Lippo Securities enters retail brokering<\/p>\n
By Aloysius Bhui<\/p>\n
JAKARTA (JP): PT Lippo Securities (Lippo) of the Lippo Group
\nrecently revealed to the media and stock analysts that it has
\nlaunched a retail brokering service to anticipate a foreseeable
\ngrowth in the number of domestic investors.<\/p>\n
As the first and only listed securities company in Indonesia,
\nLippo's move raised questions about its business strategy and its
\nstrength in the domestic market, which is fundamental to
\ninvestors deciding whether to invest in the company.<\/p>\n
Moreover, the Jakarta Stock Exchange (JSX) is widely known as
\na market dominated by foreign investors. They contribute about 70
\npercent of the market's transaction volume.<\/p>\n
Lippo's president, Charles De Queljoe, however, told an
\nanalysts' meeting recently that the management's decision is
\naimed at anticipating a strong upsurge in the number of domestic
\ninvestors.<\/p>\n
\"Our vision is to become \"the Merrill Lynch of Indonesia,\"
\nDe Queljoe told the meeting which was attended by 60 stock
\nanalysts from both local and foreign companies.<\/p>\n
\"You will eventually find Lippo's office in every major city
\nor even medium cities throughout the country, just as Merrill
\nLynch has in the United States.<\/p>\n
\"We believe that the number of domestic investors will grow
\nrapidly in the years to come. Within four or five years, domestic
\ninvestors, both individuals and institutions, will account for 50
\nto 60 percent of the JSX's transaction volume,\" De Queljoe said.<\/p>\n
In an interview with The Jakarta Post, De Queljoe disclosed
\nseveral key assumptions driving his optimism.<\/p>\n
He said that domestic retailing has been very active since the
\nimplementation of the JSX automated trading system in May last
\nyear.<\/p>\n
A director of the JSX, Mas Achmad Daniri, also confirmed that
\nsince the stock exchange became automated, trading on the regular
\nboard has accounted for 60 percent of total transactions, as
\ncompared with only 30 percent before.<\/p>\n
\"We further believe that the planned scripless trading and
\nremote trading will increase the participation of domestic
\ninvestors. For us, scripless trading is very important,\" De
\nQueljoe noted.<\/p>\n
\"I cannot emphasize enough that scripless trading will
\nencourage securities companies to look for more retail
\ninvestors,\" he added.<\/p>\n
Chairman of the Capital Market Supervisory Agency (Bapepam) I
\nPutu Gede Ary Suta once said that by the year 2000 all the shares
\nlisted on the JSX should be scripless.<\/p>\n
There are 47 billion shares listed on the JSX now.<\/p>\n
Another important factor, according to De Queljoe, is the
\nenactment of the new capital market law, which, among other
\nthings, allows the establishment of open-end mutual funds.<\/p>\n
\"I believe that there will be many domestic funds to be set
\nup. In addition to the law, tax incentives offered by the
\ngovernment recently will also encourage domestic funds,\" he said.<\/p>\n
\"Right now we deal in the physical environment. If you buy
\nshares through us, we have to physically handle the share
\ncertificates. If it is a small order, because you are retail, it
\nbecomes expensive for us to handle the transaction.<\/p>\n
\"And it's changing. I think the government has planned to
\nstart scripless trading in the fourth quarter of this year. So
\nit's the right time to start.\"<\/p>\n
Strength<\/p>\n
During the last five years of its operation, Lippo only served
\nforeign clients. The company has set up a strong distribution
\nnetwork through its subsidiaries which operate in Hong Kong,
\nTaipei, Bangkok and Manila. While in this country, it only
\noperates in Jakarta.<\/p>\n
De Queljoe, however, said that Lippo will make use of Lippo
\nBank's and Lippo Life's nationwide networks to strengthen its
\ndomestic retail base.<\/p>\n
An analyst also said that as a bank-affiliated securities
\ncompany, Lippo has already got strong support to penetrate the
\ndomestic retail market.<\/p>\n
De Queljoe said that domestic retail is already a big part of
\nLippo's business. For the first four months of this year,
\ndomestic retails have accounted for 30 percent of Lippo's
\ntransaction volume every day.<\/p>\n
Lippo Bank now has 108 offices Jakarta, 14 in the greater
\nJakarta area, 34 in West Java, 75 in Central Java, 28 in East
\nJava, five in Bali, 30 in Sumatra, six in Kalimantan, two in
\nSulawesi and one in Ambon.<\/p>\n
And Lippo Life has three financial centers, 134 branches and
\ncounters and 5,200 agents.<\/p>\n
De Queljoe also said that the management has budgeted Rp 4
\nbillion this year to improve its infrastructure and computer
\nsystem.<\/p>\n
The new network, yet to be fully developed, is an integrated
\none which has both back-end and front-end systems.<\/p>\n
\"The new computer system will allow us to make on-line real
\ntime transactions from other cities,\" De Queljoe said.<\/p>\n
He said that the system, which is expected to be effective in
\nOctober, is also designed to be easily interfaced with the Lippo
\nBank and Lippo Life computer systems.<\/p>\n
In a addition to a wide distribution network the company has a
\nlarge capital and strong research team.<\/p>\n
On account of its sound research, Lippo has been declared the
\nbest securities company in Indonesia by Euromoney in 1993, 1994
\nand 1995.<\/p>\n
It was also labeled the best underwriter by a local economic
\nmagazine last year.<\/p>\n
With a total equity of Rp 170 billion (US$72.3 million), Lippo
\nis believed to be the largest capitalized securities company in
\nIndonesia today.<\/p>\n
Performance<\/p>\n
Lippo, which was established in 1989 by the Lippo Group and
\nthen became a joint venture company in 1990 when the Swiss Bank
\nCorporation (SBC) joined the company, is licensed to provide
\ncorporate finance, brokerage and financial advisory services.<\/p>\n
In the past four years, Lippo executed 29 transactions as lead
\nmanager and co-manager, raising debt and equity capital of Rp 3.6
\nbillion for Indonesian companies both in the primary and
\nsecondary markets.<\/p>\n
It has also underwritten eight debt and 25 equity capital
\nmarket transactions.<\/p>\n
On stock transactions, Lippo was placed among the top
\nbrokerage firms on the JSX in both of the last two years.<\/p>\n
For the first three months its total stock transactions value
\non the JSX reached Rp 1.2 trillion or 65 percent of its 1995
\ntotal volumes.<\/p>\n
\"This year, we have been mandated to execute at least four
\nIPOs and two rights issues together with three advisory
\nassignments,\" De Queljoe said.<\/p>\n
Lippo's total revenues rose from Rp 17 billion in 1993 to Rp
\n44 billion in 1994 but then declined to Rp 24 billion last year
\ndue mainly to the sharp drop of corporate finance revenues from
\nRp 22 billion in 1994 to only Rp 1 billion last year.<\/p>\n
It's net profits were Rp 7 billion in 1993, Rp 26 billion in
\n1994 and Rp 14 billion last year.<\/p>\n
Its earnings per share also declined by 47 percent from Rp 204
\nin 1994 to Rp 108 last year.<\/p>\n
De Queljoe said that the decline in Lippo's earnings last year
\nwas due mainly to the overall weakness of the JSX, in line with
\nregional trends.<\/p>\n
Other listed brokers in the region also suffered from earnings
\ndrops. Vicker Ballas' earning per share dropped by 45 percent, GK
\nGoh by 58 percent, Kim Eng by 42 percent and Kay Hian James
\nCapel by 40 percent.<\/p>\n
In early January, Lippo's share price hit its lowest ever
\nlevel, Rp 650, as investors became jittery over a reported split
\nbetween Lippo and SBC in addition to the bad earnings report.<\/p>\n
But the speculation ended in mid-January when the Lippo Group
\nbought all of the 17.2 percent stake owned by SBC. The buy-back
\ntransaction also turned it into a national securities company.<\/p>\n
The share price then went up by 85 percent from Rp 850 at
\nJanuary's close to Rp 1,575 at the end of February. It further
\nrose, to Rp 2,650, by the end of March.<\/p>\n
Lippo Securities market share has risen from 3 percent for the
\nwhole of last year to 6.4 percent for the first quarter of this
\nyear.<\/p>\n
Future Outlook<\/p>\n
The future of the listed securities company is strongly
\ndependent on the growth of the capital market.<\/p>\n
Some analysts believe that the JSX has the highest potential
\ngrowth among the major Asian stock exchanges.<\/p>\n
The JSX's market capitalization has dramatically increased
\nfrom only Rp 0.48 trillion at the end of 1988 to Rp 187 trillion
\nas of the end of April 1996.<\/p>\n
JSX's market capitalization is expected to reach US$244
\nbillion in the year 2000 with an average growth of 35 percent per
\nannum.<\/p>\n
\"In line with the market growth we expect an earnings per
\nshare growth of 78 percent in 1996,\" De Queljoe said.<\/p>\n
He said that for this year the management has expected to book
\nRp 32 billion in pretax profits or an increase of 86 percent over
\n1995's result.<\/p>\n
The company has proposed issuing three new shares for every
\ntwo old shares, to be priced at Rp 1,000, in July to raise funds
\nof about Rp 195 billion.<\/p>\n
A foreign-based securities company recently said in its
\nunpublished analysis report that listed securities companies in
\nSouth East Asia are excellent for long term investment.<\/p>\n
The report cited that as of the end of 1995, Peregrine
\nInvestment of Hong Kong, for example, had increased 602 percent
\nsince its listing in 1987. Rashid Hussain of Malaysia also rose
\n884 percent since 1988, Finance One of Thailand by 3,620 percent
\nsince 1988 and GK Goh by 124 percent since 1990.<\/p>",
"url": "https:\/\/jawawa.id\/newsitem\/lippo-securities-enters-retail-brokering-1447893297",
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