks with some buyers on the ground suggest their strong interest in Meikarta. We
also checked with some property agents and found Lippo had presold ~5k units (vs.
NUP of 16.8k) in four days since the launch. With size per condo 43-98sqm at ~Rp8mn
psm, our most conservative calculation implies Rp1.8tn of presales should have been
secured vs. its high-rise 2017E presales goal of Rp1.7tn. We also calculate Lippo would
need only 9.2k units presales (52% of NUP) on Meikarta to meet its 2017E organic
presales goal of Rp3.1tn (vs. Q117 of Rp330bn) – this is likely to occur; possibly
delaying new projects (Urban Homes' 1.5k units; Orange County's 7th tower) to 2018E.
Balance sheet to improve; GPM hit as downside risk
With likely a project success, we trust fears over Lippo's stretched balance sheet could
ease from the possibly solid Meikarta's take-up. The planned assets sale to REITs
(aiming Rp6.8tn) would further fortify the balance sheet if realized. On the downside,
Meikarta's low ASP means lower gross profit margin (GPM) of 30% vs. usual Lippo's
high-rise at 45% and 43% of UBS 2017E. Our sensitivity analysis shows a 6% lower
EPS on every 1% lower GPM in high-rise. We note GPM would improve on next
launches from higher ASP – at a time of this writing, Meikarta's ASP is 15% higher.
12-month rating
Buy
12m price target
Rp1,000
Price
Rp725
RIC: LPKR.JK BBG: LPKR IJ
Trading data and key metrics
52-wk range
Market cap.
Rp1,200-705
Rp16,731bn/US$1.26bn
23,078m (ORD)
Shares o/s
82%
Free float
88,906
Avg. daily volume ('000)
Avg. daily value (m)
Rp67,447.3
Common s/h equity (12/17E)
Rp18,872bn
0.9x
P/BV (12/17E)
EPS (UBS, diluted) (Rp)
UBS
40
12/17E
49
12/18E
52
12/19E
Cons.
47
49
59
Igor Putra
Analyst
igor.putra@ubs.com
+62-21-2554 2000
Joshua Tanja, CFA
Analyst
joshua.tanja@ubs.com
+62-21-2554 7030
Valuation: Maintain Buy rating
We derive our price target from a sum-of-the-parts method. We value Lippo's property
development and hospital assets using DCF, and investment property assets using the
capitalization method. We assume a 7.5% risk-free rate and 13.7% cost of capital. Our
cut-off valuation date is end-2017E.
Highlights (Rpbn)
Net rental income
EBITDA
EPS (UBS, Rp)
DPS (Rp)
BVPS (basic, Rp)
NAV per share (UBS, Rp)
12/14
1,334
3,632
95
14
676
933
12/15
1,363
2,223
25
17
710
980
12/16
1,585
2,204
26
3
805
1,110
12/17E
1,664
2,363
40
11
818
1,128
12/18E
1,747
2,666
49
12
835
1,152
12/19E
1,834
2,760
52
15
852
1,176
12/20E
1,926
3,347
70
8
887
1,223
12/21E
2,022
3,812
84
10
928
1,418
Profitability/valuation
PE (UBS)
EPS (UBS) yield %
Net dividend yield %
Prem/(disc) to BVPS %
Prem/(disc) to NAV ps %
EV/EBITDA (UBS) x
12/14
11.1
9.0
1.3
55.0
12.4
8.8
12/15
46.8
2.1
1.4
66.1
20.5
17.1
12/16
38.4
2.6
0.3
24.3
(9.9)
16.6
12/17E
18.1
5.5
1.6
(11.3)
(35.7)
13.0
12/18E
14.8
6.7
1.7
(13.2)
(37.1)
11.9
12/19E
14.0
7.1
2.0
(14.9)
(38.3)
11.9
12/20E
10.4
9.6
1.1
(18.3)
(40.7)
10.2
12/21E
8.7
11.6
1.4
(21.8)
(48.9)
9.2
Source: Company accounts, Thomson Reuters, UBS estimates. Metrics marked as (UBS) have had analyst adjustments applied. Valuations: based on an average share price that year, (E): based on a
share price of Rp725 on 26 May 2017 21:37 HKT
www.ubs.com/investmentresearch
This report has been prepared by PT UBS Securities Indonesia. ANALYST CERTIFICATION AND REQUIRED DISCLOSURES BEGIN
ON PAGE 3. UBS does and seeks to do business with companies covered in its research reports. As a result, investors should be
aware that the firm may have a conflict of interest that could affect the objectivity of this report. Investors should consider this
report as only a single factor in making their investment decision.
Forecast returns
Forecast price appreciation
Forecast dividend yield
Forecast stock return
Market return assumption
Forecast excess return
+37.9%
1.6%
+39.5%
12.3%
+27.2%
Valuation Method and Risk Statement
We derive our price target from a sum-of-the-parts methodology.
We believe property companies are affected by macroeconomic issues such as
interest rates and income growth, as well as industry regulation and project-related
issues. Project-related risks include land acquisition, land rights, permits, financing
and execution. Property supply and demand depend on consumer income,
consumer and developer financing stability, and raw materials. Our valuation
forecasts depend on presales accuracy rather than the market value of property.
This is due to Indonesia's illiquid property transactions and low level of
transparency.
First Read: Lippo Karawaci 26 May 2017
2
Required Disclosures
This report has been prepared by PT UBS Securities Indonesia, an affiliate of UBS AG. UBS AG, its subsidiaries, branches and
affiliates are referred to herein as UBS.
For information on the ways in which UBS manages conflicts and maintains independence of its research product; historical
performance information; and certain additional disclosures concerning UBS research recommendations, please visit
www.ubs.com/disclosures. The figures contained in performance charts refer to the past; past performance is not a reliable
indicator of future results. Additional information will be made available upon request. UBS Securities Co. Limited is licensed
to conduct securities investment consultancy businesses by the China Securities Regulatory Commission. UBS acts or may act
as principal in the debt securities (or in related derivatives) that may be the subject of this report. This recommendation was
finalized on: 26 May 2017 02:41 PM GMT.
Analyst Certification:Each research analyst primarily responsible for the content of this research report, in whole or in part,
certifies that with respect to each security or issuer that the analyst covered in this report: (1) all of the views expressed
accurately reflect his or her personal views about those securities or issuers and were prepared in an independent manner,
including with respect to UBS, and (2) no part of his or her compensation was, is, or will be, directly or indirectly, related to
the specific recommendations or views expressed by that research analyst in the research report.
UBS Investment Research: Global Equity Rating Definitions
12-Month Rating
Definition
Coverage1
IB Services2
Buy
FSR is > 6% above the MRA.
46%
30%
Neutral
FSR is between -6% and 6% of the MRA.
38%
28%
Sell
FSR is > 6% below the MRA.
16%
18%
Short-Term Rating
Definition
Coverage3
IB Services4
Buy
Stock price expected to rise within three months from the time
the rating was assigned because of a specific catalyst or event.
Global Research
26 May 2017
First Read
Lippo Karawaci
Equities
What does the Meikarta project mean for LPKR
Indonesia
Real Estate
Meikarta take-up indicates potential presales upward revision
Our meeting with Lippo and our channel check on the ground render us with optimism
that the 2017E organic presales goal may be attained sooner than expected, implying
upside risks to its 2017E goal of Rp3.1tn (UBS's Rp2.2tn). Albeit Lippo is not yet
revealing its Meikarta launching receipt, they are upbeat that most of the booking fee
entries (NUP) of 16.8k in the mid-May 2017 grand launching could be secured. Our
channel check supports this view with 31% take-up of NUP in four days since the
launch. We reiterate our BUY rating on rising pre-sales (32% CAGR 2016-19E) and
overdone worries on the hospital venture.
Why we think potential presales upward revision likely
Our talks with some buyers on the ground suggest their strong interest in Meikarta. We
also checked with some property agents and found Lippo had presold ~5k units (vs.
NUP of 16.8k) in four days since the launch. With size per condo 43-98sqm at ~Rp8mn
psm, our most conservative calculation implies Rp1.8tn of presales should have been
secured vs. its high-rise 2017E presales goal of Rp1.7tn. We also calculate Lippo would
need only 9.2k units presales (52% of NUP) on Meikarta to meet its 2017E organic
presales goal of Rp3.1tn (vs. Q117 of Rp330bn) – this is likely to occur; possibly
delaying new projects (Urban Homes' 1.5k units; Orange County's 7th tower) to 2018E.
Balance sheet to improve; GPM hit as downside risk
With likely a project success, we trust fears over Lippo's stretched balance sheet could
ease from the possibly solid Meikarta's take-up. The planned assets sale to REITs
(aiming Rp6.8tn) would further fortify the balance sheet if realized. On the downside,
Meikarta's low ASP means lower gross profit margin (GPM) of 30% vs. usual Lippo's
high-rise at 45% and 43% of UBS 2017E. Our sensitivity analysis shows a 6% lower
EPS on every 1% lower GPM in high-rise. We note GPM would improve on next
launches from higher ASP – at a time of this writing, Meikarta's ASP is 15% higher.
12-month rating
Buy
12m price target
Rp1,000
Price
Rp725
RIC: LPKR.JK BBG: LPKR IJ
Trading data and key metrics
52-wk range
Market cap.
Rp1,200-705
Rp16,731bn/US$1.26bn
23,078m (ORD)
Shares o/s
82%
Free float
88,906
Avg. daily volume ('000)
Avg. daily value (m)
Rp67,447.3
Common s/h equity (12/17E)
Rp18,872bn
0.9x
P/BV (12/17E)
EPS (UBS, diluted) (Rp)
UBS
40
12/17E
49
12/18E
52
12/19E
Cons.
47
49
59
Igor Putra
Analyst
igor.putra@ubs.com
+62-21-2554 2000
Joshua Tanja, CFA
Analyst
joshua.tanja@ubs.com
+62-21-2554 7030
Valuation: Maintain Buy rating
We derive our price target from a sum-of-the-parts method. We value Lippo's property
development and hospital assets using DCF, and investment property assets using the
capitalization method. We assume a 7.5% risk-free rate and 13.7% cost of capital. Our
cut-off valuation date is end-2017E.
Highlights (Rpbn)
Net rental income
EBITDA
EPS (UBS, Rp)
DPS (Rp)
BVPS (basic, Rp)
NAV per share (UBS, Rp)
12/14
1,334
3,632
95
14
676
933
12/15
1,363
2,223
25
17
710
980
12/16
1,585
2,204
26
3
805
1,110
12/17E
1,664
2,363
40
11
818
1,128
12/18E
1,747
2,666
49
12
835
1,152
12/19E
1,834
2,760
52
15
852
1,176
12/20E
1,926
3,347
70
8
887
1,223
12/21E
2,022
3,812
84
10
928
1,418
Profitability/valuation
PE (UBS)
EPS (UBS) yield %
Net dividend yield %
Prem/(disc) to BVPS %
Prem/(disc) to NAV ps %
EV/EBITDA (UBS) x
12/14
11.1
9.0
1.3
55.0
12.4
8.8
12/15
46.8
2.1
1.4
66.1
20.5
17.1
12/16
38.4
2.6
0.3
24.3
(9.9)
16.6
12/17E
18.1
5.5
1.6
(11.3)
(35.7)
13.0
12/18E
14.8
6.7
1.7
(13.2)
(37.1)
11.9
12/19E
14.0
7.1
2.0
(14.9)
(38.3)
11.9
12/20E
10.4
9.6
1.1
(18.3)
(40.7)
10.2
12/21E
8.7
11.6
1.4
(21.8)
(48.9)
9.2
Source: Company accounts, Thomson Reuters, UBS estimates. Metrics marked as (UBS) have had analyst adjustments applied. Valuations: based on an average share price that year, (E): based on a
share price of Rp725 on 26 May 2017 21:37 HKT
www.ubs.com/investmentresearch
This report has been prepared by PT UBS Securities Indonesia. ANALYST CERTIFICATION AND REQUIRED DISCLOSURES BEGIN
ON PAGE 3. UBS does and seeks to do business with companies covered in its research reports. As a result, investors should be
aware that the firm may have a conflict of interest that could affect the objectivity of this report. Investors should consider this
report as only a single factor in making their investment decision.
Forecast returns
Forecast price appreciation
Forecast dividend yield
Forecast stock return
Market return assumption
Forecast excess return
+37.9%
1.6%
+39.5%
12.3%
+27.2%
Valuation Method and Risk Statement
We derive our price target from a sum-of-the-parts methodology.
We believe property companies are affected by macroeconomic issues such as
interest rates and income growth, as well as industry regulation and project-related
issues. Project-related risks include land acquisition, land rights, permits, financing
and execution. Property supply and demand depend on consumer income,
consumer and developer financing stability, and raw materials. Our valuation
forecasts depend on presales accuracy rather than the market value of property.
This is due to Indonesia's illiquid property transactions and low level of
transparency.
First Read: Lippo Karawaci 26 May 2017
2
Required Disclosures
This report has been prepared by PT UBS Securities Indonesia, an affiliate of UBS AG. UBS AG, its subsidiaries, branches and
affiliates are referred to herein as UBS.
For information on the ways in which UBS manages conflicts and maintains independence of its research product; historical
performance information; and certain additional disclosures concerning UBS research recommendations, please visit
www.ubs.com/disclosures. The figures contained in performance charts refer to the past; past performance is not a reliable
indicator of future results. Additional information will be made available upon request. UBS Securities Co. Limited is licensed
to conduct securities investment consultancy businesses by the China Securities Regulatory Commission. UBS acts or may act
as principal in the debt securities (or in related derivatives) that may be the subject of this report. This recommendation was
finalized on: 26 May 2017 02:41 PM GMT.
Analyst Certification:Each research analyst primarily responsible for the content of this research report, in whole or in part,
certifies that with respect to each security or issuer that the analyst covered in this report: (1) all of the views expressed
accurately reflect his or her personal views about those securities or issuers and were prepared in an independent manner,
including with respect to UBS, and (2) no part of his or her compensation was, is, or will be, directly or indirectly, related to
the specific recommendations or views expressed by that research analyst in the research report.
UBS Investment Research: Global Equity Rating Definitions
12-Month Rating
Definition
Coverage1
IB Services2
Buy
FSR is > 6% above the MRA.
46%
30%
Neutral
FSR is between -6% and 6% of the MRA.
38%
28%
Sell
FSR is > 6% below the MRA.
16%
18%
Short-Term Rating
Definition
Coverage3
IB Services4
Buy
Stock price expected to rise within three months from the time
the rating was assigned because of a specific catalyst or event.