lippo karawaci

Lippo Karawaci

Saved by the Hotel

Core profits reached Rp199bn, +21% yoy
1H08 core profits reached Rp199bn, or 8% above our expectations. The better-than-expected figure was due to the sale of the Aryaduta Makassar hotel in 2Q08 for Rp126.9bn. If we include the sale in our full year revenues forecast, our 08F core income would be Rp396bn, meaning that the 1H08 result would be in line with our forecast.

1H08 margins are higher than expected
The hotel sale also led to an improvement in margins. In 1H08, the gross margin (GM) reached 50.8%, surpassing our expectation of 46.3%, while the operating margin ( OM ) reached 21.6%, or higher than our expectation of 17.4%. Our numbers are based on the assumption that residential property is the main contributor to revenues, and thus far they still are, growing by 287% yoy and accounting for 22% of 1H08 revenues. The residential property revenues are mainly from the sales of Kemang Village units - which contributed a low margin of 29% due to higher construction costs. Against this backdrop, it can be seen that margins would not be as high as they were if the hotel sale had not been booked. We therefore adjust our forecasts accordingly.

Marketing sales update
In 1H08, marketing sales reached Rp589bn. This is in line with our full year forecast of Rp1,197bn. The main contributor was Kemang Village , for which 120 units had been sold for a total of Rp203bn. The 1H08 marketing sales already includes the Rp66bn sales contributed by Tiffany, the new apartment tower launched in May 08, for which 22 units have been sold in 2 months.

Maintain HOLD, TP of Rp780
We maintain our HOLD recommendation with a TP of Rp780 given that the stock only has limited upside potential in our view. Note that the stock is currently only trading at a 1% discount to its NAV. Furthermore, the company’s PE 08-09F is 33.7x-32.3x, or higher than the industry average of 23.2-17.8x. Our TP implies PE08-09F of 34.1-32.8x. HOLD.