Keppel Land

OCBC on 19 Jul 2012

2Q12 PATMI came in at S$97.7m, up 87.5% YoY mostly due to profits from Reflections at Keppel Bay and a stronger contribution from K-REIT Asia. This was mostly in line with our expectations and 1H12 PATMI now makes up 64% of our FY12 forecast. 2Q12 topline was S$130.3m, 25.1% higher YoY due to higher revenue recognition from The Luxurie and The Lakefront Residences. We like KPLD’s strong balance sheet (S$1.6b cash, 19% net gearing) in the uncertain macro-economic environment currently, but see limited catalysts ahead, especially given that the divestment of MBFC T3 appears unlikely in FY12 and that no major launches appear likely in the near horizon. Maintain HOLD with a higher fair value estimate of S$3.44 (35% discount to RNAV), versus S$3.32 previously, due to higher valuations of K-REIT Asia and marginally stronger cap rate assumptions.

2Q12 results in line
Keppel Land’s (KPLD) 2Q12 PATMI came in at S$97.7m, up 87.5% YoY mostly due to profits from Reflections at Keppel Bay and a stronger contribution from K-REIT Asia. This was mostly in line with our expectations and 1H12 PATMI now makes up 64% of our FY12 forecast. 2Q12 topline was S$130.3m, 25.1% higher YoY due to higher revenue recognition from The Luxurie and The Lakefront Residences.

Singapore sales mostly from The Luxurie
KPLD sold ~100 residential units in Singapore in 2Q12 – at the same pace as 1Q12 (90 units), most of them at The Luxurie. Looking forward, management is looking to develop a 367-unit development at Keppel Bay Plot 3 as well as Keppel Towers & GE Tower, but would likely take a wait-and-see stance towards the launch timings. Management also updates that MBFC Phase 2 (T3) is currently ~70% committed with new tenants taking on ~120k sq ft of space over the quarter.

Mild pickup in pace of Chinese sales
In China, the pace of residential sales improved somewhat with 491 units sold versus 187 in 1Q12. Management indicated that demand has picked up somewhat and they expect to keep prices mostly stable ahead despite still-challenging sales conditions. KPLD sold ~60 units in Indonesia in 2Q12 (40 units in 1Q12) mostly from Jakarta Garden City, and also made a foray into the Sri Lanka residential market through a 60:40 JV to develop a S$70m 260-unit development in the Kotahena District, Colombo.

Maintain HOLD with higher S$3.44 fair value estimate
We like KPLD’s strong balance sheet (S$1.6b cash, 19% net gearing) in the uncertain macro-economic environment currently, but see limited catalysts for share price outperformance ahead, especially given that the divestment of MBFC T3 appears unlikely in FY12 and that no major launches appear likely in the near horizon. Maintain HOLD with a higher fair value estimate of S$3.44 (35% discount to RNAV), versus S$3.32 previously, due to higher valuations of K-REIT Asia and marginally stronger cap rate assumptions.