SG: Keppel Land - Chinese residential market still difficult

KEPPEL LAND 19 Apr 2012

CHINESE RESIDENTIAL MARKET STILL DIFFICULT - Results were broadly in line - Subdued Chinese residential sales - Too early to call office bottom Keppel Land (KPLD) reported 1Q12 PATMI of S$141.9m, up 70% YoY, mostly due to a bumper contribution from Reflections at Keppel after the handover of DPS units. 1Q12 topline was S$170m, down 52% YoY as property trading revenues fell. We judge 1Q12 PATMI (making up 38% of our annual forecast) to be mostly within expectations, given "lumpier" earnings post adoption of INT FRS 115. Grade A office rents fell 3.6% to S$10.60 in 1Q12. Given residual macro risks, we believe it is too early to call a bottom for the domestic office sector - a key driver for KPLD's share price. This risk is balanced out, however, by potential RNAV accretion given ample capital (16% net gearing) and sufficiently attractive valuations. Maintain HOLD with an unchanged fair value estimate of S$3.32 (35% discount to RNAV).