Keppel Land - 1H09: Strong sales due to improved sentiments

Keppel Land is well positioned to take advantage of the opportunities with a 0.23x gearing and healthy cash pile of S$1.2b. Maintain BUY with target price of S$3.10, pegged at a 10% premium to FY09 RNAV of S$2.81/share.

Keppel Land reported a net profit of S$58.2m in 2Q09 (+10.5% yoy), bringing t1H09 net profit to S$95.1m, -15% yoy. Excluding the S$7.6m write-back of provisions for properties held for sales in 1H09, results are in line with our expectations. The robust earnings for the quarter were mainly due to higher earnings from property trading segment (+69% yoy) as a result of higher revenue recognition from several projects in Singapore and China. The property investment segment also saw a solid 2Q09 growth (+35% yoy) due to increased rentals from Singapore and Vietnam projects as well as a higher share of profit from K-REIT Asia. However, earnings from the fundmanagement segment fell 19% yoy due to unrealised foreign exchange loss.

Capitalising on the recovery in the residential market. Riding on the improved home-buying sentiments, Keppel Land has nearly sold out the remaining units at its Park Infinia and The Tresor at ASPs of S$1,400psf and S$1,350psf respectively. It is planning to launch Madison Residencies and The Promont in 2H09. In China, Keppel Land sold more than 1,140 units in 1H09 and expects to launch the first phase of Tianjin Eco city next year. In Vietnam, sales have resumed at The Estella with ASPs of US$2,000-2,200psm.

Singapore commercial market showing signs of stabilisation. There has been no revaluation losses booked for investment properties during 1H09. Keppel Land has noted a considerable increase in leasing enquiries in the recent months. MBFC is 61% pre-committed- Phase 1 at 66% and Phase 2 at 55%- with mostly long-term leases of up to 12 years. The tenant mix is also well diversified.

Well positioned to take advantage of opportunities. The recent rights issue has lowered Keppel Land’s gearing to 0.23x. Management views 0.5x as a comfortable gearing level in the current times, allowing room for an additional debt of S$1b. We believe the additional funds available and a healthy cash balance of S$1.2b could be used to increase its landbank and for aggressive overseas expansion plans.

Keppel Land is well positioned to capitalise on the improved sentiments in market. Maintain BUY with a target price of S$3.10, pegged at a 10% premium to FY09 RNAV of S$2.81/share.

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