Not expecting last year’s good showing. KepLand will be announcing 1Q13 results on 17 April. We do not expect a repeat of 1Q12’s stellar PATMI of SGD141.9m, which was largely boosted by profits from Reflections at Keppel Bay. Instead, we expect a 1Q13 net profit of ~SGD50m, underpinned by progressive profit recognition from other local projects. We reiterate that earnings volatility is to be expected and investors should focus instead on KepLand’s execution. We maintain our BUY recommendation and target price of SGD4.78.

Progressive recognition to underpin 1Q13 earnings. All units at The Luxurie are now sold out after KepLand sold the remaining 46 units in 1Q13, but the earnings will be progressively recognized. Profits from The Botanica Ph 6 are likely to be recognized only in 2Q13, as we expect the completed units to be handed over only in May.

China measures not a major spanner in the works. During the first two months of the year, KepLand sold ~350 homes in China, nearly doubling the 190 sold in 1Q12. In late March, a number of cities announced tighter cooling measures, such as the imposition of a 20% capital gains tax, with Beijing’s policies looking the toughest. We do not think this will significantly impact demand for KepLand’s projects, which are targeted mainly at first-time buyers and upgraders, and KepLand does not have any residential projects in Beijing.

MBFC Tower 3 – a step closer to divestment? The commitment level at MBFC Tower 3 crept up from 79% in end-2012 to ~84% as at end-Feb, with non-financial sector tenants accounting for the bulk of the new take-up. We expect demand to continue from such tenants, taking advantage of the narrowing price premiums to move into quality International Grade A space. We will look out for the leasing update and maintain our view that Tower 3 may be ripe for divestment when the commitment level exceeds 90%.

Still trading cum-dividend. KepLand will trade ex-FY12’s 12 cts/sh dividend on 23 April. We continue to like its diversified business and strong balance sheet. Should MBFC Tower 3 be divested this year, FY13 dividend could potentially be higher.

Source: Maybank Kim Eng Research - 10 Apr 2013