Kim Eng on 5 June 2012
Keeping its powder dry. Despite sitting on a healthy cash hoard of approximately SGD1.6b, Keppel Land (KepLand) has not been actively bidding for land in Singapore and China. We believe that it is being prudent amid global uncertainties, focusing first on clearing its inventory and bidding for attractive sites only if they become available. We remain optimistic about KepLand’s balance sheet strength. Maintain BUY.
Absent from Sengkang tender. The tender for a 2.2ha residential site beside KepLand’s The Luxurie at Sengkang Square closed on 31 May, drawing five bids in all. KepLand was a notable absentee among the bidders. The top bid of SGD383.3m translates to SGD527.6 psf ppr, 5% higher than KepLand’s land cost for The Luxurie, which may then lend support to The Luxurie’s current ASP of SGD1,000 psf.
Monitoring the Chinese market. In China, KepLand has earmarked three new projects for possible launch in 2H12, depending on market conditions. They are the Nanxiang project in Shanghai, Park Avenue Heights in Chengdu and The Lakefront Residence in Nantong. As various cities continue to fine-tune policies to support end-user demand, KepLand will do well to time its launches to coincide with the seasonal peak periods, such as in September/October.
MBFC Tower 3 divestment likely to be deferred. MBFC Tower 3 had obtained its TOP in 1Q12 with a committed leasing rate of 67%. We reckon that KepLand will now bide its time to sell its one-third stake (valued at SGD1.0b) to K-REIT Asia, until it is able to raise the commitment level to above 90% and until more RNAV-accretive acquisition opportunities surface for its capital to be redeployed.
Plenty in reserve. As uncertainties continue to plague global markets, KepLand is in a position of strength to navigate through the mediumterm volatilities and possibly pick up attractive assets for future growth, which could be a positive catalyst. Maintain BUY with a target price of SGD3.65, pegged at a lower 35% discount to RNAV and incorporating our DDM-valuation for K-REIT.
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