(BUY, S$3.63, TP S$4.53)
Resume coverage with BUY. We resume coverage of KepLand with a target price of S$4.53 based on 20% discount to RNAV, translating to 25% upside. With a lack of policy overhang on commercial landlords, we believe KepLand’s c.34% office exposure would continue to benefit from asset reflation in the near term; potential unlocking of value in OFC in the medium term may also provide catalyst to the stock. Resume coverage with BUY.
1H11 results affected by recognition changes. KepLand reported 2Q11 and 1H11 results below expectations, with 2Q11 revenue at S$104.2m, -67.2%YoY and -70.9%QoQ, while net profit is at S$50.5m, -64.9%YoY and -39.4%QoQ; 1H11 revenue amounted to S$462.1m, +8.9%YoY and net profit to S$133.8m, -33.7%YoY. This is mainly due to 1H10 contributions from completion of Marina Bay Residences, and phases of Botanica and Central Park at the associate level, mitigated by 1Q11 one-time gain of S$24.4m from sale of Keppel Digihub. With change in accounting policy, we expect volatile earnings moving forward.
1H11 sales barometer for mass market demand. KepLand sold 160 residential units in Singapore (+14% YoY) mainly for Lakefront Residences, which reflects underlying demand supporting the mass market segment. In terms of overseas development sales, Vietnam sales c.160 units (+220% YoY), Indonesia sales c.150 units (+25% YoY). Moving forward, KepLand plans to release Marina Bay Suites (80 units YoY) and Reflections (327 units YoY).
Capital deployment underway. Post asset swap with K-REIT bagging prime CBD residential site (former KTGE), KepLand has been active in acquisitions recently backed by ample debt headroom. In Mar 11, KepLand acquired a residential site in Sengkang from the HDB for S$286.8m (1.8-ha site, 622 units; expected launch in 2H11) and another residential site in Jiading District, Shanghai for S$241m (c.1,000 apartments) in Jun 11. Leases in KTGE are still on-going for 2-2.5 yrs; we do not expect redevelopment in the near term.
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