Weak outlook in China could hit Keppel's strongest unit

Property launches have been pushed into 2020, lifting earnings from China by 30%.

The revised launch schedules of Keppel Corporation have resulted in lower earnings for its property business in China of 8-14% for 2018-2019, UOB Kay Hian said. Launches have been pushed into 2020, thereby lifting earnings from China by 30%.

Analyst Foo Zhi Wei noted that earnings in 2018 are no longer driven as much by projects in Wuxi as launch schedules are shifted to Tianjin and Chengdu, which are now the focus cities that will drive the company's property earnings for this year.

Also read: Keppel's property segment dethrones O&M in profits

Moreover, a land plot of about 109,700 sqm was put up for sale with a minimum/maximum price of RMB19,795 psm and RMB29,692 psm and drew zero bids at the close of tender in early-May.

"This concerns us as it suggests that the property cooling measures implemented by the government are having an impact," Foo commented. "Earnings may see downside risk as Keppel, the master planner of Tianjin Eco-City (TJEC), is currently assumed to be able to generate about $100m in profits annually through land sales."

However, the weak outlook in China could be offset by the performance of Keppel's properties in Singapore, specifically the launch of Serangoon North in the second half of 2018.

Foo commented, "Rising property prices (URA property price index rose 3.9% YoY in 1Q2018), as well as continued strong momentum in home sales, should support this... Our earnings estimate for 2018 rises by 20%, but fall 12-17% in 2019-20 as we bring forward launch schedules."

Keppel's Vietnam property market also remains buoyant with a potential for upside. The revision sees a small change in earnings for Vietnam for 2018 (+2%) and 2019 (+5%). Foo noted that earnings in 2020 will see a sharp pick-up due to the incorporation of the scheduled launch of 926-unit Palm City (South Rach Chiec).

The analyst added that the Vietnamese property market remains hot. Sales jumped 91.5% to 15,586 units, whilst prices continued to rise by 1-2% QoQ. The strong sales momentum is expected to continue into end-2018.

"We expect Keppel to accelerate property launches in Vietnam to offset the weakness in China," Foo concluded.