Keppel Land

CIMB Research, July 17

KEPPEL Land's (KepLand) Q2 2013 sales in China remained firm in terms of volume and pricing. Leasing at Marina Bay Financial Centre 3 (MBFC3) inched up to about 90 per cent, which we believe makes the asset ready for recycling. KepLand's balance sheet is robust and it aims to allocate more capital to commercial properties in the region.

Q2 2013 core EPS formed 23 per cent of our FY2013 estimate and 24 per cent of consensus, with H1 2013 net profit at 42 per cent. We deem this to be in line as more China project completions are expected in H2. We tweak our FY2013 EPS estimate up by 0.9 per cent but raise FY2014-15 EPS by 6-16 per cent for higher China average selling prices (ASPs).

Our target price (20 per cent discount to RNAV) is thus raised, to $4.00. We maintain our "outperform" call with strong China sales and more asset recycling as re-rating catalysts.

KepLand sold 2,150 units in Singapore (210 units in Q2 2013) and China (1,940 in Q2 2013) in H1 2013. Its entry-level projects - The Botanica in Chengdu and The Springdale in Shanghai - sold well. However, the big surprise was the sale of 54 units in 8 Park Avenue, Shanghai, at a firm 70,000 yuan ($14,400) per sq m in June.

While KepLand believes that demand in the premium segment will still be affected by the home purchase restrictions, it is confident that ASPs will remain inelastic. It expects stronger sales in H2 2013. In Singapore, Corals at Keppel Bay sales are inching up to $2,200 psf (per sq ft) (for the 144 units sold or 39 per cent).

KepLand plans to launch The Glades at Tanah Merah in Q3 2013.

Mass-market take-up remains robust and we expect this to persist in H2 2013.

MBFC3 is now 90 per cent leased (79 per cent in Q2 2012). While there was no guidance on the latest signing rents, KepLand is confident that the lack of new CBD office supply will soon give landlords pricing power. We think that MBFC3's 90 per cent occupancy signals that the asset is ready to be injected into Keppel Reit, although management hinted that it is in no hurry to do so.

KepLand is comfortable with a 60 per cent net gearing level (40 per cent currently), which will give it acquisition firepower of $1.4 billion. The group aims to increase its commercial property exposure to 40 per cent from 30 per cent now.

OUTPERFORM