Keppel Land (KimEng)

Event

Keppel Land reported a 2Q11 net profit of $50.5m, down 65% from a year earlier. Its 1H11 net profit also fell by 33.7% to $133.8m. The weaker earnings were due to the fact that there were fewer overseas projects completed in 1H11 compared to 1H10. A number of projects are expected to be completed in 2H11 and we are keeping our forecasts largely intact. Maintain BUY.

Our View

If not for a $24.4m divestment gain from the sale Keppel Digihub, 1H11 net profit would have shown a bigger decline of 48%. Based on the accounting standard IFRS115 adopted at the beginning of FY11, earnings will be lumpy. Going into 2H11, we expect the completion of overseas projects such as Phase 5 of The Botanica in Chengdu and Phase 1 of the Springdale in Shanghai to contribute to the bottomline.

The soft market sentiments in China have resulted in slower sales for KepLand relative to last year. In 1H11, the group sold 44,205 sqm comprising about 400 homes for RMB462m. Management believes the demand for its township homes remains firm. Based on current estimates, the group may launch another 3,344 units for sale in China in 2H11, mainly from The Botanica (1,020 units).

In Singapore, office leasing activities have slowed down. There could now be heightened concerns that GDP growth may slow as a result of the global economic problems, thus dampening demand for office space here. With precommitment levels at OFC and MBFC Phase 2 unchanged from 1Q11 at 82% and 60%, respectively, this may not be a major concern for KepLand.

Action & Recommendation

In our opinion, KepLand may have to adjust downwards the number of units to be launched in China for 2H11, even though ASPs are unlikely to be reduced. We are lowering our target price to $5.25, pegged at par to RNAV. A strong take‐up rate for the next phase of The Botanica could be a positive catalyst. Maintain BUY.