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

Good morning, everyone. Please welcome equity investors, Board investors, regulators and credit rating agency to PT Lippo Karawaci for result 2024 Earnings Call. Today, as a moderator, I'm Randi, as Head of Investor Relations. With me today, we have Mr. John Riady, as the Group CEO; Mr. Marlo Budiman, Asset Group Deputy CEO; and Mr. Daniel Phua, as a Group CFO. Today, we will present our first half 2024 results followed by question and answers. [Operator Instructions] Without further ado, please, Mr. Daniel, to continue the presentations.

Thank you, Randi. Good morning, everyone. We're very happy to be presenting to you on the one half '24 results for Lippo Karawaci. And while some announcements has come out this morning in regard to the VTO process, I'll comment on some of those during the presentations. But do keep in mind that the primary purpose of today's earnings call is on the one half '24 results. So I will be focusing my presentation on those. If we were to look at the One Half '24 results, I think obviously, the divestments of Siloam has a -- book a one-off gain of IDR 22 million, which is basically mainly an accounting booking. But operationally, I think we are very pleased to report the fact that if we look at all segments within our businesses, they're all performing extremely well. Real estate, for example, 1 half '24 revenue and EBITDA were up 8% and 12%, respectively. We continue to see very strong marketing sales being booked. We continue to see that the new product that we are launching in Park Serpong in regards to XYZ series in regard to the Q series continue to have a very strong pickup in interest from the market. Health care continued to solidify the fact that the focus on the complexities and increasing revenue equity has been the right strategy for us. And that has resulted in the revenue, underlying EBITDA, underlying NPAT all kind of responding in a stable manner. Obviously, if you were to look at the numbers presented, it will look like a negative, but I would then later on talk about a pro forma format, whereby if we assume that the health care segment is not be consolidated, what would the result have looked back. As you can see, the ambition data were all up compared to the year before. Lifestyle continues to improve in 1 half '24, revenue is at IDR 652 billion, a 77% year-on-year improvement and the revenue from bonds also increased by 2% year-on-year to IDR 336 billion. Hotel similarly has been performing well with a 10% year-on-year increase in its revenue to IDR 221 billion. Footfall traffic and occupancy continue to see improvement, and we continue to believe that the post-COVID recovery is definitely in full swing, and we will continue to benefit from that. Going into more details. As you can see, despite the fact that Siloam was deconsolidated for June 2024 as a result of the initial 10.4% divestments of stakes, revenue and EBITDA have remained stable on a consolidated level. You will see that health care is obviously down due to the effect of the deconsolidations in both revenue and underlying EBITDA but it was more than made up for in the revenue contributions from the real estate lifestyle. And to a lesser extent, you can see the whole core expenses have also reduced when compared to the year before, giving it a IDR 5 billion or 4% contributions to the overall underlying EBITDA. So as a result, as you can see, despite the deconsolidations, the results remained same, which is positive. Now the second deal I want to show you is on a pro forma basis, I mean, if we were to assume that Siloam to be consolidated, I think this is useful for investors for like-for-like comparisons in regard to 1 half '24 versus 1 half '23. You will note that the revenue would have otherwise improved by 11%. And underlying EBITDA would have improved by 13%. Again, just a quick note on the underlying EBITDA and non-cash here. And I spoke about this in the Q1 earnings call, Siloam has a one-off as an adjustment of IDR 309 billion that was conducted in Q1. So that, again, is a one-off. We wanted to basically exclude that effect to show you what the underlying operational results would have been. So in the underlying EBITDA, the one-off asset write-off that was conducted by Siloam in Q1 2024 was excluded. So if we were to look at it with that lens, you'll notice that Siloam year-on-year has grew by 14% on revenue and 15% on EBITDA. But I think it is key to point out that the growth in our performance did not come purely from health care, yes. Real estate EBITDA grew by 10%, and lifestyle is relatively flat, both offset by the savings that we get from the holdco expenses. Now this is a view that I presented 2 years ago, whereby we started splitting the NPAT into the underlying NPAT and NPAT in order to show a better view in regard to what the underlying business performances were and by basically excluding the effect of one-off largely accounting rate adjustment whereby there is little cash impact. I'm pleased to report the fact that if you look at underlying NPAT, so this is basically reflecting the business' operational performance. One half '24, we see that IDR 153 billion versus the negative trend of IDR 34 billion -- negative IDR 34 billion in 1 half '23. 2Q '24, I mean it is a slight negative, but compared to the positive in 1Q '24, that is largely resulted from the slightly lower EBITDA booking from real estate. As I've previously explained, real estate EBITDA would go through different swings because the revenue recognition is based on handover. And due to the mix and the amount of properties handed over, there will always be a bit of a swing between quarter-to-quarter. But I think when you smooth it out on a 6 monthly basis, you will see that underlying NPAT based on all our business segments actually improved substantially compared to what we were booking in 1 half of 2023. Now we cover some of the non-underlying items in here just to give a sense of how we get to the final NPAT of this. But in the mid, as you were aware, we basically went through a very successful debt restructuring processes. As a result, there were various accounting adjustments as such related to basically FX adjustments of office pref and basically writing off the cost of debt that was retired. So basically, that came to IDR 100 billion, and the impairment of launches of historical assets, I mentioned this earlier, this was conducted in 1Q 2024, whereby Siloam revisited its portfolio of pipeline hospitals, and there were various hospitals that were identified as potential hospitals back in 2019, but we have now revised this and are reasonably confident that they will not be proceeding. So the partial WIP, it will written off in Q1. So that is IDR 309 billion that you see here. The PSAK 72 & 73 adjustment that is largely related to the finance lease and some of the deferred income treatment in the property segment. FX losses, again, that we continue to be affected by the USD IDR swing. But again, that would disappear once we retire all our USD bonds. The gain on the consolidations and a gain on disposal of investments, this is what I spoke about. I mean, due to the big consolidation of Siloam, accounting wise, there is a one-off booking of about IDR 18 trillion for the purpose of basically moving it from a subsidiary to associate status. Basically, we capture the price of Siloam at the date of deconsolidation, which is a mid-June and we capture the differences between our book value and the market value and that is booked as a gain on deconsolidations. The gain on disposal of investments of treatment, this is for the initial 10% divestments that was conducted. That basically contributed again positively to the NPAT results. And bond buyback, we did conduct some bond buybacks from the initial tranche 1 divestments of Siloam. The effect is again, you will recall, most of that is bought back at close to par. And once you account for some of the fees and some FX impact I mean there is slight negative as opposed to the IDR 1 trillion gain that we booked last year during the first time when we did a bond buyback. So with that, we end up with NPAT of about IDR 20 trillion. I think what's important to highlighting here is that this brings our retained earnings to positive as well I mean compared to the negative position that it has been. EBITDA margin has remained healthy in all our segments. As you can see, health care is sitting at 26%, same with real estate and lifestyle at about 23%. Due to the strong performance financially, you will see that, that has translated into strong cash flow as well. In particular, I want to highlight the fact that operating cash flow has improved for IDR 157 billion in 1 half of '23 to close to IDR 1.7 trillion in 1 half of '24. And that is as a result of basically improved performance, as I mentioned, in all business segments, but collection has also improved as well, and we are seeing very good collections and very good marketing sales being booked, for example, in the Park Serpong projects, and those have contributed positively to our operating cash flow. On the investing cash flow, I mean, basically, you will see that the bulk of this IDR 511 billion is related to the CapEx that is invested by Siloam as Siloam continues to obviously invest in these medical equipment and hospital expansions in order to stay true to the strategy of advancing the revenue intensity and acuity of its services. And we also received about IDR 3.9 trillion from the 10.4% divestments of Siloam shares in June 2024. So that forms part of the cash flow in here in regard to this IDR 3 trillion from acquisition and divestments. Of the proceeds from the investment, a large part of that obviously went into retirement '25 and '26 bonds. IDR 3.6 trillion was applied to that. And beyond that, there was various pay down of working capital loans that we conducted across the group in order to reduce leverage. So cash -- the ending cash balance, I mean, remained at a very healthy IDR 1.6 trillion. But again, as you can see that the reduced cash balance is largely as a result of a larger pay in down regard to our debt and some of our working capital loans. I think it's important to highlight the impact of the leverage coming from the Siloam shares that we divested in 2024. We basically reduced the total consolidated net debt, if you can see from a position of IDR 11.7 trillion in FY '23. As at June 2024, I mean, that is sitting at about IDR 8 trillion. That represents a close to 32% reduction in regard to our net debt. Similarly, as you can see, the FX risk profile has improved as well with the USD debt previously making up 46%. It is now making up about 36% of our debt. And therefore, we would not be as subjected to the swing in the IDR USD movement, I mean, going forward. As highlighted earlier, I mean the NPAT that was booked as a result of the one-off deconsolidation of Siloam did help to improve the retained earnings from previously minus IDR 11 trillion, up to a positive IDR 9 trillion in regard to retained earnings of the group. All right. Moving into real estate. I'm just going to go through some of the segments in a little bit more detail before then suffering back and covering some of the BTL results. Property segments, as mentioned, has been performing well. Some of the highlight is that we basically sold 65 -- there were 65 projects launched in 1 Half of 2024. That continued to remain the key focus for Lippo Karawaci and the target continues to be our first home buyer and the 1 Half '24 marketing sales, as you can see in here, we booked a sales of IDR 3.14 trillion and this is 58% of our FY '24 targets that we shared with the market. So we are definitely on target to achieve, if not outperform the targets that we committed to the market earlier. Lender housing continued to be the prime driver, and we continue to have innovative products, the Q Livin, XQ Livin were all new product type that we have launched with a nice cold year in the middle to basically present an area and more modern feel to our properties. But revenue has increased 8% year-on-year and GP has increased 7% and EBITDA has improved by 12% year-on-year for 1 Half '24. So definitely, it shows that the strategies of providing innovative products for the first home buyers is the right strategy and that has continued to provide benefits to the group as a whole. And the -- again, just some information in regard to the breakdown of the land bank as mentioned before, we still have 25-plus years of -- for land bank. The marketing sales that have been conducted, the bulk of them will still be sitting with LK residentials, supported by, obviously, Lippo Cikarang and various land part sales that have been conducted during the year. In regard to the marketing sales, with regard to the volume breakdown, the bulk of it continued to be dominated by the landed housing. As you can see in the mile, it makes up for 85% of it and in volume mix up for 93% of the units that have been sold. And you will see some of the profile in Lippo Cikarang as well. And the bulk of it, obviously, is still through cape-out with the mortgages and the majority of it we've seen that are basically housing. There's price at an affordable level for first home buyers and 98% of them were priced at IDR 2 billion or less. And we also see that the 1 Half '24 revenue continue to improve, and these are some of the examples of highlight or projects that we've handed over. As you can see, there is a stable stream of on-time handover in the various projects that we have delivered, and we do have a lot of happy customers as a result of that. The new product that we're launching in the XYZ, we have asserted some of the delivery, and we do expect some delivery to start to happen by December of this year of the initial schedules that we promised our buyers. So we do believe that -- and this is the Q Livin series that I mentioned earlier, a brand-new concept with a nice airy courtyard that basically accentuate the spaciousness of the unit, I mean, despite the fact that they are on a small block of land like looking at kind of 36 to 46 meter square, but this blocks of land, the design of the units make a feel a lot bigger, and therefore, these houses have been in the very strong demand we launched it in Park Serpong Phase 2. We do intend to launch a Phase 3 of Park Serpong as many of you might know by around about October of this year. And stay tuned, there will be new products being launched as part of that as well. And we do believe that, that will continue to drive marketing sales going forward. So moving on to health care. The growth on health care, again, this is based on the Siloam's result as an entity. But I think it's easier to look at it that way than to look at it whether on a deconsole or console level. So this is basically Siloam's stand-alone performances, I mean, for the 1 half of 2024. As you can see, revenue is up 14%, underlying EBITDA up 15.3%, and the underlying net profit is up a whopping 25%. You will that the performances, I mean, have been stable. If you look at quarter-on-quarter performances coming out of COVID with revenue growing at a CAGR of 4.1%, underlying EBITDA at 6.7% and the net profit on a quarterly basis growing at a CAGR of 16%. Margins remain healthy as you can see, but we have substantially improved our margin from 24.4% in 2Q '22 and even lower in FY '19, it was sitting at 16.6%. Coming up to a stable EBITDA margin of about 30%. NPAT margin similarly, as you can see, a stabilized at around 15% for Siloam. Part of our key differentiation, I mean, compared to our competitors, we've always said is that we focus more on growing the revenue intensity and complexity of our businesses. As you can see, compared to our peers, the average revenue per occupied bed is close to 2x what others are achieving. And we have seen that the average revenue per occupied bed has continued to improve, as you can see from 2019 out to 2023. This is a CAGR of 10.7%. 2Q '23 up to 2Q '24 by itself is already an improvement of 3.5% in regard to the average revenue per occupied bed. As you can see, the numbers is substantially higher than what the industry is performing at. And they continue to drive the growth of Siloam and it continue to drive our future vision in terms of where we're going to take Siloam and is a key competitive advantage in comparison to the industry. In regard to throughput, I mean, admissions are up, as you can see, 14% on a CAGR basis compared to the same quarter last year. Occupancy rates are stable at about 68%, and the operation business, as you can see, has been improving as well. On a YTD basis, inpatient admissions is up 15% and outpatient is up about 14%. EBITDA margin remains stable. So we have implemented the various efficiency measures. There's improvement in the payer mix. There's also improvement in case mix, and this has helped to improve the EBITDA margins to, as I mentioned, around about 30%. The drugs and clinical supplies, obviously, is the largest cost component for hospitals. As you can see, that has steadily dropped from 33% of revenue down to about 28% of revenue as 1 half '24. The OpEx has also similarly dropped from 35% in 2019 all the way down to 29.3% in 1 half of 2024. Profit margin have stabilized, as mentioned earlier, at the 15% mark. The component insurance market continued to contribute about 50% of the total revenue. I think that is a little change compared to before. BBGS contribution semi remained stable at around about 18%. Moving on to some of the highlights. I think we are very excited to be recognized as the best specialized hospitals by Asia Pacific in Indonesia. And I think this recognizes the continuous investments that we have made into hospitals such as the MRCCC to improve its oncology services. In line with basically our strategy to increase revenue intensity, new equipment such as a new CAT lab and the new linear accelerator have been installed and are operational in Siloam Agora business. There are also new executive clinic being open at our Denpasar clinic, and we continue to basically invest in our doctors and making sure that we have the best-in-class doctors. And as a result, you can see what we have called CONGO, cardiology, oncology, neurology, gastro, ortho, which is the kind of key focus c*** for the Siloam businesses have seen improvement as well with a 14% improvement in 1 half '24 compared to 1 half '23. So these are the key cloud group of services that are driving the growth of Siloam. And as you can see, we are happy to report that across four of our key set of excellences, this product group has seen improvement year-on-year. These are some of the key pipeline projects that are in development. We continue to expand at a cautious pace but in market segment that whereby we believe there are further opportunities, for example, there's an intention to build up a second MRCCC basically besides the Lippo village -- Siloam Lippo Village. It is a dedicated oncology centers. We will be using the MRCCC brand to illustrate the fact that MRCCC is not just the hospital, but basically a commitment from Siloam to continue to enhance and develop -- to deliver best-in-class oncology services in Indonesia or within the Asia Pacific region. So the LB oncology centers or the LB MRCCC, we do anticipate that to be open in Q1, 2025. We continue to expand on some of our key flagship hospitals, for example, in Makassar, in Surabaya, in Aswi. I mean these are hospitals that have been performing very well for the group, and we want to be able to leverage those opportunities and expand because they are running close to capacity due to the popularity. At the same time, we are also planning new hospital expansions. I mean these are some of the key hospitals that are in the pipeline, I mean, the [indiscernible] in the Surabaya, along with [indiscernible] in Surabaya as well. [indiscernible] and also [indiscernible] and along with a hospital planned in [indiscernible]. As you can see, I mean, the pipeline hospitals are all situated within the more densely populated first, second-tier cities that is, again, aligned with Siloam strategy to focus on the premium market, and to basically drive growth on premium whilst also making sure that we don't forget on our BBGS. I wouldn't go through this in too much detail. There's been obviously a lot of investments from Siloam in going through the digital platform and the investments made related to that. And in regard to getting the patient voice, making sure that we have a channel to recognize the patient complaints and so forth. And this has definitely helped the digital businesses and enhance the seamless care and so forth. Moving on to Lifestyle. Lifestyle, as you can see, we are the largest mall development operator in Indonesia. And we have seen that the mall's revenue is relatively stable in 1 half '24 to 1 half '23, but more business growth has been stable as well. There have been various events that's been planned in order to attract more traffic to our malls, as you can see in here. Hotels, again, has been performing well. EBITDA from hotels, as you can see, is up 11% and average room rate, as you can see, has improved 8% as well. So all in all, we do believe that this has improved as a result. And this will continue to -- as a trend going forward. Some of the enhancements that we will perform for malls, I think it's important to highlight. We do want to continue to invest. And these are some examples of the investments that we'll be making in improving the performance of our malls here. Sustainability continues to be important element. I think we do want to spend time talking about it. We do intend to basically implement some of the TCFD standards, where we would want to be an early adopter of the standard, which again forms the basis for the ISSB standard for ESG reporting. We have done various efforts in terms of notifications of climate risk and to improve our ESG reporting. And currently, we're aiming for with a rating of A that we have achieved in August 2024. That basically illustrates the continued effort and attention the group has paid in regard to addressing the ESG's concerns from our stakeholders. These are some of the high-level agenda items of -- items that we are looking at but we do have active framework for tracking the achievement of these targets, and we would continue to enhance our ESG reporting to the market as well going forward. Looking ahead, we continue to offer unique products. I think this would anchor our performances in real estate going forward as well. And as mentioned, we would continue to look at target -- targeting the first home buyers' market with Park Serpong, Lippo Cikarang and Gowa Makassar has also been launching similar products. We have very good take up. The marketing sales is definitely on track and we do believe that by the end of the year, we should achieve or outperform the targets that we have set. Health care continued to focus on its strategy of enhancing complexities, and we do believe that it has been supporting the management decisions and we continue to basically open new hospitals in the conscious matters, as I mentioned before. And we do believe that this will continue to maintain our competitive edge in comparison to our competitors. But lifestyle, again, more recovery has been stable. We are continuing to seeing improvement in hotel businesses as well. I mean we are excited to see that, especially as I highlighted earlier, the EBITDA from hotel continue to improve year-on-year on a very stable basis, and that will continue to support the businesses going forward. So that is basically my main slides for the 1 half '24 results. I do want to now share a little bit more in regard to the voluntary tender offer that has been completed. This is obviously after balance date, yes. So -- which is why I only touched on it after finishing off on the 1 half '24 results. So the announcement has gone out this morning, as most of you have already seen. Just to recap some of the key elements in the announcements. Siloam has obviously further disposal of 18.57% of its ownership. Reducing our ownership currently in Siloam to 29.09%. With the IDR 6.9 trillion that has been received, approximately IDR 2.9 trillion will be applied towards paying down debt. Again, the debt would include the USD bonds and also other loans that we have, the syndicated loans in IDR, other working capital loans and so forth. There are some amount put aside for future projects. I think I will share with the market when these are in the -- we are ready, yes, but there has been the project that have been identified whereby this cash will be applied. But at this stage, I think it's too early to share these details. As a result, you can see, I mean, once we apply this IDR 3.9 trillion to paying down debt, the total debt level, again, this is on a kind of a pro forma basis by the end of FY '24 would come down to IDR 5.5 trillion down from about IDR 13 trillion in 2023 and IDR 14.3 trillion in 2022. So that is a substantial 62% reductions in our debt level. Similarly, interest costs would reduce by approximately the same magnitude of about 63%. And it drops from basically IDR 1.3 trillion, but down to IDR 535 billion that we can see here. So we are very positive on the impact that this deleveraging will have on the operational profile of Lippo Karawaci going forward. That substantially reduces the interest obligations on Lippo Karawaci. And a lot of you have been asking about holdco cash flow situations every earnings call. As you can see, this will substantially improve the holdco operating cash flow due to the reductions in that is required. So that is all from me in regard to the presentations for today. I would basically hand it back to Randi for any Q&A.

Yes. Yes, sure, Daniel. There is some in the Q&A section, you may maybe continue with it or maybe by John?

Yes. Daniel, do you want to take a couple of those questions. I think most of it, you've -- related to the VTO you've explained in the last slide. So that I won't comment on the VTO related questions. With regard to which part of our debt would be repaid, whether the '25 to '26 so the syndicated loans, we're still studying that. And so that's not a decision that we've taken at this point.

Yes. So I'll just go through the questions. Sorry, I'm just seeing the questions now. Basically, just echoing John's comments, IDR 3.9 trillion has been earmarked for paying down debt, exactly which we will share with the market when really internally, we are still evaluating that. Would the debt be used for CapEx and other purposes? Again, the same comment, we will come back to the market when we are ready. As mentioned, there are projects that we have earmarked for the use of that cash, but it is still going through various internal evaluations. We do want to make sure that we optimize shareholders' return. So at the right point in time, we will come back and update you on that. What do you see in primary proceed? Yes, I think I already answered that.

Tax treatment on the gain from deconsolidation. There are no tax implications arising out of the gain from the deconsolidation.

Yes, that is correct. So it is a pure accounting treatment, so there is no tax implication.

No tax allocation and no cash implication for that matter.

That is correct.

When do you expect LMIRT resume paying dividends? I think this is a question to be directed to the LMIRT management. Yes.

Strategic plan with regard to Lippo malls. Look, we have no plan to divest our Lippo malls at this stage. Sorry, the question is about EBITDA. So as I mentioned earlier, basically, EBITDA would have swing depending on the handover for that period, right? So the 2Q '24 marketing sales does not translate into 2Q '24 EBITDA, but you will probably see the EBITDA 12 to 18 months later. So you can't compare the marketing sales to EBITDA. Now the EBITDA, obviously, as I mentioned, will be affected by timing in regard to handover. So you always see a little bit of a swing. But I think it's fair to assume the fact that whatever you see in marketing sales will eventually be translated into EBITDA, but it's just not immediately.

Okay. I think that's about it. No more questions.

I think no more questions. Okay. That's all for today. Thank you for attending first half 2024 earnings call. We'll see you again on the 9 months 2024 financial results in October. And thank you very much for your attending this event. Bye-bye.

Thank you.

Thank you.