Lippo Group Stocks Slump After Matahari Slashes Dividend Payout

(Bloomberg) -- PT Matahari Department Store was downgraded by at least four analysts and led declines among Lippo Group stocks after a slump in the retailer’s net income prompted a cut in its dividend payout.

Matahari plunged as much as 22 percent in Jakarta trading, the most since December 2011, while PT Lippo Cikarang, PT Lippo Karawaci and PT Siloam International fell between 6 percent to 14 percent. The benchmark Jakarta Composite Index retreated 1.1 percent by midday trading break. Matahari slashed its dividend to 50 percent of net income in 2018 from 70 percent after profit slid 42 percent, according to an exchange filing.

Investors dumped share and bonds of Lippo Group companies last year as well after Indonesian investigators named group executives in a bribery case related to a property developed by Lippo Karawaci near Jakarta. The group, founded by tycoon Mochtar Riady, is offering for sale the U.S. Bank Tower in downtown Los Angeles, known for its cameos in Hollywood movies and a sky-high outdoor glass slide, amid investor concern the group is facing a liquidity crunch.

Lippo Group’s Riady Questioned in Indonesia Bribery Probe

The decision by Matahari to lower its dividend payout has hurt investor sentiment in the other companies in the group, said Jemmy Paul, president director at Sucorinvest Asset Management. There is “fear that it would be replicated in other companies within the group,” he said.

Matahari said the additional funds from lower dividend payout ratio will be used to support its growth strategies, including expansion of its large, small and specialty format stores.

Matahari was downgraded to underweight from overweight at JPMorgan Chase & Co. and Morgan Stanley, to neutral from outperform at Credit Suisse Group AG and Macquarie Group, and to sell from buy at PT Trimegah Sekuritas Indonesia. Citigroup retained its buy rating.

Below is summary of analyst reports:

Trimegah Securities (Darien Sanusi)

  • Target price slashed to 4,400 rupiah from 7,500 rupiah
  • Last year’s earnings came weaker than expected amid full impairment of its investments in e-commerce business amounting to 770 billion rupiah
  • Growing e-commerce businesses in Indonesia could threaten Matahari Department Store’s outlook

Deutsche Bank (Hadi Soegiarto)

  • Share price could still come under pressure after a series of negative news from the company
  • Weakness in Matahari’s performance may be good for other retail stocks if investors in Matahari decide to switch to other companies

Citigroup (Vivi Lie)

  • Matahari’s near-term earnings outlook is unfavorable due to consensus downgrades of its 2019 guidance
  • Upcoming dividend payout of 50% is still better than Citigroup’s expectation despite the ratio being lowered from 70%
  • Citi maintains buy recommendation as company’s new initiatives look promising and better-than-expected 2018 dividends payout as well as share buyback will support stock price

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