Keppel Land -
China sales now the key driver
KepLand's NPAT growth (+22% yoy) in FY13 was propped up by divestment gains. Excluding this, we estimate core profits would have declined 43% yoy. Its 4Q13 core EPS is in line with expectations, at 25% of our full-year estimate (FY13 at 100%) and 20% of consensus. Its high-margin projects in Singapore are now complete. Short of acquisitions, its earnings profile is expected to be driven by China development sales. We see China housing headwinds building up again. Divesting MBFC3 could unlock value, but our question then is what next? Maintain Hold on KepLand, with a higher RNAV discount of 25% (20% previously), given its increasingly higher China make-up. FY14/FY15 core EPS is adjusted by -9%/+11% on lower ASP and changes in project completions.
Lifted by divestment gains
KepLand's 4Q13 revenue rose 7.2% yoy, with PBT before revaluation gains up 29.5% yoy. However, this was propped up by a S$160m divestment gain from the sale of its 51% stake in JKT Garden City. We estimate core earnings in FY13 were down 12% yoy. Associate earnings were down 39% yoy in FY13 as there were no lumpy contributions from Reflections by the Bay. This project is now complete and 75% sold. Marina Bay Suites, another high-margin project in Singapore, is also complete and 86% sold.
China sales becoming even more important
KepLand sold 3,870 units in China in FY13, a 230% increase yoy. This is a positive result. However, we believe China housing headwinds are building up again as liquidity tightens and cooling measures continue to be strictly enforced. With KepLand's Singapore development sales slowing down dramatically (FY13 down 14% to 370 units sold), we expect China sales to form a sizeable portion of KepLand's FY14-16 EBIT, at about 50-65% of the total. This, in our view, makes its earnings profile highly volatile.
Could KepLand divest MBFC3 in 2014? What next?
Management appears open to divesting MBFC3 (now 95% leased), if the right offer comes along. One has to assume that KREIT is the preferred party. If MBFC3 is sold, we think a special dividend is possible. This event should unlock value, but would also skew its asset profile towards China. We believe the stock should trade at a wider discount than its big cap peers.
Publish date: 23/01/14