Lippo Karawaci – The only healthcare play (LPKR-BUY-IDR520-TP:IDR800) - Bahana Sekuritas

2011: More than doubling the number of hospitals to 9
Lippo Karawaci (LPKR) is currently the only healthcare play in Indonesia. Amid the current market weakness, we like LPKR for this defensive healthcare exposure, which we expect to account for 68% of its 2011 recurring income, up from 65% in 2010 (exhibit 8). This is supported by growing number of patients and average revenue/patient in the existing 4 hospitals (615 beds). In 2011, we expect to see LPKR’s number of hospitals grow to 9 with the first opening last month in Jambi-104 beds (East Sumatra), followed by Balikpapan–59 beds (East Kalimantan) in February, Tangerang–321 beds (Banten) in June, Mochtar Riady Comprehensive Cancer Center-364 beds (Jakarta) in July and Makassar–350 beds (South Sulawesi) in December. This will add 1,119 beds, bringing total number of beds to 1,734 beds with 2011 healthcare revenue growth of 19% y-y to more than IDR1.2t. As part of its 5-year expansion plan to add 25 more hospitals, LPKR will start building 2 new hospitals in Manado (North Sulawesi) and Palembang (South Sumatra) this year.

Healthcare to account for 33% of total 2011 revenue
Out of LPKR’s 2011 revenue of IDR3.7t, up 19% y-y, we expect healthcare to contribute 33%, followed by urban development (25%) and large-scale/high rise division (24%), which have obtained higher than expected revenue from the first 3 apartment towers at St. Moritz amounting to nearly IDR600b and another IDR311b from Kemang Village. We conservatively forecast lower 2011-12 net margins of 15.8-15.3% on higher construction cost stemming from higher commodity prices.

2011 marketing sales target: IDR3t, +35% y-y
LPKR booked strong 4Q10 marketing sales of IDR741b, up 16% q-q and 89% y-y (exhibit 7), stemming from apartment sales of IDR470b, +45% q-q, supported by the successful launch of the 5th apartment tower in Kemang Village (KV) with take-up rate of 81% valued at IDR276b. In 2011, we expect LPKR’s mixed used development projects to support marketing sales target of IDR3t, +35% y-y, driven by IDR1.5t apartment sales target, comprised of 3 new apartment tower launches and sales from the remaining units in the current 10 apartment towers in Kemang Village and St. Moritz. The remaining IDR1.5t marketing sales target (+29% y-y) will come from urban developments (residential, commercial and industrial), which has seen higher average land selling price of 16% in Lippo Village and 10% in Lippo Cikarang last month.

Balanced recurring income; Reiterate BUY with IDR800 TP
Greater recurring income from healthcare and commercial property is expected to persist in the coming years. Additionally, LPKR’s aggressive expansions are supported by its ability to raise sufficient funding through its asset light business model (sale and lease back). This has us reiterating our BUY call on LPKR with TP of IDR800, 52% discount to NAV.