Earnings on track. We reiterate our BUY recommendation on KepLand, particularly as its ongoing launches in China continues to enjoy healthy demand in 3Q13, which we expect to be sustained for the rest of the year. KepLand reported a 3Q13 PATMI of SGD126.4m (+70% YoY; +32% QoQ), arising in part to contributions from a number of completed projects in China, which was in line with expectations.

YTD sales in China trebled from last year. In 3Q13, KepLand sold 1,130 units in China valued at CNY1.5b, up from the 290 units valued at CNY328m in the same period last year. YTD, sales trebled to 3,070 units, mainly from projects such as The Botanica Ph7 in Chengdu and Ph2/3 of The Springdale in Shanghai. KepLand has a potential launch pipeline of a further 1,117 units for 4Q13, and early indications suggest that demand remains healthy.

The Glades achieved 45% take-up rate. In Singapore, KepLand launched 200 units at The Glades at Tanah Merah (total 726 units) in Sep and sold 89 of them, achieving a median price of SGD1,518 psf, in line with our expectations. Sales at its associate project, Corals at Keppel Bay, stood at ~43% (out of 366 units) with an ASP of ~SGD2,200 psf. KepLand is targeting to launch its 500-unit Tiong Bahru site by 1Q14, which we expect to be priced at ~SGD1,750 psf.

More capital recycling in FY14? KepLand is in the process of divesting its 51% stake in Jakarta Garden City, which will return net proceeds of SGD240m and result in a divestment gain of SGD152m when the sale is completed by 4Q13. While MBFC Tower 3’s occupancy rate remain little changed at 91%, we believe it still remains a likely candidate for capital recycling in FY14, particularly if more attractive investment opportunities come along. That, we think, will be a catalyst for further re-rating, especially with the prospect of more generous dividends.

Undemanding valuations. At 0.6x P/RNAV, we maintain that KepLand’s valuations are undemanding. We have raised our FY13 full-year estimate by 32% to include the divestment gain from Jakarta Garden City, but keep our TP at SGD4.80, pegged to a 20% discount to RNAV. Maintain BUY.

Source: Maybank Kim Eng Research - 17 Oct 2013