Q&ACategory: Questionslippo-mall-indonesia-reit-if-to-add-position-now
Peng Yeow Loh asked 2 years ago

Dear Mr Wong, I bought Lippo Mall in 2017 at 0.44 before Indonesia government imposed the additional tax which caused the share price dropped to half, on top of that, the earth quake in Indonesia and the weakening Rupiah also caused the share price at bottom last year. The price now is at 0.23 and I wonder if I should add position to average my price? I would like to hear your opinion on this stock as well as the situation in Indonesia which would bring positive or negative effects for it. Thanks. Loh

1 Answers
paul wong answered 2 years ago

Hi Peng Yeow
There were 2 major events which impacted Lippo Malls negatively. The first being the accusation of bribery involving the parent company, Lippo Group which tanked the shares of all companies associated with the group. The other is the strong USD which weakened the Rupiah, thereby resulting in weaker earnings when translated into SGD.
The fall in the value of the Rupiah has significantly impacted Lippo Malls’ assets value in SGD. Right now, its Gearing Ratio is slightly above the mandatory 35% set by Securities Commission at 36.3%
It will put pressure on the Trust to use a portion of its cashflow to pay off the short term borrowings while negotiating for longer term borrowings so as to maintain the Gearing Ratio at 35%.
There seems to be a he amount being spent on Property Expenses which contributed to its lower earnings.
Here are some considerations:

  1. Overhang of the bribery scandal which may take a few quarters to unwind
  2. The Property Expenses seem huge, need to see coming quarter whether it is a continuing affair or a one off charge – This is the major contributor to lower earnings
  3. Need to see strength in Rupiah so that the assets value could be adjusted higher and therefore lower the Gearing Ratio
  4. 7 master Leases have expired. Need to see that these leases are renewed to ensure steady income stream

The above are things to look out for before you add new positions.
Hope the above help clarify

Peng Yeow Loh replied 2 years ago

Dear Mr Wong,
Thanks for the explanation.
Best regards,