Affordable Housing And Siloam Healthcare Will Set A Mixed Course

Key Takeaways

• Strategic divestments and debt reduction have strengthened Lippo Karawaci's balance sheet, improving net margins and future earnings.
  
• Innovation in affordable housing and healthcare services is expected to drive revenue growth and bolster future earnings.
  
• Deconsolidation of Siloam and currency risks may impact financial stability, while reliance on affordable housing and healthcare investments pose economic sensitivity and operational risks.

Catalysts

Provides property development services in Indonesia.

• Lippo Karawaci is on track to achieve its full-year marketing sales target for real estate, driven by the sale of affordable housing products and continued product innovation, which is expected to support revenue growth.
  
• The strategic divestment of Siloam and subsequent debt reduction have structurally improved the balance sheet, reducing interest expenses significantly. This will positively impact net margins and earnings going forward.
  
• Despite the deconsolidation of Siloam, the company retains a significant stake and is actively involved in its long-term growth strategy. Siloam's performance and future plans, particularly in advanced healthcare services, are expected to contribute positively to earnings.
  
• Continued focus on improving average revenue per occupied bed in the healthcare segment indicates potential for revenue and margin improvement given the high acuity services strategy in hospitals.
  
• Real estate and lifestyle segments have shown steady improvements, including proactive enhancements and marketing strategies that maintain strong occupancy rates and generate steady revenues, anticipated to bolster future earnings.

Lippo Karawaci Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Lippo Karawaci's revenue will decrease by 27.8% annually over the next 3 years.
• Analysts are not forecasting that Lippo Karawaci will become profitable in next 3 years. To represent the Analyst Price Target as a Future PE Valuation we will estimate Lippo Karawaci's profit margin will increase from 165.2% to the average ID Real Estate industry of 21.0% in 3 years.
• If Lippo Karawaci's profit margin were to converge on the industry average, you could expect earnings to reach IDR 896.0 billion (and earnings per share of IDR 12.64) by about April 2028, down from IDR 18746.0 billion today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 26.3x on those 2028 earnings, up from 0.3x today. This future PE is greater than the current PE for the ID Real Estate industry at 10.1x.
• Analysts expect the number of shares outstanding to remain consistent over the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 20.51%, as per the Simply Wall St company report.

Lippo Karawaci Future Earnings Per Share Growth

Risks

• The divestment of Siloam has resulted in a decrease in consolidated revenue and EBITDA due to its deconsolidation, which may impact overall earnings as the healthcare segment was a major contributor to revenue.
  
• The real estate market is described as challenging, with a focus on conservative pricing strategies and potential slowdown in industry demand, especially for houses above IDR 1.5 billion, which could affect future revenue growth and profit margins in this segment.
  
• Despite better financial health through debt reduction, the company heavily relies on the success of affordable housing sales, which could be sensitive to changes in consumer demand and economic conditions, affecting revenue stability.
  
• The high level of debt reduction has improved the balance sheet; however, a majority of the company's debt is now denominated in IDR, making it vulnerable to currency risks that could affect its financial results and interest expenses.
  
• The healthcare segment's revenue growth strategy relies heavily on increasing the acuity of services and advanced medical procedures, which could involve significant investment and operational risk, impacting future profitability if not managed effectively.

Valuation

• The analysts have a consensus price target of IDR190.0 for Lippo Karawaci based on their expectations of its future earnings growth, profit margins and other risk factors.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be IDR4271.2 billion, earnings will come to IDR896.0 billion, and it would be trading on a PE ratio of 26.3x, assuming you use a discount rate of 20.5%.
• Given the current share price of IDR82.0, the analyst price target of IDR190.0 is 56.8% higher. Despite analysts expecting the underlying buisness to decline, they seem to believe it's more valuable than what the market thinks.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.