Lippo Karawaci - Largest healthcare play - Bahana

2011-12 healthcare revenue to grow 32-34%
With the listing of Sejahteraraya Anugrahjaya (SRAJ–NOT RATED-IDR470), Lippo Karawaci (LPKR) is no longer the only healthcare play in the market. However, LPKR remains as the biggest healthcare play in Indonesia given SRAJ’s 1Q11 revenue of just IDR41b, compared to LPKR’s 1Q11 healthcare revenue of IDR288b, up 17% y-y and accounting for nearly 33% of the company’s total revenue, helped by the opening of Siloam-Jambi in February 2011, its fifth hospital. For the rest of this year, LPKR will add 2 new hospitals (MRCCC-Jakarta and Balikpapan), before adding 2 more hospitals in Tangerang and Makassar in 2012. We estimate 2011 healthcare revenue to reach nearly IDR1.4t, up 32% y-y with 2012 revenue growth rising to 34% y-y to IDR1.8t, supported in part by growing healthcare needs coupled with continued limited healthcare facilities.

3-5% earnings upgrades in 2011-12; Raised to BUY
As we learned more about LPKR’s plans, we have raised our 2012 revenue projection to IDR4.6t stemming from higher healthcare contribution on earlier hospital openings. Additionally, LPKR will benefit from more revenue recognition from St. Moritz apartments (hand-over schedule early 2012). Despite 2011-12 y-y revenue growth of 19-26%, we estimate 2011-12 lower bottom line growth of 15-16% to IDR602-689b on higher COGS and opex to support sales. However, with minimal impact on 2011-12 bottom line growth (i.e. 3-5% higher; exhibit 6), we retain our TP at IDR800, based on 30% discount to NAV per share of IDR1,145. Note that our 16% higher NAV to IDR29.2t from more construction progress, growing healthcare business and higher land selling prices have been offset by higher net debt position, advances from customers and increased shares post the non pre-emptive rights. However, as LPKR’s share price has underperformed the market by 13.9% in the past month (exhibit 5), we now upgrade to BUY given 19% upside potential to our target price.

Strong industrial sales; Marriott hotels = support for apartments
1Q11 sales from Cikarang of IDR370b (65% of total 2010 sales) were up 141% q-q, supported by industrial and residential products. Growing demand in industrial areas has led to some 15% higher selling prices this year in Cikarang, which also caters to housing, providing more value add for industrial users. In 2011, LPKR will focus on selling industrial and residential areas with IDR600b sales target, achievable given just 5.5% y-y growth target. On the apartment front, LPKR reported more than 50% take up rate on the recent launch of apartment tower in St Moritz with selling price of IDR21m/sqm, 10% higher than previous launches following news on the entry of JW Marriott Hotels in its 2-mixed used developments, increasing prestige and value add. These 2 hotels in the South and West Jakarta should provide alternatives for five-stars hotels, which are currently concentrated in the CBD/Central Jakarta area.