Strategic alliance piques more interest than results. KepLand reported better-than-expected 1Q13 PATMI of SGD96.6m, but we believe yesterday’s announcement of its new strategic alliance with Vanke would pique more interest than lumpy quarterly earnings. If KepLand manages to leverage on the tie-up effectively, we believe it will pave the way to more investment opportunities in China. We are maintaining our BUY recommendation and target price of SGD4.78.

Core 1Q13 earnings down YoY as expected. While lower YoY, KepLand’s 1Q13 PATMI of SGD96.6m (-32% YoY; -39% QoQ) was still higher than we expected due to the earlier completion of Phase 6 of The Botanica in Chengdu, as well as a tax write-back (est. ~SGD20m) which resulted in a tax credit of SGD4.8m in the quarter. Otherwise, the results were largely in line with expectations.

Execution remained creditable in the quarter. KepLand managed to sell an impressive ~850 homes in China in 1Q13, which was 23% higher than in 4Q12. In fact, we estimate that nearly 500 of them were sold in March alone, mainly from The Botanica Ph 7 and The Springdale Ph 2 in Shanghai. In addition, the commitment rate at MBFC Tower 3 has inched up to 86% from 79% in end-2012.

Strategic tie-up with Vanke. KepLand recently announced that it has entered into a strategic alliance with China’s largest developer, Vanke, to jointly develop properties in Singapore and China. The first JV project will be the Tanah Merah condominium site which KepLand acquired in Oct 2012. Vanke will take a 30% stake in the 726-unit leasehold project, which is expected to be launched in 2H13. We view the tie-up positively as it may open more doors for KepLand to grow in China. In our view, this may come in the form of joint acquisition of new sites, or KepLand taking a stake in certain projects already on Vanke’s landbank.

BUY for its diversified exposure. Positive catalysts include the potential divestment of MBFC Tower 3, continued healthy sell-through of its residential projects and more announcements from the JV with Vanke. Maintain BUY, target price unchanged at SGD4.78.

Source: Maybank Kim Eng Research - 18 Apr 2013