Keppel Land -Deep value still hard to ignore (MKE)

Keppel Land -
Share Price: SGD3.15
Target Price: SGD4.60
Deep value still hard to ignore

■ Reiterate BUY on KepLand with a TP of SGD4.60 despite the13.3% drop in share price since October after it announcedits 3Q13 results.

■ At 0.76x P/BV and 0.51x P/RNAV, valuations are still veryattractive, especially if part of its RNAV can be realised bythe potential sale of MBFC Tower 3 (valued at ~SGD1.1b).


■ We also remain sanguine that KepLand can maintain itsresidential sales momentum in China even if home sales inSingapore get more challenging in 2014.

What’s New
KepLand’s share price has plummeted by 13.3% since its 3Q13results announcement on 16 Oct 2013,underperforming the StraitsTimes Index, which saw a mere 1.7% decline in the same period.Nevertheless, we maintain our TP of SGD4.60, premised on a 25%discount to RNAV, which suggests a highly attractive upside of 46%.

What’s Our View
KepLand’s reduced exposure to the Singapore residential segmentis manageable, in our view. To reiterate, our sensitivity analysisshows that a 20% reduction in Singapore’s residential ASPs will leadto a mere 3.3% impairment in our RNAV estimate to SGD5.93.

KepLand is due to report its FY13 results on 22 January. We expecta 4Q PATMI of ~SGD240m, which includes a SGD149m net gain fromthe sale of its stake in Jakarta Garden City. More pertinently, wewill be looking out for sustained home sales momentum in China.

Some of KepLand’s peers are in the process of divesting Singaporebasedcommercial assets (eg, OUE Bayfront and Westgate Tower).We think this is a sign of capital values peaking and if KepLandsucceeds in divesting its one-third stake in MBFC Tower 3 this year,we believe the sale will be positive for the share price.

Deep discounts appear unwarranted
Following the steep 14.3% share price decline since Oct 2013, KepLand is trading at 0.76x P/BV and 0.51x P/RNAV. We think the steep discounts are unwarranted and present attractive buying opportunities.

The last time the stock traded at a steeper discount to book value was in Dec 2011 following the introduction of the Additional Buyer’s Stamp Duty in Singapore. While we do not expect the cooling measures to be lifted any time soon, we think policy risks today have largely dissipated compared with end-2011, given that the property market is visibly softening.

In fact, our sensitivity analysis shows that KepLand’s RNAV will merely be negatively impacted by 3.3% if Singapore residential ASPs decline by 20%. Should the sale of MBFC Tower 3 be realised in 2014, we believe there is room for the discounts to narrow.

Valuation
We maintain our BUY recommendation and TP of SGD4.60, premised on a 25% discount to our RNAV of SGD6.13, which is in line with its historical mean. We believe the mid-cycle valuation for KepLand is justified in view of the possible sale of MBFC Tower 3 and the company’s ongoing efforts to diversify its business.

Source/Extract/Excerpts/来源/转贴/摘录: MKE-Research,
Publish date: 15/01/14