Attractive valuations against its underlying assets and a strong capital structure continue to underpin our Outperform rating. We raise our FY09 core EPS by 26% but lower our FY10-11 numbers by 2-17% as we front-load our project recognition schedule.We keep our end-CY10 RNAV and target price of S$3.49. 3Q09 core net profit of S$79m was above our expectation though in line with consensus, forming 41% and 25% of our full-year forecast and the Street’s respectively. The variance came from earlier recognition of presold projects. 9M09 core net profit of S$169m forms 88% of our full-year forecast.

• Improvements in all segments; 3Q09 presales yet to be booked. 3Q09 revenue grew 23% yoy to S$228m as all segments improved. While residential sales grew 16% yoy to S$164m on earlier recognition, strong sales in 3Q09 both overseas (The Botanica in Chengdu and Central Park in Wuxi) and locally (Reflections, Madison Residences and Caribbean) have yet to be booked. KepLand is making headway in China with 2,350 units sold YTD. Revenue from investment property and fund management also surprised, up 9% and 8% qoq to S$19m and S$10m respectively.

Morning Bulletin 22 October 2009 - Kim Eng

Top Ideas

1) Keppel Land – 3Q09 Results (Wilson LIEW, DID: 64321454)

Recommendation: BUY (maintained)

Target price: $3.28 (upgraded from $3.19)

Stronger-than-expected 3Q earnings

China accounted for 21.3% of 3Q09 PATMI

Building on the sales momentum gathered in 2Q09, KepLand further sold about 900 units in 3Q09 in China, mainly in Chengdu and Wuxi, bringing the total units sold there to-date to 2,350. The sale of units elsewhere is also brisk, particularly in Vietnam and Jakarta. Overall, overseas markets accounted for 31.2% of KepLand’s 3Q09 PATMI.

Encouraging take-up for Singapore residential projects

Capitalising on renewed interest in mid-end properties, KepLand has launched and sold more than 80% of the 56-unit Madison Residences, achieving a median price of $1686 psf, exceeding our ASP assumption of $1500 psf. 7 units of the Promont (total 15 units) have also been sold at a median price of $1857 psf. We have correspondingly lowered our ASP assumption for the Promont to $1900 psf from $2000 psf.

New pre-leasing commitments at MBFC and OFC

KepLand named Servcorp as the latest tenant to sign up for 22,000 sq ft of space at MBFC Tower 2, bringing the pre-commitment level of Phase 1 (1.6m sq ft in total) to 67%. In addition, the Group also revealed that 50,000 sq ft of space has been pre-committed at the Ocean Financial Centre. While we think it’s still too early to be optimistic about the office sector, these pre-leasing announcements are quite encouraging after over half a year of stalemate.