COMPANY PROFILE
History of the Lippo Group began when Mochtar Riady (Lie Mo Tie) bought some shares of Bank Perniagaan Indonesia's that owned by Haji Hashim Ning in 1981. At that time, Mochtar was important positions in Bank Central Asia (BCA), the bank that established by the family of Liem Sioe Liong. In the BCA Mochtar gain share at 17.5% stake. The asset of BCA when Mochtar joined is only Rp12.8 billion. In late 1990, when Mochtar out of BCA, the bank's assets above Rp5 trillion. In 1987, after he joined with Indonesian Commerce Bank’s assets have soared to more than 1,500 percent to Rp 257.73 billion. This situation impressed national banking system. He also dubbed as "The Magic Man of Bank Marketing”. Two years later, this bank merged with Bank Umum Asia, and after that Lippobank was born. This is the embryo of the Lippo Group.
“Lippo Karawaci” was initially founded on a vision to impact lives through the development of well-planned sustainable townships with green environments and first class physical and social infrastructure. Lippo Karawaci Group is a merger of 8 property related companies in 2004. Now became Indonesia’s largest listed property company with a portfolio that comprises six strategic business units (SBUs) following:
1. Urban development
2. Large scale integrated development
3. Retail malls
4. Health care
5. Hotels, leisure and infrastructure
6. Property and Portfolio Management.
Shareholder structure of Lippo Karawaci Tbk:
ANALYSIS OF COMPANY STOCK RISK AND MARKET RISK
Analysis of Stock Return
Every day and hour the price of stock will change, it happened because every day the company’s stock does trading. For example: closing price (Jan 8) is Rp500 than the next day the value of that investment had appreciated to Rp520 that means investor get capital gain for Rp20 per share. In other word, if the investor invested their money in Jan 8 then the next day they will get return (gain) of 0.04% from the money that they invest (if they sell). Looking from the data, we know that Lippo Karawaci Tbk has closing stock price around Rp400 until Rp690 per stock from January 2, 2010 until October 30, 2010. This range will become the risk for investors. The movement of stock price in that range will cause gain or loss for investor in term of return. As a consequence, investors must pay attention with history of closing price to make a good investment. The good news is the Lippo Karawaci’s investors face “low unsystematic (company stock) risk”. It’s because the principle: the low risk is lower return.
The result of average closing stock price is 0.00136. This average of stock price mean that if the investors make an investment in Lippo Karawaci’s stock during Jan 2 until October 30, 2010 they will get gain for 0.00136 or 0.136%. In other word for 100% investment, investors will get gain for 0.136%. Although this is the small number of return but this stock is good for make “save portfolio investment” because the company stock risk is low. The investors will not get loss to much if they make an investment in Lippo Karawaci, Tbk.
According to historical stock of Lippo Karawaci, the standard deviation is 0.02812. It means company stock is less volatile, so it has low risk of investment. Investors which are preferred to avoid bigger risk can invest their money in this company. It can be happened because the movement of stock price in Lippo Karawaci is not too narrow. The gain and losses that received by investors is relatively small. The conclusion is Lippo Karawaci Tbk has low risk even though the return of the stock that the will be gain by investor is also low.
Analysis of Market Return
In order to make an investment, investors face two kind of the risk that are company stock (unique risk) and market index (systematic risk). This part is concern in systematic risk that represented by composite index. This risk occurs because of macroeconomics events beyond the company's activities, such as inflation, recession and etc. This movement of composite index will be the risk of investors. Example: closing index Rp2586.9 (Jan 7) and the next day being Rp2614. It means from the 7 until 8 January, the market stock has positive movement that will be give gain for investor. In other word, if the investors invest their money in Jan 7, they will get gain of 0.011 or 1.1% from the 100% money that they invest if they sell the stock in Jan 8. It is because mostly the parties in stock market has positive movement that influenced by the macroeconomics condition.
To be other consideration, the average rate of daily market return is 0.00178 or 0.178%. It means that during Jan 2 until October 30, 2010, market stock tend to be stable (not in aggressive fluctuation condition) because the range of movement that presented by return is not long. In other word, during that period, macroeconomics condition in Indonesia is good. This condition gives advantage for investors because the systematic risk that they face is low because the stock market is tend to be stable. It is a good timing for investors decide to make portfolio investment in stock market.
Another measurement of market risk is standard deviation. From the calculation in appendix, the result of standard deviation from market return is 0.01288 or 1.288%. It means the market index is less volatile, so it produced low risk of investment during that period. Investors which are preferred to avoid bigger risk can invest their money at that time. It can be happened because the movement of closing market index is not too narrow. The bigger amount of standard deviation is the higher risk rate. We can concluded that the risk of Lippo Karawaci Tbk is higher than market index because the standard deviation of Lippo Karawaci’s return (0.02812 – 2.812%) is around twice than Composite Index. In other word, the stock of Lippo Karawaci is riskier compare with composite index.
Analysis of Beta of Company Stock
Systematic risk that usually denoted by beta (ß) which shows the size of the stock return sensitivity to market return. Beta value is use as a measure of the sensitivity of the stock return to a condition in which the impact is felt by all companies. The greater sensitivity of a stock returns on a systematic risk, the greater number of the stock beta. The result of the beta is 00.497 (less than 1). This means that for each increase of 1 in X, the mean value of Y is estimated to increase by 0.497. In other word, for each increase or decrease of 1% of return in the market, the values of stock return are estimated to increase or decrease by 0.497%.
It proved that Lippo Karawaci’s stock is a defensive stock because the result of beta smaller than 1. The returns of these stocks vary less than one-for-one with market returns. Defensive stock tends to remain stable under the fluctuation of economic conditions. As a result, the risk of Lippo Karawaci’s investors is lo because the range of fluctuation is not too long. It proved that Lippo Karawaci’s is a low-risk product of investment. The consequence, return that get by investors also not too big (movement of the stock tend to be stable in certain range). Based on the type of stock, Investor that likes to use defensive investment strategy can choose Lippo Karawaci’s stock as a part of their portfolio. So the investors can minimize the risk (losses) of losing capital investment.
Factors that Influence Fluctuation of Stock Return and Market Return
Based on the stock and market return, there are internal and external factors of company that influence the movement both of them. Internal factors come from the performance of company itself and external factors come from the whole economic condition in Indonesia. Internal factors consist of factors such as growth of assets, dividend policy, liquidity ratio (Cash Ratio, Cash Flow Ratio, Return on Asset, Net Profit margin), profitability ratio (ROE, EPS), the debt ratio. Whereas the external factors are including economic condition in general, inflation rate, tax, condition of stock exchange, and demand of stock. Let we discuss it one by one.
There are some movements of Lippo Karawaci’s stock that give the big capital gain for investor. From the table of stock and market return (in the next page), we can see three significant growth of return in company stock. Those are closing prices in September 21, October 5 and October 20, 2010. In September 21, the closing price of Karawaci’s stock increase from the last day for Rp40 per share from Rp540 to Rp570. In other word, the investors will get capital gain for 7.546% from the all of the money that they invest in Lippo Karawaci’s stock when they sell the stock at that time. The factor that influences this positive movement of company stock is profitability ratio.
In October 4, 2010, PT Lippo Tbk announced a dividend of Rp50 billion or Rp2, 88 per share to shareholders. The shareholder will receive this amount of dividend on 1 December. This is in accordance with new dividend policy of Lippo Karawaci that announced in September. Company will pay a final dividend and interim regularly for 25-30 percent of net income or the amount is equivalent with a yield for 1-2 percent. The total of interim dividend distributed today is equivalents with a yield of 1.6 percent a year, based on stock price LPKR for Rp560/ share on October 19, 2010. Lippo’s new dividend policy and recommendation of dividend payment is approved by holders of bonds on October 5. It is one factor that caused the closing price in 5 October increased from Rp600 to Rp650. It shows that the new dividend policy that gives advantage for investor will stimulate them to make stock portfolio of Lippo Karawaci. This increasing of stock price gave positive return (capital gain) for 0.008333 or 8.333%.
The next are external factors that influence market return such as investor confidence, political factors, and the current state of the economy all affect the stock market. Companies that do not violate regulations are also attractive. Taxes also have implications on the markets. When there is a rise in dividend tax, this will discourage investors from holding stocks that pay dividends. If capital gains tax rises, investors will seek to take the capital elsewhere. War or Terrorism/Natural Disaster: These types of events cause general investor panic, regardless of what the stock value may be on paper, if everyone wants to hide their money under a mattress the stock price will fall. The rationale for the relationship between the interest rate and stock market return is that stock prices and interest rates are negatively correlated. Higher interest rate ensuing from monetary policy usually negatively affects stock market return. This is because higher interest rate reduces the value of equity as stipulated by the dividend discount model, makes fixed income securities more attractive as an alternative to holding stocks, may reduce the propensity of investors to borrow and invest in stocks, and raises the cost of doing business and hence affects profit margin. On the contrary, lower interest rates resulting from expansionary monetary policy boosts stock market.
Because the number of beta of Lippo Karawaci is less than 1, it means that the company is not sensitive with the economic condition. The factors that most influence the stock return came from the internal factors that was purpose to increase the value of company. The movement of Lippo mostly is caused by the internal activity such as sales, pay dividend and etc. In other side, because of the number of standard deviation of Lippo Karawaci is bigger than composite index; it is caused the fluctuation of company stock return in Lippo Karawaci is more aggressive than the movement of market index. During January 2 until October 30, 2010, the condition of economic in Indonesia is stable; as a consequence the movements of stock market also tend to be stable. Looking from the graph of stock and market return, we can see that there is longer range of stock return than market return. It can be concluded that the movement of Lippo Karawaci’s stock most influenced by the internal activity of company than the general economic condition. It makes the company’s stock tend to be aggressive than stock market which is stable in that period.
Strategic Business Units of Lippo Karawaci:
Revenue and EBITDA:
BCG Matrix:
Healthcare include in Stars because it is SBU that can give big revenue for company because the market share of this SBU is big. In another side, healthcare also has a big number in spending because the rate of market growth is higher. It can be proved by the proportion of revenue for 32% from 100% revenue is decreasing become 19% (after minus by expenses). In reality, to operate healthcare institution must needed a huge amount of money because of the technology that must be applied. If healthcare SBU can maintain a large market share, it will be “cash cow” when the decline in market growth rate. Portfolio of diversified companies should have a star that will become the next generation of dairy cows to ensure future cash. Lippo Karawaci proved it by provide healthcare business unit as their future cash cow.
Large scale integrated development, urban development and hotel and hospitality are strategic business unit that include in “Cash Cow”. As a leader in a mature market, these three SBUs have greater return on assets than market growth rates that related with spending. As a result, they can generate revenue than their consumption. From the graph, we can see that proportion of revenue and EBITDA of these three SBUs have a big proportion after decreasing by the expenses. Cash cow provides cash needed to change the question marks into market leaders, cover administrative costs the company, fund research and development, service the company's debt, and pay dividends to shareholders. Looking from the business portfolio of Lippo Karawaci, company has a good decision in making business portfolio. Most of their SBUs are success to maintain in Cash Cow position that will give advantage for development of company. Then, it will influence their position and condition of their stock price. If the company has reached this stage, it is means that the entire market share has almost mastered and its growth had been stagnant. Lippo Karawaci can only keep by doing maintenance so that production and operation can be stabilized. Furthermore, companies should think again to release new products, in order to make market is not saturated.
The next is that retail malls that include in “question mark”. Retail malls are growing rapidly (it proved that Lippo Karawaci has 24 malls) and thus consume large amounts of money. But because retail malls has low market shares, it do not generate much money (only 3% from the whole of revenue). The result is a net consumption of big cash. Retail mall has the potential to gain market share and become a star, and finally cash cow when the market growth slows. Lippo karawaci need to do aggressive advertisement, commercial event or make interesting program for this SBU to increase the market share. But if a retail mall does not succeed as the market leader, perhaps years later after cash consumption, it will turn into a dog when the market growth declined. Lippo Karawaci must be analyzed carefully to determine whether they need more investment or not to increase market share.
The last is property and portfolio management that include in “Dog” stage. It is because property and portfolio management has low market share (only 5%) and low growth rate. It does not produce or consume large amounts of cash. The amount of EBITDA is 12% it is increasing after reduce by the expenses. It means that the number of expenses is too small. However, property and portfolio management are cash traps because the money tied up in businesses that are less potential. This strategic business unit is candidates for divestiture.
After done with BCG analysis, we can conclude that the business portfolio of Lippo Karawaci Tbk. is good. It is because they success to maintain their most of strategic business unit in “Cash Cow” stage that will give good impact for company in term of company value. Directly, it will be influence the growth of stock of Lippo Karawaci.
CONCLUSION
Investors always wants to make an efficient portfolios which is defined as portfolios that provide the greatest expected return with certain risk or provide the smallest risk to the certain level of return. If an investor wants to form a portfolio, the investor should really analyze it appropriately. Lippo Karawaci Tbk is the good selection of the stock for investors who prefer not high risk. Investors also must pay attention with history of closing price to make a good investment. Because the movement of closing price tend to be stable, its means the return that will be obtains by investor is not big. The good news is the Lippo Karawaci’s investors face “low unsystematic (company stock) risk”. It’s because the principle: the low risk is lower return. The result of average closing stock price is 0.00136. It can be happened because the movement of stock price in Lippo Karawaci is not too narrow. The conclusion is Lippo Karawaci Tbk has low risk even though the return of the stock that the will be gain by investor is also low. To be other consideration, the average rate of daily market return is 0.00178 or 0.178%. It means market stock tend to be stable (not in aggressive fluctuation condition). From the calculation in appendix, the result of standard deviation from market return is 0.01288 or 1.288%. It means the market index is less volatile, so it produced low risk of investment during that period. Investors which are preferred to avoid bigger risk can invest their money at that time. We also can concluded that the risk of Lippo Karawaci Tbk is higher than market index because the standard deviation of Lippo Karawaci’s return (0.02812 – 2.812%) is around twice than Composite Index. The stock of Lippo Karawaci is riskier compare with composite index. But, this is also will influence the amount of return that get by investors. The higher risk will get higher return.
The result of beta proved that Lippo Karawaci’s stock is a defensive stock because the result of beta smaller than 1. The returns of these stocks vary less than one-for-one with market returns. As a result, the risk of Lippo Karawaci’s investors is low because the range of fluctuation is not too long. The consequence, return that get by investors also not too big (movement of the stock tend to be stable in certain range). After looking from the stock’s side, the last we do analysis of BCG that proved business portfolio of Lippo Karawaci Tbk. is good. It is because they success to maintain their most of strategic business unit in “Cash Cow” stage that will give good impact for company in term of company value specially to gain revenues. Directly, it will be influence the growth of stock of Lippo Karawaci.
Generally, we can conclude that Lippo Karawaci Tbk is a good company for make an investment in stock market as a “safety portfolio”. It also supported by the good decision of business portfolio that adding value for company performance to attract investor for make investment in their stock.
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