China ops doing well. We reiterate KepLand as one of our top-picks for its diversification particularly into China. 2Q13 results were largely in line with expectations, but KepLand has already sold more homes in China in 1H13 than it did in the whole of FY12. We believe KepLand will continue to deploy more capital in China, particularly to increase its portfolio of investment properties. Reiterate BUY with a target price of SGD4.80, pegged to a 20% discount to RNAV.

Results in line, but likely a non-event. KepLand’s 2Q13 PATMI came in at SGD95.5m (-1% QoQ; +1% YoY). 1H13 PATMI of SGD192.1m was largely in line with expectations, accounting for 46% of our full-year estimate and 48% of consensus.

Enjoying healthy home sales. KepLand sold about 1,940 homes in China in 1H13, ~18% more than it did in the whole of FY12. Besides strong sales at affordably-priced projects such as The Botanica in Chengdu and The Springdale in Shanghai, over 50 units were sold at 8 Park Avenue in Shanghai, which achieved an ASP of ~CNY70,000 psm. In Singapore, 141 units were sold at the 366-unit Corals at Keppel Bay, which had an ASP of ~SGD2,200 psf. The Group is ready to launch the 726-unit development beside Tanah Merah MRT known as The Glades. We expect an ASP of SGD1,500 psf on a breakeven price of SGD1,200 psf for the project.

MBFC Tower 3 at 90% occupancy. As we expected, MBFC Tower 3 has reached ~90% committed occupancy, improving from 86% as at 1Q13. However, management revealed that there is currently no rush to recycle capital by divesting its one-third stake to Keppel REIT, given that KepLand’s net gearing is a comfortable 0.4x with a healthy cash position of ~SGD1b. We think the possible divestment now appears more likely to happen in FY14 rather than this year.

Strength in diversity. We like KepLand’s diversified business and undemanding valuations. Positive catalysts include further tie-ups with China Vanke in China and the eventual monetization of MBFC Tower 3. Maintain BUY.

Source: Maybank Kim Eng Research - 18 Jul 2013