Attributable profit from property trading amounted to $31.7m, accounting for 86% of 1Q09 PATMI, despite falling 35.3% yoy, 16.1% qoq. KepLand continues to recognise profits from Singapore projects such as The Sixth Avenue Residences, and the 15 new units sold at The Tresor (~$1,300 psf) and Park Infinia (~$1,200 psf) each. It also saw higher associated earnings from Marina Bay Residences and Reflections at Keppel Bay. Its remaining landbank of 900,000 sq ft in GFA predominantly caters to the high-end segment.
Other contributions to PATMI include $9.6m from property investment and $4.6m from fund management. While together they provide a more regular income stream than property trading, their contributions may weaken in the subsequent periods as spot rents for office properties continue to slide and with a prolonged recession, occupancy rates will also be negatively impacted.
Aside from its current cash position of $626m, KepLand has unutilised credit facilities of $1.8b in place, giving it access to $2.4b in cash if necessary. The management does not expect net gearing to exceed 1x over the next two years from the current 0.5x. While KepLand may face some challenges monetising its assets in this current environment, we believe its balance sheet is strong enough to weather the tough markets. A rights-issue currently looks unlikely.
KepLand is unlikely to sell many residential projects in Singapore for the rest of the year, but China has recently shown signs of a possible recovery and KepLand will benefit from it, along with possible a recovery in Vietnam. Keeping our forecasts unchanged, we are maintaining our BUY recommendation at a target price of $2.62, pegged to a 50%-discount to its RNAV, and a 25%-discount to its book value of $3.50.
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