As China’s housing restrictions and the fallout of prices hurt the profitability of Keppel Land’s (KPLD) approximately 7,000 home portfolio in 2012, the developer will be caught between two strategies — either slash prices or accept slower sales, according to OCBC.
This vulnerability, fortunately, is stabilised by strong balance sheet fundamentals that will create opportunities when markets worsen next year.
“KPLD is trading at a 55 percent discount to RNAV and 0.8 times trailing book value,” noted OCBC.
“We judge this to be a sufficiently attractive entry point for accumulation as valuation ratios are unlikely to reach last crisis’ troughs, due to a stronger balance sheet and lower likelihood of a rights issue this time round. KPLD’s net gearing, after the OFC divestment, is ~10 percent – much stronger than the 40 percent to 50 percent range in 2008. A net cash inflow of S$1,115 million from the divestment would also bump KPLD’s cash position from S$800 million to ~S$1.9 billion,” it added.
OCBC also added that KPLD’s strong balance sheet will provide flexible capital deployment in a likely dynamic environment ahead.
“Management views long-term prospects in Singapore and China positively, and could purchase bargain assets should macro conditions deteriorate further. With the bumper OFC divestment gains (S$492.7million), there is also good potential for a special dividend ahead.”
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