KepLand - Strong residential property sales boost 2Q09

Tuesday, August 11, 2009

2Q09 within expectations. KepLand’s 2Q09 PATMI rose 10.4% YoY, helped by strong residential sales. While 1H09 PATMI of S$95.1m accounted for 53.0% of consensus estimates, it formed 40.9% of DMG’s FY09 projections. Nonetheless, we expect 2H09 to account for a higher proportion of FY09F earnings, on the back of recovering property sectors in Singapore and China. Looking ahead, we expect land acquisitions in Singapore, while its good blend of township and mid-high projects in China should ensure steady profits. Management is also seeing stabilising signs within the office sector and increased leasing enquiries for MBFC. Recent rights issue has improved KepLand’s net gearing to 0.23x, making it the best-capitalized blue-chip developer. We have an unchanged target price of S$2.98, pegged at parity to base case end-FY10 RNAV. Although KepLand is a BUY (17.3% price upside), our top pick is CityDev (S$9.49 TP: S$12.00).

Solid residential sales boost 2Q09. KepLand posted a 10.4% YoY rise (+57.7% QoQ) in 2Q09 PATMI to S$58.2m, chiefly due to a 68.3% YoY (+60.6% QoQ) surge in Property Trading’s contribution, which resulted from solid sales of local and foreign residential projects (i.e. The Tresor, Park Infinia and The Botanica), as well as progressive recognition of projects such as Marina Bay Residences, Reflections and Sixth Avenue Residences. Helped by K-REIT’s improved profits, higher renewal rates from Ocean Towers and Equity Plaza, PATMI from Property Investment jumped 33.2% YoY (+4.3% QoQ).

Rosy residential sales in China, a key platform looking ahead. Over 1,440 homes were sold in 1H09 (420 units in 1Q09), assisted largely by Central Park City and The Botanica, which attained monthly sales of 100 units for the past few months. We believe the strong take-up for these two township projects should inject optimism into KepLand’s recent 55% stake in a 36.8 ha site within Tianjin Eco-City. Equipped with 2.97m sqm of saleable area, which spans a good blend of affordable township projects and mid-high end properties, KepLand should continue to benefit from China’s improving property sector and rising urbanization.

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