Lippo Karawaci (LPKR IJ, BUY, TP: IDR1,500) Results Review: Healthy Growth In Healthcare - Daily Pack 1 Apr 2014

LPKR’s FY13 topline of IDR6.7trn (+8% y-o-y) met our expectations. However, a higher dividend income and lower-than-expected tax expenses brought FY13 net profit to IDR1.3trn (+24% y-o-y), beating our conservative estimates. We lift our FY14-15F earnings forecasts by 18-52% in light of its FY13 performance and FY14F guidance. Our NAV-derived TP increases to IDR1,500 from IDR1,300, offering a potential upside of 40%. Maintain BUY.

¨       Strong 4Q13 growth. Lippo Karawaci (LPKR)’s 4Q13 net profit grew by 9% q-o-q and 22% y-o-y to IDR399bn, bringing full-year net profit to IDR1.3trn (+24% y-o-y). 4Q13 revenue climbed 10% q-o-q to IDR1.9trn. Revenue from development projects slid 39% y-o-y due to a delay in launching several of its mixed-use projects. However, this was offset by the company’s recurring revenue, which comprised 50% of total revenue, or c. IDR944bn (+19% y-o-y).

¨       Solid growth in healthcare. Healthcare revenue soared 25% y-o-y to IDR674bn in 4Q13. On a yearly basis, revenue from seven existing hospitals grew 21% y-o-y, while its nine new hospitals contributed a combined IDR485bn, representing 19% of healthcare revenue. Its thin bottomline margin of 2% was impacted by investments and a rapid ramp-up in new hospitals. LPKR currently operates a total of 14 hospitals, and it plans to add another five to six hospitals by end-2014, with around 19 sites under various stages of development.

¨       Forecast changes. We raise our FY14/15F earnings projections by 18-52%. We have yet to take into account earnings potential from LPKR’s capital-recycling strategy, in which the company will inject a mall asset into REITS this year, generating revenue and net profit of IDR3trn and IDR1.25trn respectively. While we expect bigger contributions from the company’s recurring healthcare business, the blended gross margin will likely decrease slightly to 45-43% for FY14/15.

¨       Maintain BUY. Our new IDR1,500 TP (from IDR1,300) is derived from applying a 30% discount to our new RNAV estimate of IDR2,170, after considering: i) its new hospitals in 2013, including Siloam Hospitals in Bali and TB Simatupang, Jakarta, as well as two brownfield hospitals in Bali, ii) landbank adjustments and higher land sale prices in Makassar, and iii) its reduced effective ownerships in Siloam Hospitals (SILO IJ, NR) to 78.9% from 86%, post LPKR’s placement of 7.1% of Siloam’s total outstanding shares in mid-March. Maintain BUY. (Lydia Suwandi)

ON THE PLATTER:

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Gudang Garam (GGRM IJ; BUY; TP: IDR56,000): 4Q13 results review - Bright Outlook Ahead

Cardig Aero Services (CASS IJ, BUY, TP IDR1,100) Results Review: A Smooth Landing

MEDIA HIGHLIGHTS:

Erajaya revenue performance in line with our expectation

Tiphone (TELE IJ, BUY, TP IDR900) booked revenue IDR10.5trn (+27.9% y-o-y) and net profit of IDR294bn (45% y-oy)

Government plan to inaugurate nine new non-commercial airports in eastern part this year

FY14 Domestic ceramic market may reach 430m sqm (+7.5% y-o-y)

Best regards,

RHB OSK Indonesia Research Institute