Keppel Land

Maybank Kim Eng Research, Jan 15

KEPPEL Land's (KepLand) share price has plummeted by 13.3 per cent since its Q3 2013 results announcement last Oct 16, underperforming the Straits Times Index, which saw a mere 1.7 per cent decline in the same period.

Nevertheless, we maintain our target price (TP) of S$4.60, which suggests a highly attractive upside of 46 per cent.

KepLand's reduced exposure to the Singapore residential segment is manageable, in our view. To reiterate, our sensitivity analysis shows that a 20 per cent reduction in Singapore's residential average selling prices (ASPs) will lead to a mere 3.3 per cent impairment in our revalued net asset value (RNAV) estimate to S$5.93.

KepLand is due to report its FY2013 results on Jan 22. We expect a Q4 Patmi (profit after tax and minority interest) of about S$240 million, which includes a S$149 million net gain from the sale of its stake in Jakarta Garden City. More pertinently, we will be looking out for sustained home sales momentum in China.

Some of KepLand's peers are in the process of divesting Singapore-based commercial assets (eg, OUE Bayfront and Westgate Tower). We think this is a sign of capital values peaking and if KepLand succeeds in divesting its one-third stake in MBFC Tower 3 this year, we believe the sale will be positive for the share price ... Following the steep 14.3 per cent share price decline since October 2013, KepLand is trading at 0.76 times P/B and 0.51 times P/RNAV. We think the steep discounts are unwarranted and present attractive buying opportunities.

The last time the stock traded at a steeper discount to book value was in December 2011, following the introduction of the Additional Buyer's Stamp Duty in Singapore. While we do not expect the cooling measures to be lifted any time soon, we think policy risks today have largely dissipated compared with end-2011, given that the property market is visibly softening.

In fact, our sensitivity analysis shows that KepLand's RNAV will merely be negatively impacted by 3.3 per cent if Singapore residential ASPs decline by 20 per cent. Should the sale of MBFC Tower 3 be realised this year, we believe there is room for the discounts to narrow.

We maintain our "buy" recommendation and TP of S$4.60, premised on a 25 per cent discount to our RNAV of S$6.13, which is in line with its historical mean. We believe the mid-cycle valuation for KepLand is justified in view of the possible sale of MBFC Tower 3 and the company's ongoing efforts to diversify its business.

BUY