Lippo Karawaci, Target price Rp900

Building the healthcare kingdom

Focuses on growing healthcare business. Lippo Karawaci (LPKR) is set to emerge as the largest private sector provider of medical services in Indonesia. It is the largest beneficiary of the growing healthcare industry which still in its infancy. Industry prospects are very bright, given a rising middle class, lack of competition and high barriers to entry. Further, the company plans to commence development of seven new hospitals across the country: three in Java, two in Sumatera and two in eastern Indonesia. As such, by the end of 2013, LPKR plans to have 20 hospitals in operation.

Boosting residential and urban development. LPKR has around 1,500ha land for township projects in Greater Jakarta, which can last for the next 20 years. It is also one of the largest super block developers, with two big projects of 26ha each in Jakarta. Currently, 49% of its revenue comes from residential and urban development. The company expects residential
estate development to account for a greater part of its overall sales mix in 2012.

Aggressively expanding retail business. LPKR currently manages 25 malls, and plans to grow its leased-mall assets by an additional 15 malls, construction of which are in the pipeline. LPKR will sell the malls to LMIR (Lippo Malls Indonesia Retail) Trust once operations are stabilised, and
retain the management of the malls. The focus will be on building community malls in townships, leveraging on the rising middle class. The total estimated construction cost is about US$500m for all 15 malls. Currently, the retail malls contribution to LPKR’s total revenue is only 3.6%.

Eye-catching valuation. The stock trades at 1.8x PBV, 22% below the 2.3x industry average. We estimate the company’s total value at Rp41,863b, or Rp1,814/share. After discounting the Rp1,814/share by 50%, we derive our target price of Rp900, representing potential upside of
30%. We consider Kemang Village and Lippo Cikarang as the major contributors to 2012 marketing sales. Risks to our forecast: rising interest rates, rising construction costs, oversupply of shopping malls and project delays. Initiate with BUY. (to be continue...)

source: KIMENG dated 14 March 2012