Keppel Land - Boosted by Fund management fees (DBSVickers)

BUY S$3.63 STI : 3,126.53

Price Target : 12-month S$ 4.69

Reason for Report : 2Q11 Results

Potential Catalyst: Possible Acquistion

DBSV vs Consensus: Above with higher take up rate compare to peers

• Results in line, growth affected by revised accounting policies

• Slower home sales offset by rising leasing income

• Maintain buy, TP $4.69

Top line supported by higher fund management fee. Keppel Land reported a 65% decline in Q2 net profit to $50.5m on a 67% drop in revenue to $104.1m largely on change in accounting policy. As a result, development profits in Q2 dipped sharply to $27m vs $168m a year ago due to higher project completions a year ago Excluding accounting effects 1H net profit would have rose 22.2% supported by stable leasing income, as well as a 52% yoy jump in its fund management fee. With the latest results, the group has achieved 36% of our full year forecast

Slow down in home sales In terms of operations, the group saw slower home sales on the back of government tightening measures. It sold 400 homes in China and 160 units in Spore in 1H vs 1200 and 140 units respectively in the previous period. That said, the group expects better located projects to outperform and would continue to time their launches in Singapore with the remaining units at Marina Bay Suites and Reflections at Keppel Bay as well as its new development in Sengkang in 2H11. For its overseas developments, it will continue to launch new units in China (1860 units) and Vietnam (217 units).

Land banking and leasing income to underpin earnings growth. We expect rental income in 2H to be lifted with the completion of OFC in 2Q, which is 83% leased and the group is targeting to lease the remaining space at S$15 psf pm. Its Alpha property fund will be launching a follow up fund with similar mandate. Meanwhile, the group had replenished its landbank in China with the latest acquisition of a 7.2ha site in Jiading, Shanghai. It is also on the lookout for residential and commercial landbank in Spore and overseas backed with a healthy gearing of 0.38x.

Maintain our buy call, TP at $4.69. We are maintaining our forecast and Buy recommendation for Keppel Land. The stock is trading at a steep discount to RNAV of $5.51. With its strong balance sheet and potential monetisation of its investment properties in the medium term, we believe the stock should close its RNAV discount gap. Our TP of $4.69 is pegged at a 15% discount to RNAV.