Lippo Cikarang, Grand Plan Finally Bears Fruit

Company Profile
Lippo Cikarang is an independent township with a solid industrial sector as its economic pillar. Its unrivaled infrastructure and diverse facilities should support its strategy targeting sustainable growth.

Highlights
Robust investment climate
LPCK’s industrial land sales expanded by a 70% CAGR from FY08 to FY12, as Indonesia’s huge market potential continued to attract foreign investors. More than 700 prominent companies are now occupying the estate, and the number is likely to rise further after the Company indicated the availability of more than 1,000ha of industrial land up for grabs. To date, it has received around 10 inquiries for land of around 20ha-30ha each.

The preferred township
Robust industrial growth has fuelled demand for residential and commercial properties. Residential value has surged by four-fold since FY10, rising from IDR1.1m per sq m (psm) to IDR4.5m psm currently. LPCK’s completed facilities – comprising 15 schools including an international school, several hotels, a mall, a hospital and a water theme park surrounding light industry factories – combined with its upcoming toll road access, should make this township the preferred pick of buyers.

Solid balance sheet and zero debt
The fact that the company will sharpen its focus on selling more residential and commercial properties once the KM34+7 new toll gate is awarded will keep its gross margin above 60% over the next three years. Our margin conviction is based on: i) a further 20%-30% increase in the average selling prices (ASPs) of its residential and commercial properties upon the opening of the new toll road, and ii) higher gross margin of around 75% for residential and commercial land compared with 63% for industrial land. Hence, we expect LPCK to maintain a strong cashflow, with a free cash flow (FCF) yield of 10%, zero debt and a high ROE of 39% for FY13F.