Tuesday 27 January 2015

Keppel Land

OCBC on 26 Jan 2015

Last Friday, Keppel Corp (KepCorp) announced a voluntary unconditional cash offer for its real estate unit, Keppel Land (KPLD), our top pick in the real estate sector. KepCorp will offer S$4.38 in cash for each share of KPLD that it does not already own or control. In the event that the level of acceptances brings the Offerer over the compulsory acquisition threshold of 90%, the offer price will be adjusted to S$4.60 per share in cash. Note that both offer prices include KPLD’s proposed final FY14 dividend of S$0.14 per share. Also, both offer prices from KepCorp are final. Given uncertain outlooks for KPLD’s core development businesses in Singapore and China, we believe this is a fair enough offer and allows minority shareholders to exit at a share price above the last 36-month high. Our recommendation is to ACCEPT THE OFFER. We advise a switch to CapitaLand [BUY; FV: S$3.79] which is now our preferred pick in the sector.

Voluntary unconditional cash offer for KPLD
Last Friday, Keppel Corp (KepCorp) announced a voluntary unconditional cash offer for its real estate unit, Keppel Land (KPLD), our top pick in the real estate sector. KepCorp will offer S$4.38 in cash for each share of KPLD that it does not already own or control. In the event that the level of acceptances brings the Offerer over the compulsory acquisition threshold of 90%, the offer price will be adjusted to S$4.60 per share in cash. Note that both offer prices include KPLD’s proposed final FY14 dividend of S$0.14 per share. Also, KepCorp has indicated that both offer prices are final.

FY14 earnings within expectations
KPLD also reported its full year earnings and FY14 PATMI came in at S$752.5m, down 15.1%, mostly due to a dip in contributions from the property trading segment and partially offset by divestment gains from the its interests in MBFC T3 and Equity Plaza and other overseas assets. Adjusting for fair-value gains, we estimate core PATMI at S$508.8m and judge this to be in line with our expectations, constituting 104.6% of our full year estimates. In terms of the topline, FY14 revenue came in at S$1497.2m, which was fairly stable YoY and inched up 2.5% mainly due to marginally higher sales from the property trading segment in 2014.

Our recommendation: ACCEPT THE OFFER
The Base Offer Price and Higher Offer Price implies a Price/NAV ratio of 0.88x and 0.93x, respectively and, by our estimates, a Price/RNAV ratio of 0.73x and 0.76x, respectively. Given uncertain outlooks for KPLD’s core development businesses in Singapore and China, we believe this is a fair enough offer and allows minority shareholders to exit at a share price above the last 36-month high. Our recommendation is to ACCEPT THE OFFER. We advise a switch to CapitaLand [BUY; FV: S$3.79] which is our new preferred pick in the sector. In the mid-cap space, we also like Wheelock Properties (S) Ltd [BUY; FV: S$2.38].

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