Stronger balance sheet post rights issue, with net debt/equity ratio as at Jun-09 at 0.23 times and according to the company, it intends to capitalize on opportunities, seeking acquisitions in Singapore and overseas. Strong 2Q09 residential sales, notably in China, Singapore and Vietnam with 1,345, 42 and 28 units sold respectively.
Asset revaluation losses or write-downs in landbank yet to be reported; hence, downside risk to earnings remains in our view. Singapore office outlook remains weak. Pre-commitments for its MBFC office development has stagnated at 61% since 3Q08, with nosubstantial commitments yet at Ocean Financial Centre. We expect the decline in office rents to continue from the current committed prime grade A office rents at S$9.50/sq ft, to S$8.40/sq ft and S$6.50/sq ft for 2009and 2010 respectively. According to data by JLL, of the 7.75mn sq ft of new office space entering the market in 2009-2012, only 26.5% of the space has been committed.
Price target at premium to CY09 NAV of S$1.80, attempts to capture the improvement in liquidity in the equity market, in which investors may be willing to pay a premium above intrinsic value. As Keppel Land is highly skewed to the Singapore office market (53% of its NAV), which we are most bearish on, we find its valuations uncompelling, particularly given that the only bright spot for the sector is the residential markets of Singapore and China which comprises 8% and 18% of its NAV respectively. The stock is trading at a 10% premium to our bull case NAV of S$2.31, which we believe is unjustified.
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