KepLand sold >90 residential units in Singapore in the first quarter

Target price:S$4.04

Boost from Reflections. Keppel Land enjoyed a 70.3% YoY growth in its 1Q12 PATMI to $141.9m, thanks largely to profits from Reflections at Keppel Bay from the completed units previously sold under the Deferred Payment Scheme. While 1Q12 PATMI already accounts for 40% of full-year consensus estimates, we believe the results were largely in line with expectations due to the irregular recognition of development profits under current accounting rules. Buy now, to be entitled to the proposed 20 cents/share dividend.

Strong contributions from Singapore. Singapore accounted for
77.2% of KepLand’s 1Q12 PATMI, mainly on the back of higher development profits recognized from Reflections and Marina Bay Suites. Operationally, KepLand sold >90 residential units in Singapore in the first quarter, mainly from The Luxurie in Sengkang. Phase 2 of MBFC has already obtained TOP, with Tower 3 about 67% committed.

Sales expectations in China trimmed. During the quarter, KepLand sold about 190 homes across China, mainly from its township projects and The Springdale in Shanghai. As buying sentiment remains subdued, KepLand has scaled down its launch programme for China to 3,988 units for 2012, mainly cutting back on the units to be launched from Tianjin Eco-city and Stamford City in Jiangyin.

Myanmar ops improving, but still negligible. With the recent positive political outcome in Myanmar, KepLand’s Sedona hotels in Yangon and Mandalay enjoyed improved occupancy and room rates, driven by more tourists and business travelers. While KepLand may have first-mover advantage for opportunities in Myanmar, we note that it is still early days and earnings contributions from its hotels remain negligible.

Valuations remain attractive. We have raised our target price to $4.04, pegged at a 30% discount to RNAV due to K-REIT’s recent positive share price performance. The proposed bumper dividend of 20 cents/share is expected to be approved at the AGM on 20 Apr, before the stock goes ex-div on 24 Apr.

TP S$3.53

Associat es income boost 1Q12 earnings, Neutral following strong YTD performance.

Despite 1Q12 revenue of S$170.2m falling -52.4%YoY due to lower development revenue mainly attributed to Lakefront Residences and Elita Promenade (India); net profit of S$141.9m, +70.3%YoY is boosted by strong contributions from Reflections at Keppel Bay (S$95.9m from handover of units sold under deferred payment scheme) as well as K-REIT Asia. Post the strong share price re-rating YTD, we are NEUTRAL on KepLand, TPS$3.53 with the view that further sustained upward re-rating from current levels is unlikely due to on-going uncertainty regarding its asset allocation and its current interim status as a Singapore and China residential developer experiencing policy headwinds in both markets. Moving forward, KepLand is well positioned for capital deployment with healthy balance sheet c.0.16x net gearing.

Fair value S$3.32



CHINESE RESIDENTIAL MARKET STILL DIFFICULT
• 1Q12 results broadly in line
• Subdued Chinese residential sales
• Too early to call office bottom