Keppel Land

OCBC on 26 June 2012

MBFC Tower 3, which obtained TOP in 1Q12, is currently ~67% committed. We believe that the divestment of its stake to K-REIT is unlikely in FY12 as 1) Keppel Land (KPLD) has a rich cash hoard of S$1.6bn with a net gearing of 16%, and 2) it would likely take some time to reach a 80% - 90% committed leasing level suitable for divestment. We favor KPLD’s strong balance sheet position which would keep it in good stead against potential macro-economic shocks ahead. However, we note that the outlook for the office sector remains soft and that a majority of its residential exposure is prime, which would likely face headwinds in the remainder of FY12. Maintain HOLD with an unchanged fair value estimate of S$3.32 (35% discount to RNAV).

MBFC T3 divestment unlikely this year
MBFC Tower 3, which obtained TOP in 1Q12, is currently ~67% committed. We believe that the divestment of its stake to K-REIT is unlikely in FY12 as 1) Keppel Land (KPLD) has a rich cash hoard of S$1.6bn with a net gearing of 16%, and 2) it would likely take some time to reach a 80% - 90% committed leasing level suitable for divestment as leasing demand in the office sector is still relatively soft.

Chinese sales remain muted
Conditions for residential sales in China stay challenging with about 300-400 units sold YTD (190 units in 1Q12) for KPLD. While take-up rates remain low, we believe that prices and sales levels are likely near a trough, barring a wide-spread macro shock, as the impact of current buyer restriction curbs reaches a stable state.

Leasing strategy going ahead at the Reflections
In Singapore, The Luxurie, Reflections at Keppel Bay and Marina Bay Suites are 61%, 75% and 75% sold, respectively, as of end May 12. Management has set aside 150 units at the Reflections as serviced residences, and we understand ~45 units have been tenanted at ~S$6 psf per month. We note management did not bid in the recent GLS tender for a Sengkang site beside its current project, The Luxurie, and believe this could indicate a cautious stance on the residential space and that management is bidding its time replenishing land-bank.

Maintain HOLD at S$3.32 fair value estimate
We favor KPLD’s strong balance sheet position (S$1.6bn cash with 16% net gearing), which would keep it in good stead against potential macro-economic shocks ahead. However, we note that the outlook for the office sector remains soft and that a majority of its residential exposure is prime, which would likely face headwinds in the remainder of FY12. Maintain HOLD with an unchanged fair value estimate of S$3.32 (35% discount to RNAV).