Keppel Land Limited: Still on solid ground

Event
Despite having around 60% of its assets in Singapore and no exposure in Japan, Keppel Land’s share price has underperformed the Straits Times Index year-to-date (-15% vs -9%). However, we remain positive on the company’s exposure to international Grade A office space in Singapore and its latest development, Ocean Financial Centre (OFC), is on track for completion by mid-2011. Maintain BUY.

Our View
With a few months to go before the completion of the OFC, pre-commitment levels at the 850,000-sq-ft development have already reached a significant 80%. In comparison, OUE Bayfront across the road, with an NLA of 500,000 sq ft, remains about 62% committed even though it has got its Temporary Occupation Permit in January. We are confident the remaining space at the OFC will be filled up before the end of the year. We believe a divestment of OFC, a la MBFC Phase 1, may be on the cards come end of the year. However, it remains to be seen how the deal, worth an estimated $1.8b, will be structured with K-REIT.
KepLand has put in the top bid for a condominium site at Sengkang Square, near Sengkang MRT Station, in a Government Land Sales tender that drew nine bids in all. Its bid of $286.8m works out to $502 psf ppr. We estimate the breakeven to be about $840 psf and the ASP to be around $1,000 psf. Contributions from the project will be marginal and we expect an accretion of 4 cents a share to its RNAV.

Action & Recommendation
KepLand’s current landbank in Singapore stands at approximately 1.6m sq ft of attributable GFA. We believe the company will continue to recycle its capital and more acquisitions can be expected in the coming months. The stock currently trades at a 23% discount to its RNAV, which we think is unwarranted. Maintain BUY with a target price of $5.90, pegged at a 10% premium to its RNAV of $5.36.

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