Keppel Land

Kim Eng on 7 Mar 2012

More catching up to do. Keppel Land has been an outperformer year-to-date, but over a longer one-year period, it is still down by 20.7%, trailing behind its big-cap peers CapitaLand and City Developments Limited (-12.5% and -3.1%, respectively). We believe that KepLand has repositioned itself to tide through any near-term uncertainties and reaffirm our Buy recommendation on this relative laggard.

Beijing project a bigger deal than initially thought. In January, KepLand said that it had acquired a 51% stake in a prime commercial project in Beijing’s Chaoyang CBD, with an estimated breakeven of RMB20,000 psm GFA. After reviewing our earlier forecasts, we raise our capital value assumption for the office component to RMB50,000 psm, which suggests a RNAV accretion of 8 cents per share from the project instead of the original estimate of 4 cents per share.

Biding its time in Sengkang. KepLand has withheld the launch of the remaining 322 units at The Luxurie in Sengkang. We reckon that management could be waiting for the adjoining site to be made available on the Confirmed List in April and make a bid for it. If successful, KepLand can dictate the near-term supply and pricing in the vicinity. If not, then the winning bid is likely to result in a project with a higher breakeven than that of The Luxurie, mitigating its own risks.

Keeping the good stuff. Despite the slow turnover in the high-end residential market, KepLand has no intention of reducing asking prices just to move inventory. A prime example is Reflections at Keppel Bay, which received its Temporary Occupation Permit at the end of last year. KepLand has decided to retain about 130 of the 290 unsold units for corporate residences with a view to selling them only when the market picks up, just as it had done for 168 units at the Caribbean previously.

Laggard backed by bumper dividend. We have raised our target price to $4.00, pegged at a narrower 30% discount to RNAV due to KepLand’s better-than-ever balance sheet. The group has proposed a bumper dividend of 20 cents per share, subject to approval at the AGM scheduled for 20 April. Buy now, for a potential total return of 27%.