Since we last reiterated BUY on Keppel Land on 20 Jan (FV: S$3.32), the share price has appreciated 31.1% (STI +5.6%). We see this driven by three catalysts: 1) a large 20 S-cents dividend (announced 19 Jan) which eliminated the discount on the corresponding cash component of RNAV - now riskless and to be paid out, 2) increasing expectations of policy loosening in China, and 3) stronger than expected Jan 12 residential sales in Singapore. Currently, we feel it is too early to call a bottom for the domestic office sector and also remain cautious on the residential space. These risks are balanced out, however, by 1) potential RNAV accretion given ample capital (10% net gearing) and 2) continued expectations for policy loosening in China. This being so, we see the shares as fairly priced and downgrade to HOLD with an unchanged fair value estimate of S$3.32 (35% discount to RNAV).
Up 31% since reiterating BUY rating
Since we last reiterated BUY on 20 Jan (FV: S$3.32), the share price has appreciated 31.1% (STI 5.6%). We see this driven by three catalysts: 1) a large 20 S-cents dividend (announced 19 Jan) which eliminated the discount on the corresponding cash component of RNAV - now riskless and to be paid out, 2) increasing expectations of policy loosening in China, and 3) stronger than expected Jan12 residential sales in Singapore. Moreover, KPLD was a value laggard – as of end FY11, KPLD was trading at 55% discount to RNAV versus CAPL’s 40% and CDL’s 31% – which we believe was attractive to investors looking for a value buffer in the market rally.
Office bottom not in sight yet
Given macroeconomic uncertainties and an ample office pipeline of 4.2m sqft NLA in FY12-13, we believe it is too early to call a bottom for the domestic office sector, a major driver for KPLD’s share price. Over 2H11, we saw office rents peak as Grade A rents declined 0.5% QoQ in 4Q11 while Grade B rents fell by 0.4%. We see persistent downside risks for the share price should headline rentals and capital values continue to decline.
Remain cautious for residential segment
We also remain cautious on the residential sector and note that luxury and mid-tier segment sales had been subdued YTD. The bulk of KPLD’s unsold exposure is outside the mass market, except for The Luxurie (368/622 units unsold), and there is limited upside in terms of development sales ahead, in our view.
Downgrade to HOLD
However, we see these headwinds mostly balanced out by 1) potential RNAV accretion given ample capital (10% net gearing) and 2) continued expectations for policy loosening in China. This being so, we judge the shares as fairly priced and downgrade to HOLD with an unchanged fair value estimate of S$3.32 (35% discount to RNAV).
Since we last reiterated BUY on 20 Jan (FV: S$3.32), the share price has appreciated 31.1% (STI 5.6%). We see this driven by three catalysts: 1) a large 20 S-cents dividend (announced 19 Jan) which eliminated the discount on the corresponding cash component of RNAV - now riskless and to be paid out, 2) increasing expectations of policy loosening in China, and 3) stronger than expected Jan12 residential sales in Singapore. Moreover, KPLD was a value laggard – as of end FY11, KPLD was trading at 55% discount to RNAV versus CAPL’s 40% and CDL’s 31% – which we believe was attractive to investors looking for a value buffer in the market rally.
Office bottom not in sight yet
Given macroeconomic uncertainties and an ample office pipeline of 4.2m sqft NLA in FY12-13, we believe it is too early to call a bottom for the domestic office sector, a major driver for KPLD’s share price. Over 2H11, we saw office rents peak as Grade A rents declined 0.5% QoQ in 4Q11 while Grade B rents fell by 0.4%. We see persistent downside risks for the share price should headline rentals and capital values continue to decline.
Remain cautious for residential segment
We also remain cautious on the residential sector and note that luxury and mid-tier segment sales had been subdued YTD. The bulk of KPLD’s unsold exposure is outside the mass market, except for The Luxurie (368/622 units unsold), and there is limited upside in terms of development sales ahead, in our view.
Downgrade to HOLD
However, we see these headwinds mostly balanced out by 1) potential RNAV accretion given ample capital (10% net gearing) and 2) continued expectations for policy loosening in China. This being so, we judge the shares as fairly priced and downgrade to HOLD with an unchanged fair value estimate of S$3.32 (35% discount to RNAV).
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