Keppel Land

CIMB RESEARCH on 19 July 2012

KEPPEL Land's H1 2012 core net profit was above forecasts due to profit recognition at Reflections for units sold under Deferred Payment Scheme (DPS).

Q2 saw incremental positives: uptick in China sales and leasing progress at Marina Bay Financial Centre Tower 3. Management remains cautious in deploying capital.

Q2/H1 2012 core EPS came at 23 per cent/59 per cent of our and consensus FY12 numbers (front-end loaded). EPS is adjusted on recognitions. Maintain "neutral" with an unchanged target price (25 per cent discount to RNAV).

Further recovery in China volumes and capital-recycling initiatives are rerating catalysts.

New home sales saw an uptick in Q2 with 491 units sold (Q1: 187 units), but reflects a small recovery. H1 2012 sales of 678 units versus 1,400 and 4,000 units in 2011 and 2010, respectively, lag industry volume sales.

Q2 2012 new sales continued to be driven by Chengdu (The Botanica Ph 6) and Wuxi (Central Park City).

We anticipate slow pick-up in transaction volumes and weaker sell-through as management resists price cuts, despite moderation in launch schedule to 2,400, 7,000 and 6,900 units offered in 2012, 2013, and 2014 respectively.

Q2 2012 earnings were again bumped up by contributions from Reflections on delivery of units sold under the DPS.

New home sales remained slow at over 190 units in H1 2012 (FY11: 480 units), with Q2 contributing 101 units.

The bulk of the sales came from The Luxurie. Although construction of the showroom for Keppel Bay Plot 3 (yielding 367 units) has started, the current environment is unfavourable for a launch.

At MBFC Tower 3, new tenants (mix of financial and non-financial) have been secured for 120,000 square feet of space, bringing commitment to about 70 per cent.

While the balance sheet is relatively under-geared, KepLand remains cautious in capital deployment.

It made its maiden foray into Sri Lanka in July 2012 to develop 260 apartments.
NEUTRAL