PT Lippo Karawaci Tbk (LPKR) Earnings Call Transcript & Summary

Okay. Good afternoon, everyone. Please welcome equity investors, buy investors, regulators, credit rating agencies to the PT Lippo Karawaci Tbk Quarter Earnings Call. Happy Eid Mubarak for those who celebrates. Today, as a moderator, I'm Randi, as the Head of Investor Relations. With me today, we have Mr. John Riady, as the Group CEO; and Mr. Dan Phua as the Group CFO. Today, we will present first quarter results followed by question and answer. Following the presentations, you may drop your questions on chat box or raise hand during Q&A session. They're for review, please Pak Daniel continue with the presentations. The floor is yours, Pak Daniel.

Thank you, Randi. Welcome, investors. Again, very excited to share with you the first Q '23 results for Lippo Karawaci. With regard to the performance for Q1, we have seen a strong growth in both revenue, gross profit and PAT. And you know that real estate marketing sales, as previously, we have disclosed in the market [indiscernible] IDR 1.21 trillion, yes, which represents 25% approximately of the FY '23 targets. In this quarter, we have seen the stable, continuous growth from the Healthcare segment as well with the new EBITDA and net profit both are growing significantly and combined strong operational results flow. Lifestyle, some of those we have seen benefits from post-COVID recoveries, whereby, again, revenue, EBITDA have all improved as a whole. If we were to look at quarterly -- on quarterly basis, you know that basically a large part of this in both revenue and EBITDA has been recovered [indiscernible] and has remained relatively flat and a slight improvement in Lifestyle as well. Real estate's revenue and EBITDA, as most of you understand, is affected by seasonality of handovers. In Q1 of 2023, we had a higher mix of legacy projects that were handed over, and these were at lower margins. This affected the EBITDA recognized for real estate for Q1 but we do expect there to be more current projects handed over in the Q2 to Q4. And we do fully expect the EBITDA from the real estate to therefore, be higher than the preceding years as we get closer to the end of the year. Handed overs is that the performance is from the healthcare as you know, that has improved by 30% [indiscernible] and 32% [indiscernible] and this contributed as a whole to a 14% growth in the revenue for group and 30% improvement in EBITDA for the group compared to last year. On this basis, we are also ready to report that we will look at 3 years [indiscernible] it has seen a healthy growth with revenue [indiscernible] at 4% CAGR from 1Q '21 to 1Q '23. EBITDA, similarly with a 4% growth and [ GP ] at about 2 percentage more. This year, we will also see that there is a significant unrecognized [indiscernible] a large part of that, again, coming back is due to contributions from the liability managements on the tender offers related to bonds and against those recognized as that of the hand over. But even if we were to strip out the [indiscernible] which we [indiscernible] which included IDR 947 billion from the gain of the redemptions, plus IDR 261 billion related to the exchange of the bonds that were retired. If we were to exclude the IDR 1.2 trillion gains from bond buyback you will notice that the underlying NPAT has improved as well by over 50% compared to 1Q '22. This is obviously as a result of [indiscernible] improvement and as I had shared earlier along with also improvement in interest and depreciation expenses, net increases in line with the increase in EBITDA. And [indiscernible] as you already know, its basically being related to the rental expense for the [indiscernible] and obviously that increases year-on-year due to the rental expense. Now by segment, Healthcare contributed IDR 673 billion in EBITDA, Real estate contributed IDR 145 billion and Lifestyle contributed IDR 59 billion. Healthcare segment margins has improved and stabilized for last 3 quarters, seeing a 25% EBITDA growth compared to the goal -- the revenue. And real estate, as mentioned, is slightly lower this quarter compared to last year due mainly to the mix of high-end legacy projects that we handed over in 1Q of 2023. In this quarter we also benefited slightly from the annualized foreign exchange. You recall last year, in healthcare we booked an unrealized FX loss. So due to a positive movement in rupiah for 1Q '23, now we have a slight FX gain as well. So as a whole, this result including NPAT of IDR 1.138 billion positive, yes, for 1Q of 2023. And we do believe that the -- this will allow us to book positive NPAT for 2023 for full year as well going forward based on the latest forecast to date. Cash flow has -- cash flow from operating activities are sitting at IDR 154 billion and there are increased investment spent, mainly due to investment from Siloam in medical equipments and into new hospitals openings as well. We are in that position I think that by [indiscernible] again, that is obviously the refinance exercise that I have mentioned earlier. The refinance exercise presented in his deck in the last month, I probably won't reiterate a lot of that. As most of you already know, we basically address about 40% [indiscernible] 44% in '25 and 53% of '26. And that allow us to -- obviously, reduce our -- costs as a whole, it lowers the resource constraints as such and also improve the debt-to-equity ratios. Hand over, again, have already previously disclosed, so I wouldn't go into it in a lot of detail. I expect that allow us to then book basically [indiscernible] of IDR 1.2 trillion [indiscernible] consisting a gain on retentions on IDR 947 billion plus the FX gain related to the [indiscernible] of IDR 261 billion. The -- this is, again, as I mentioned, brings our debt-to-equity ratio down to 0.57x , which are the maturity wall. The bonds [indiscernible] obviously has [indiscernible] compared to [indiscernible]. And just again, just a reminder that the bonds have been hedged [indiscernible]. Turning into a segmental view, starting with real estate. As mentioned, $1.1 trillion of marketing sales. This basically is on track for us to book FY '23 target of IDR 4.9 trillion. Revenue and EBITDA is flat compared to last year, as mentioned, is due largely to the mix of properties hand over. For the full year revenue and EBITDA we expect that to the exceed the previous years. And we will see a pickup in the EBITDA due to a more current year projects that will be handed over from Q2 to Q4. Marketing sales results in quarter 3, in fact show that we are on track to achieve the new target. ASP is still, payment profile and the location settings it'll compare to what's been reported previously as well. The locations, coming back, essentially IDR 3trillion coming in from the [indiscernible] Hold Co and IDR 1 trillion coming in from Lippo Cikarang. Expansions, residential properties are still leading the majority of the marketing sales. The -- we do believe that, again, a lot of this we have shared previously. So I'll skip over that, not much has changed. We -- in terms of the market sales schedules, we are planning higher number of launches, especially in Q3, Q4 this year. So marketing sales Q1 would, relatively speaking, be a softer quarter. I mean despite that, we still achieved 24.7% of the marketing sales guidance for the year, therefore, we are quite positive in regard to our ability to hit our full year sales target. The properties have been to successfully handed over, Cendana parc North with 165 units, Cendana Icon Premier, 132 units. And we do believe that this schedule will continue for the remainder part of the year. John, do you have anything further to add on the Property segment?

No. I think as you mentioned, Daniel, I think it's pretty much in line with expectations. I continue to take a view that the property market is weakish in Indonesia, nothing -- not seeing signs of a full, full recovery. But nevertheless, that has all been priced into our guidance. And so you can see we are approximately 25% of full year numbers.

Okay. Thank you, John. Moving to the Healthcare segment. Healthcare has booked a substantial increase in revenue, EBITDA and net profit. Compared to 1Q of '22, revenue is 17.2% higher. EBITDA is 47.5% higher and net profit is 152.3% high. And this also reflects a stable Q-on-Q performances for the last 3 years. And if you would look at it on a CAGR perspective, compared to pre-pandemic from 4Q '19 up till now the revenue shows a CAGR of [ 6% ] with EBITDA showing a CAGR of 14%. If we were to look at, again, year-on-year, operating cash flow, as you know, since long has closed out from what we would be generating [indiscernible] in the current quarter. Keep in mind that typically quarter 1 is softer quarter for healthcare, Q3 and Q4 are usually a stronger quarter. So the fact that compared to Q4, Siloam would be [indiscernible] And despite the fact that also there is no one-off factors. This year around, there's no dengue fever, there's no COVID. And this was based purely on the operational performances of Siloam this year. We do believe that, that as a whole is positive. The operating cash flow improvement is also due to the improvement that has been made in working capitals. Working capitals has decreased significantly from round about 30 to 40 days, now down to about 10 days currently. And that is also key factors in driving the improvement in operating cash flow along with obviously the improvement in [indiscernible] and improving the [indiscernible] due to low depreciations and improved management of tax rate. The performance [indiscernible] has been sustained quarter-on-quarter as well. If you look at the EBITDA margins compared to what we call the [indiscernible] revenue, basically a revenue net of [indiscernible]. In the last 3 quarters Siloam has recorded consistent EBITDA margins of around 29%. And this is a significant improvement compared to last year of 23.4%. And we do believe that this trend is likely to continue. As mentioned, as well, both revenue and net profit, we otherwise, also saw an increase and the profit margin has been maintained stable at 12.5% -- 12.6% over the last 3 quarters into [indiscernible] as well. The [indiscernible] continue to improve as well from 4Q to 1Q, [indiscernible] segments has dropped from 18% of payouts down to 17%. Again, [indiscernible] is the lowest margin segment. So an improvement in the product mix thus also leads to leads to an improvement in EBITDA margin for Siloam. A lot of the improvement is driven by operational results. So there were no one-off items. As we can see, 4Q to 1Q, we see inpatients -- inpatient admissions, outpatient visit opportunities all showing steady improvement with occupancy stable at 64%. The hospitals were contributing the most. But in regard to 1Q '22 to '23, I should see momentum improve by 40% run rate in neuro, cardio, orthopedic and urology. So a lot of the improvement, obviously, has no relationship with COVID. And previously Siloam has benefited from the COVID traffic but you see that from 1Q to 3Q '23, a lot of the improvements in the revenue and EBITDA has been driven by [indiscernible] roots that are not related to COVID. Some of this improvement in clinical service, for example, we shared previously of Siloam had one of the -- it is the only private hospital to be able to do kidney transplants and we have shown a 95.6% survival rate, which is meeting the [indiscernible]. And the IVF programs that has been rolled out has also been successful as well but with a 55% success rate compared to a global benchmark of 30% to 45%. So this program that had been rolled out by Siloam are basically anchoring the growth in both the revenue and EBITDA, which positions Siloam to be in a strong position to be able to benefit from post-COVID growth going forward. And Digital remain a very important entity where Siloam [indiscernible] We do believe that this adjacent market that can be developed by utilizing technologies. MySiloam app has received continued enhancements. There is teleconsult, there is telecheck features available. It also allows for online queuing orders and for the patients' admissions and records to be tracked centrally through the MySiloam app. Up-to-date, we have had more than 1.5 million downloads and 110,000 active monthly users with a 77% engagement rate. It is an area that Siloam will continue to invest in. And it is an area whereby we do believe that it not only improve the seamless access that is being able to enjoyed by our patients but also open us additional revenue stream going forward. Moving onto Lifestyle, which is mainly our malls and hotels. We do continue to see improved foot traffic in malls and benefiting from the COVID recovery. There are several major malls such as Gajah Mada Plaza, whereby the asset enhancements are close to complete and this will be launched with a new look very soon, which would help improve foot traffic and improve rental income as a result as well. Hotel room rate has increased year-on-year as well. We do see that the room rate is now sitting at about IDR 557,000, compared to 1Q '23, this was a 9% year-on-year increase. Occupancy and rate have similarly improved, fueled by the increase in the -- what we call [ bleisure ] travel, yes, I got one, leisures and also the SOE demands, BUMN. Hotel occupancies currently sits at about 63%. We have seen a month-on-month improvement. Again, the Q1 in total is typically a softer quarter. But we are pleased to see that month-on-month, there is improvement. And more similarly, is now at 65% of 2019 business. As John has mentioned earlier, we do see it on a run rate basis. In terms of more visitors in the Q3 up to Q4 this year on a run rate basis, we will return back to prepandemic level. So that will continue to drive the growth for malls and hotels moving forward. Looking ahead, again, we shared a lot of this last month. Real estate hasn't really moved significantly from month-to-month. We continue to see promises, considering that Q1 typically being a softer quarter, we had fewer launches in Q1 compared to what's planned for the latter half of the year despite which we did achieve 25% of the FY '23 targets. The headwinds, as John has mentioned and the innovations that we will continue to drive to deliver new products that is appropriate to the market demand, such as the next mid-rise that we plan to launch in Q2. We do believe we'll continue to anchor our growth going forward. Healthcare. Again, having 3 quarters of stable Q-on-Q improvement and with stable EBITDA margins does show that Siloam is well and truly behind the COVID era but it is still able to maintain healthy growth going forward. We have seen continuous improvement in margins and we do see further opportunities to improve margin further. Management is working on various cost efficiency initiatives. For example, there's a OpEx efficiency drive that we target to be able to achieve a IDR 100 billion annual savings this year. And we also continue to drive down the material costs and continue to improve on equipment utilizations in order to reduce the depreciations -- the expense that is affecting the businesses. The operational growth, as demonstrated earlier, we do expect that to continue for the rest of the year. A lot of the growth in Q3 and Q4 will be benefited from an adjustment in [indiscernible] tariff. There is a [indiscernible] tariff adjustment that was announced in February of this year, which basically increased the tariff from [indiscernible] by the -- an average of around 9%. So those will continue to benefit Siloam's hospitals business going forward, continue obviously with the fact that with strong operating cash flow generating capabilities from Siloam. And including that, there is plenty of opportunities to explore nonorganic growth going forward as well. The Lifestyle segment has also continued to be exciting. We do believe that 2023 will see a full recovery from COVID. A lot of tenants have started to come back, I mean towards the end of 2022 but it does takes 5 to 6 months for these stores to probably fit out, to open and so forth. From our forecast, we do see a pickup, especially coming in Q3 and Q4 this year. And that, along with a few of the new malls that we'll be launching with a new look as -- such as Gajah Mada, as mentioned, so we do believe we'll continue to enhance the performances for malls. And going ahead, hotels are getting -- we mentioned, [indiscernible] is continuing to do well. We do see a improvement in basically all the hotel segments, especially with the EBITDA margins that hotel teams is being able to drive. With the revenue coming in, we do see that this year's EBITDA for hotels will be at least 10% to 20% higher than what it was before the pandemic. And so, in all, we do believe that there is some of the -- there is some headwind, as mentioned, due to macroeconomic environment that will affect the real estate segments. But we still believe that we could see a IDR 4.9 trillion that has been released to the market. Lippo Karawaci is in a unique circumstance, in that our real estate business, which obviously will always be affected by the macro swings and so forth is anchored by a very stable operational business in terms of Siloam, which is showing quarter-on-quarter improvement in everything from revenue down to EBITDA down to operating cash flow. So it provides a very stable base for the group in terms of this operating environment and its ability to cover this interest expense payments. And that's all from me with regard to the presentation for today. Again, coming back a month in from our last earnings, of course, not a lot that has changed and we're pleased with results. We report that the 1Q is showing a strong year-on-year improvement and I will hand time back to Bayu Randi for, I guess, Q&A sessions.

So then, thank you, Daniel. Pak John, do you have any additional comments?

No, I concur with everything that Daniel has mentioned. Overall, I'm pleased to see that the businesses -- all of our units continue to recover. And the performance is strong, not only in healthcare but also in our malls and hospitality businesses that also grew 19% year-on-year in the first quarter. So overall, things are looking reasonably as expected despite the headwinds that we we've shared. So that said, like Daniel mentioned and our last call, it was less than a month ago, so I don't have much updates to share. I will just preempt 2 topics before we open it up to your questions on -- a number of questions on the chat box here on the mid and a financial plans and also a number of questions probably to me. But overall, my comments remain what I had communicated to you 3 weeks ago, which is, we will continue to [ score ] as much as we can, where, it's a work in progress. And we hope to provide more clarity or hope to be able to provide more clarity closer to the 12-month, sort of mature 12 months out from the maturity sometime closer to June, July of 2023. So we'll keep you posted on that. The second group of questions on Siloam, especially whether we're continuing to buy, et cetera, there was a question from [indiscernible] but we can't comment on any of these discussions. Whatever we buy and we continue to buy, we have reported. So we will continue to disclose as we -- as regulations require us to -- beyond that, we can't comment except that. As I've always said, I think I see a lot of value and so on. As you can see today, the performance continues to be very strong. And so it continues to be a very important and a core part of our overall group's business. Happy to take any other questions that the audience might have.

I'm just getting to the questions as well. Probably just -- let me try to address a few questions probably heading towards Siloam's actions. With regard to operating cash flow, I think we're still positive on it. There are a few transactions that some of you have noted, obviously, such as for example, the land sales to Siloam that has been reported by Siloam as well. So that was [ IDR 90 billion ] sale of [indiscernible] land in Surabaya. Again, we are very excited about that because Surabaya is a popular city whereby Siloam does not have adequate presence at the moment, has, only has 1 hospital there, whereas in [indiscernible] it has 4. So those land for sales is going to be beneficial for Siloam's businesses. But obviously, it also bring cash into Lippo Karawaci as well. With regard to the whole [ core ] cash flow and the operating cash flow perspective, for this year, we are definitely targeting for something that will be close to [indiscernible] compared to negative that we've experienced in the past few years. This will be anchored by [indiscernible] and marketing sales performance from the property markets. And also, a few of the business units has been performing well, as well as San Diego Hills. Despite coming out of COVID had just booked [ IDR 100 billion ] plus of sales but those has not been fully reflected as well in the cash flow but it will be reflected in the latter part of the year. So all in all, I think we are still positive on our liquidity, acquisitions and our ability to service that as well. The stoppage of dividends from [indiscernible], again, that has been factored in our cash flow forecast as well. But I mean it's as for the [ IDR 120 billion ] in there from the [ dividend ] distributions. But as I mentioned, some of the, San Diego Hills, we've just spoken about the IDR 100 billion plus of sales that pretty much neutralized that effect. So we do have other assets as well. But we do believe that with the marketing sales coming in, with the marketing sales that were booked last year and the collections coming in this year, overall, it should put our operating cash in a good position.

We have a question for Daniel about Siloam.

Sorry, which one? I'm...

[indiscernible]

[indiscernible]

Right at the bottom.[indiscernible]

What was the reason for the sharp increase in revenue, which appears to have been maintained between 2Q '22 to 3Q, '22 -- so I'm not reading this right? Or are you reading -- I -- Okay, so this is April 20 last year. So last year, Q3 '22, Q3 '22 is very simple. I mean, 2Q '22 was [indiscernible]. And it was also still affected by COVID, yes. Lastly, as I mentioned before, first Q and second Q of last year was not a good quarter because it was Omicron, whereby mobility was affected but we did not have the extra COVID revenues that occurred during that. Very good from healthcare perspective, don't get me wrong. But from a financial perspective, obviously, then it trends lower. Q3 '22 basically is where our first post-COVID recovery quarter, if you like. So that is why I think you saw a sharp increase in 2Q '22 to 3Q '22. But what is important, I guess, is that whatever you saw in 3Q '22 was maintained through 4Q and 1Q of this year, which shows that the post-COVID recovery is definitely not going to -- it is a sustained performance improvement. You said, long time trying to transfer leases to Siloam. Well, as I mentioned earlier, last year, Siloam has completed its purchase of the Surabaya hospitals back from First Reit. Now as a result of Siloam buying back the hospitals, will then the lease does not become an issue, yes. Obviously, the subsidies that LK pays also does not become issues anymore. And during Siloam's earnings call, I've also stated that, Siloam is open to continue to purchase further hospitals back from on First Reit. Obviously, this has to be at a price that is going to be beneficial. Obviously, on account that this First Reit is also open, you have to have those discussions. So we do believe that, over time, there will not need to be more buyback from Siloam of the hospitals from the First Reit. But as to how many, when, those are items that management need to evaluate to decide what is the best deployment of the capital from Siloam in order to maximize shareholder value. Property sales margins. The only kind of legacy projects -- the earlier projects, the margins were sitting at round about 20%. And the projects that we have launched in terms of the affordable housing projects are generally sitting at a margin of 40%. So hence, I guess this is where we're coming in with the differences in mix here. So these marketing sales were obviously booked earlier. But as you understand, the revenue and EBITDA is only booked when we hand the properties over. So in different quarters, there's different schedules in terms of which sort of properties are handed over. So there will always be a -- differences in quarter-on-quarter margins depending on the mix of handover. Okay. That probably be due to -- actually due to a number of items -- is due to improvement in the EBITDA margin management. So previously, 2019, Siloam was doing a 16% EBITDA margin. We are now doing 29% EBITDA margin. So definitely, the improvement in EBITDA margin is due to improved mix of customers, improved cost management, I mean that has an improved profitability. Along with -- if you were to look at the -- that the Siloam that has more information but we continue to improve what we call the average revenue per occupied bed. Siloam's average revenue per occupied bed is substantially higher than our competitors and it's something that we continue to push on. So basically, what we're saying is what we call revenue intensity, the revenue intensity has improved over time and that has also drove profitability.

I think we have covered everything, Daniel and John. Oh, there is another question about the dividends. Daniel?

Well, dividends, what we just announced in them Siloam earning call. So is -- is, this is going to be a [ IDR 255 billion ] dividends that will be paid, of which, I guess of that [ IDR 150 billion ] will be attributed to -- okay, so not very different to last year, slight increase from last year due to a higher impact from Siloam for 2022.

And we'll probably expect a similar dividend payout ratio going forward.

Yes. So we kept the ratio at [ 36% ]. So exactly the same as the year before.

Timing, June?

Timing in June, [ Lamir ]. Please refer to my earlier comments.

I think we have covered all the questions. Do you have any closing remarks, John or Daniel?

Thank you for everyone's time.

Thanks.

Okay. Thank you very much. Thank you, Pak John. Thank you, Pak Daniel. Thank you also for everyone for your participation today for Lippo Karawaci first quarter results presentations and see you again on the next earnings call. Have a good day.

Thank you.