Keppel Land - China, Vietnam optimism priced in

At the end of last quarter, Keppel Land (KPLD) was guiding for only the remaining 382 units at Reflections at Keppel Bay (99-year, 1,160 units), 13 units at Park Infinia at Wee Nam (freehold, 486 units), and 14 units at The Tresor (999-year, 62 units) to be released for sale in Singapore this year. It was announced earlier that Marina Bay Suites (99-year, 221 units) and Madison Residences (freehold, 56 units) will be deferred, and we had earlier assumed that The Promont (freehold, 15 units) would be pushed back as well, following KPLD’s recently concluded rights issue — in essence, the more prudent capital structure allowed KPLD to defer these projects in order to extract better value post the current property down-cycle, was our view.

We think the recent pickup in pre-sales — prompted by pricediscounting and adoption of the Interest Absorption Scheme (IAS) — may now encourage KPLD to bring forward the launch of some previously deferred projects. A potential candidate could be the Marina Bay Suites, in which KPLD has a 33% stake and whose launch has been deferred since late 2007, especially if current optimism in the property market spills over to the luxury segment.

We are keeping our launch and volume assumptions for KPLD’s Singapore projects unchanged for now, pending further management guidance, which will most likely be revealed at the 1H09 results update. At present, we still think it makes more sense for the company to put these projects on hold so as to: 1) extract better value once current market volatility settles, and; 2) focus on executing its overseas projects, especially those in China and Vietnam where our colleagues see increasing signs of recovery.

In contrast, we had been less optimistic on KPLD’s Vietnam operations — a sentiment that was perhaps shared by management, as demonstrated by its 1Q09 decision to defer the sale of 273 units in Vietnam, originally scheduled to be launched in FY09-11F. However, news flow on the Vietnam property market has turned more positive lately. In a 21 May, 2009, Business Times report “Viet property market seen bottoming out”, CBRE Vietnam’s Managing Director Marc Townsend commented “residential property market in Vietnam is likely to have bottomed out and prices at some developments may even rise 5-10% by the end of this year.” In the same report, KPLD is reported to have launched more units at The Estella (District 2, 1,393 units) in Ho Chi Minh City (HCMC) in early May and saw an “encouraging increase in sales and enquiries”, which was apparently achieved with no price cut.

We kept our FY09F EPS forecast at 14.2Scts, but raised our FY10F EPS forecast by 2% to 14.6Scts from 14.3Scts and our FY11F EPS forecast by 6% to 18.7Scts from 17.6Scts. These upward revisions mainly reflect our revised expectations for more launched units in KPLD’s Vietnam projects during FY10-11F. That said, our FY09-11F DPS forecasts are unchanged at 3.5Scts, which implies a payout ratio 19-25%, consistent with KPLD’s track record.

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