Reiterate BUY on KepLand with a TP of SGD4.60 despite the 13.3% drop in share price since October after it announced its 3Q13 results.

At 0.76x P/BV and 0.51x P/RNAV, valuations are still very attractive, especially if part of its RNAV can be realised by the potential sale of MBFC Tower 3 (valued at ~SGD1.1b).

We also remain sanguine that KepLand can maintain its residential sales momentum in China even if home sales in Singapore get more challenging in 2014.

What’s New

KepLand’s share price has plummeted by 13.3% since its 3Q13 results announcement on 16 Oct 2013, underperforming the Straits Times Index, which saw a mere 1.7% decline in the same period. Nevertheless, we maintain our TP of SGD4.60, premised on a 25% discount to RNAV, which suggests a highly attractive upside of 46%.

What’s Our View

KepLand’s reduced exposure to the Singapore residential segment is manageable, in our view. To reiterate, our sensitivity analysis shows that a 20% reduction in Singapore’s residential ASPs will lead to a mere 3.3% impairment in our RNAV estimate to SGD5.93.

KepLand is due to report its FY13 results on 22 January. We expect a 4Q PATMI of ~SGD240m, which includes a SGD149m net gain from the sale of its stake in Jakarta Garden City. More pertinently, we will be looking out for sustained home sales momentum in China.

Some of KepLand’s peers are in the process of divesting Singapore-based commercial assets (eg, OUE Bayfront and Westgate Tower). We think this is a sign of capital values peaking and if KepLand succeeds in divesting its one-third stake in MBFC Tower 3 this year, we believe the sale will be positive for the share price.

Source: Maybank Kim Eng Research - 15 Jan 2014