Keppel Land may turn into a pure play residential developer in Singapore

Follow through in capital deployment. Following a number of site acquisitions in 1H11, Kepland has continued its active stance in capital deployment with the acquisition of a 21.5-ha residential development site for S$368m (RMB$1.937bn). This latest project, situated 9 km from the city centre accessible by the MRT line with 322,905 sqm GFA, is expected to yield c.2,500 units. The launch of the first phase is expected in 2013 with completion targeted for 2014.

Steady step with proven track record. While we highlighted Kepland's active deployment since the asset swap for prime KTGE site, this latest acquisition marks Keppel's fourth development project in Wuxi with Central Park City in Taihu New City, Binhu District (35.3-ha township, 5,000 units), Stamford City in new city centre of Jiangyin (8.3-ha mixed development) and Jiangyin Yangtze International Country Club (JYICC).

Following the likes of Central Park City with already c.2,600 units sold, we believe this is a timely acquisition by KepLand to continue its focus on the mass market segment tapping on Wuxi’s economic expansion and replenish its landbank in the vicinity where KepLand already possess a proven execution track record in the Binhu District. Wuxi is a key economic centre in the Yangtze River Delta region supported by the newly operational Beijing Shanghai high speed rail in close proximity of Shanghai.

Maintain BUY, TPS$4.53. While we believe market concerns on KepLand may revolve around its potential evolving business model with possible injection of its remaining assets into K-REIT in the medium term (post stabilization of office assets) which would transform KepLand into a pure play residential developer in Singapore and China, as well as a lack of near term catalysts, we see deep value embedded in KepLand and maintain our BUY recommendation, TP$4.53 based on 20% discount to RNAV.