Keppel Land

Kim Eng on 19 Jul 2012

Earnings led by Reflections. KepLand reported a 2Q12 PATMI of SGD94.7m, as profits grew 88% YoY driven mainly by further profit recognition from units at Reflections at Keppel Bay which were sold under the deferred payment scheme. 1H12 PATMI rose 76.8% YoY to SGD236.6m, or 65% of consensus full-year estimates, but we think broadly in line with expectations due to the lumpy nature of earnings. With its sales in China showing signs of improvement, we maintain our BUY recommendation.

Reaping past rewards. 1Q12 PATMI from property trading came in at SGD199m, or 85% of total PATMI. Profits recognised from Reflections, which is already completed, accounted for nearly 70% of that SGD199m. Nonetheless, actual residential pre-sales improved in 2Q12, particularly in China. KepLand sold 491 units there in 2Q12, a good improvement from the 187 units sold in 1Q12. These were mainly from The Botanica in Chengdu and Central Park City in Wuxi, where owneroccupier demand remains strong. In Singapore, KepLand sold around 150 units at The Luxurie in 1H12, resulting in a total take-up rate of 64% thus far for the project.

Marginal improvement in MBFC Tower 3 leasing. KepLand announced that new tenants had been secured for MBFC Tower 3, raising total commitment to about 70% from 67% as of 1Q12. DBS Bank has just recently begun operations at Tower 3 and other tenants are in the process of moving in. We think that unless the commitment rate at Tower 3 crosses the 90% mark, K-REIT is unlikely to make an approach to acquire KepLand's one-third stake in Tower 3.

Valuations still attractive. With buyers' interest seemingly picking up in China, we think that KepLand will benefit and continue to roll out more units from its mass market projects, such as The Botanica in Chengdu and Tianjin Eco-city. Its low net gearing of 0.2x also allows it to remain nimble while seeking out attractive acquisition opportunities. We raise our target price to SGD4.04 mainly on the back of a narrower discount of 30% ascribed to its RNAV. Maintain BUY.