Keppel Land

Kim Eng on 20 Jan 2012

Bumper gains from OFC divestment. KepLand reported a record FY11 PATMI of $1.37b, thanks to the divestment of Ocean Financial Centre to K-REIT at the end of FY11. Excluding $591.3m of fair value gains, underlying PATMI was in line with expectations. While no special dividend was announced, KepLand is proposing a bumper final dividend of 20 cts/sh, giving an attractive yield of 7.8%. Maintain BUY.


Expecting soft residential markets. Property trading accounted for nearly 71% of the underlying net profit of $279.7m (excluding OFC divestment). In Singapore, KepLand sold about 480 homes worth $729m in FY11. In China, the Group sold over 1,400 homes worth RMB1.24b with a GFA of 144,200 sqm. Management conceded that both markets could remain soft in 2012. The Group will watch the Chinese market closely for potentially some policy easing in 2H12, and could launch up to 6,652 units this year.


Acquiring 51% stake in prime Beijing property. KepLand also announced that it is acquiring a 51% stake in a project company which will develop a prime commercial property in the heart of Beijing's CBD in Chaoyang district. The project will comprise office and retail with a total GFA of 100,000 sqm. At an estimated all-in cost of RMB2b, or RMB20,000 psm GFA, we estimate a potential 4 ct/sh RNAV accretion assuming the project will eventually be sold at RMB32,000 psm.


Further acquisitions will be selective. Despite having a cash position of $1.9b as of end-2011, KepLand will be selective in making new acquisitions. Potential areas for investment include commercial sites in certain parts of China, retail malls in Vietnam and Indonesia. Myanmar could also present opportunities and the Group already has a presence there via two Sedona hotels.


Entering 2012 in a position of strength. We have trimmed our target price to $3.30 pegged at a 40%-discount to RNAV in view of the economic outlook. KepLand's strong balance sheet provides it with the potential to make more RNAV accretive acquisitions. Maintain BUY.