Keppel Land Limited: Ramping up overseas residential

- FY10 bottomline boosted by one-offs and revals, core earnings slightly below street estimates
- Residential to remain key near term earnings driver
- Maintain Buy with TP $5.09

Core earnings lifted by fund management and property investment activities. Kepland reported a 273% jump in net profit to $1046m despite a 14% dip in revenue to $792m due to a $789.7m of restructuring gains from sale of MBFC1 and fair value gains from completed and uncompleted properties.

Excluding this, the bottomline would have been slightly below street estimates at $274.2m, +9.6m yoy due to timing of profit recognition. Core earnings growth was strongest from the property investment and fund management units due to higher dividends from Kreit and increased acquisition fees from new purchases. The group has proposed a total dividend of 18cts /share comprising 9cts final and 9cts special. Singapore made up a smaller 60% of earnings (vs 69% yr ago) on strong contributions from China.

Ramping up overseas activities. Residential remained the largest contributor to the bottomline in FY10, generated from sales of 5,250 homes, of which 4,600 were overseas, largely from China. The group should continue to roll out a strong pipeline of launches overseas and will continue to time its projects in Spore – Marina Bay Suites, Reflections at Keppel Bay and Lakefront Residences, to market. It is scheduled to sell 6,464 units in 2011, including new developments such as 8 Park Avenue and Seasons Park in Shenyang, and will market another 11,930 units in 2012. In Spore, the group would time its launches to market. Leasing activities remain robust with 80% of OFC and 66% of MBFC2 precommitted, with rental rates still showing upward momentum.

More capital deployment expected, maintain buy. We lowered FY11 and FY12 earnings to push out residential sales, largely in Spore. The group remains on the look out for new opportunities in Singapore and overseas, which could act as a catalyst for future share price performance. The current balance sheet is strong with a net gearing of 0.2x. Assuming a targeted gearing of 0.5-0.6x, the group would have additional debt headroom of $1.2-1.6b. Maintain Buy on Kepland. We have tweaked Kepland’s RNAV up slightly to $5.66. Our target price is correspondingly raised to $5.09, pegged at a 10% discount to RNAV.

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