China property sales could bolster earnings for Keppel in H2

Property prices continue to soar despite the cooling measures.

Keppel’s steady sales activity could buoy property earnings for H2, UOB Kay Hian (UOBKH) said. They noted that the firm’s sell-through rates for most of its projects remained around the national average in H1 and they believe that this could sustain in the second half of the year.

“We do note lower sell-through rates in launches like Hill Crest (Chengdu) and Waterfront Residences (Wuxi),” UOBKH commented. “Nonetheless, the statistics should bode well for other key launches in Chengdu and Wuxi, which are needed to drive earnings for H2.”

However, the research firm also noted that the continued price increase despite cooling measures, fuelled by increasing speculative demand will likely spur further measures.

“Other China property developers are also accelerating their sales in order to improve cash flow and ease their liquidity crunch,” they explained. ”The increased supply pipeline and declining real housing demand could see current demand evaporate.”

In the case of Keppel, its launch schedules for its China developments in 2019 to 2020 has yet to be revised.

Meanwhile, UOBKH believes that Keppel’s land sales from the Sino-Singapore Tianjin Eco-City could remain stagnant as the de-leveraging efforts and government measures have already hit land sales.

UOBKH mentioned an earlier tender conducted in March which did not see bids whilst a July tender saw about 79,000 sq m of land sold at a lower unit price of RMB10,500 psm ($2,102 psm) compared to the 361,000 sqm of land sold at RMB13,800 psm ($2,763) in 2017.

“Another plot adjacent to the July tender was put up for sale on 3 Aug 18 at a higher implied price,” UOBKH noted. “Its sale will provide an indication as to whether higher prices are still applicable, and if a larger discount for SSTEC is warranted.”