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Asia Pacific Equity Research
24 January 2015
Neutral
Keppel Land (KPLD SP)
Price : S$3.65
20 Jan 2015
Accept the offer
Price Targe t: S$3.50
PT End Date : 31 De c 2015
Keppel Corp’s (KEP) offer price of S$4.38/4.60 for Keppel Land’s (KPLD) remaining stake looks fair to us, as it
equates to a 25.3%/21.3% discount to our RNAV estimate, lower than the historical mean of 26%. Further, given the
residential headwinds, we think KPLD’s RNAV discount is unlikely to narrow significantly in the near term in the
absence of this transaction. We think the sector will re-rate in the near term, with investors scouting for prospective
privatization candidates. Our top developer picks are GLP and CAPL.
· Voluntary cash offe r for KPLD. KEP has launched a voluntary unconditional cash offer for all the remaining
shares of its 54.6%-owned KPLD, with a base offer price of S$4.38/share. The base offer price will be adjusted
upwards to S$4.60/share should KEP acquire KPLD’s shares or receive acceptances entitling it to exercise its
rights of compulsory acquisition, which means KEP will need to own 90% of the total issued shares excluding
treasury shares and those it already has.
Table 1: Voluntary cash offer details
Specified
S$
Closing Price
FY14 NAV
JPM FY15 RNAV
Price Target
3.65
4.95
5.86
3.50
Offer Price (S$)
Premium/(Discount) to Closing Price
Premium/(Discount) to FY14 NAV
Premium/(Discount) to JPM FY15 RNAV
Premium/(Discount) to Price Target
Base
Higher
4.38
20.0%
-11.6%
-25.3%
25.1%
4.60
26.0%
-7.2%
-21.5%
31.4%
Source: J.P. Morgan estimates, Company data.
· Historical de als not that re le vant. Looking at privatization or partial offers involving property developers which
were completed over the past five years, the average premium to book value (or NAV) was 3%. However, the
case for comparison is debatable given that the bulk of the transactions involved small-to-mid-cap developers which
had relatively low liquidity. Further, several of their NAVs do not factor in revaluations as the properties were
treated as Property, Plant & Equipment. CapitaMalls Asia’s privatization in Apr-14 (20% discount to RNAV)
seems to be the closest comparable, though its 100% retail exposure contrasts that of KPLD (Residential: 64% and
Commercial: 36%).
Table 2: Historical privatization deals
Specified
Announcem ent
Date
Target
Acquirer
Offer
Price
(S$)
(S$)
(%)
(S$)
Jan-15
Keppel Land
Lee Kim Tah
Holdings
Keppel Corporation
4.38
3.65
20.0%
4.95
Lee Kim Tah Inv estments
1.08
1.015
6.4%
Sep-14
Last
Traded
Price
Pre/(Disc)
To
Last
Traded
Price
NAV
Pre/(Disc)
To
NAV
Outcom e
(%)
Acquirer
Stake
As
At
Offer
Date
(%)
-11.5%
54.6%
Ongoing
1.04
4.3%
86.4%
Delisted Jan-15
Listing maintained.
Ow nership interest rises to
60.6%
Mar-14
Global Premium
Hotels
Mr. Koh Wee Meng
0.33
0.29
13.8%
0.64
-48.4%
59.1%
Apr-14
CapitaMalls Asia
CapitaLand
2.35
1.81
29.8%
1.87
25.7%
65.3%
Apr-14
Hotel Properties
68 Holdings (Ong Beng Seng,
Wheelock Properties)
4.00
3.13
27.8%
3.13
27.8%
41.9%
Feb-14
Singapore Land
Pan Pacific Hotels
Group
SC Global
Dev elopments
UIC Enterprise
9.40
8.45
11.2%
13.07
-28.1%
80.4%
Delisted Jul-14
Listing maintained.
Ow nership interest rises to
56.5%
Delisted Aug-14
UOL Group
2.55
2.34
9.0%
1.57
62.4%
81.6%
Delisted Oct-13
MYK Holdings
1.80
1.205
49.4%
1.56
15.4%
55.1%
Delisted Mar-13
May -13
Dec-12
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May -12
Wing Tai Asia
Ascend Capital
1.39
1.175
18.3%
2.51
-44.6%
41.8%
May -11
Allgreen Properties
1.60
1.15
39.1%
1.67
-4.2%
55.7%
Sep-10
Soilbuild
0.80
0.705
13.5%
0.634
26.2%
73.1%
Delisted Dec-12
Aug-10
Average
MCL Land
Brookv ale Inv estments
Lim Chap Huat (Dolphin
Acquisitions)
HKL (MCL)
Listing maintained. Partial
offer for 8.7% stake.
Delisted Jul-11
2.45
1.95
25.6%
22.2%
2.55
-3.9%
3.0%
83.1%
65.8%
Delisted Feb-11
Source: J.P. Morgan estimates.
· RNAV trading range a be tte r gauge ; Acce pt offe r. KEP’s offer price of S$4.38/4.60 represents a 25.3%/21.5%
discount to our RNAV estimate of S$5.86, which is lower than KPLD’s historical RNAV discount of 26%. KEP’s
offer price also represents a 25.1%/31.4% premium to our price target. Therefore, we think KPLD’s existing
shareholders should accept the offer. Historically, Singapore Developers have traded at a mean RNAV discount of
18.1%.
Figure 1: KPLD RNAV trading range
Figure 2: SDevelopers RNAV trading range
%
%
Source: J.P. Morgan estimates, Bloomberg.
Source: J.P. Morgan estimates, Bloomberg.
· Impact #1: Se ctor Re -Rating. We expect this transaction to result in the near-term re-rating of Developers, i.e.
narrowing of RNAV discounts. However, given that the fundamentals of the residential market remain subdued,
we do not expect the re-rating to be significant, i.e. just 3-5%pts, which is similar to the period when CMA’s
privatization was announced in Apr-14. Back then, Developers’ RNAV discount narrowed from 40.2% to 36.5%.
Table 3: RNAV of Developers and Overall Sector from Mar-14 to Aug-14
%
Mar-14
Apr-14*
May -14
Jun-14
Jul-14
Aug-14
CIT
CAPL
OUE
GLP
KPLD
Sector
-28.8%
-23.7%
-28.0%
-28.9%
-26.4%
-30.3%
-47.1%
-43.0%
-43.0%
-42.9%
-38.4%
-40.7%
-51.3%
-50.7%
-44.6%
-44.6%
-44.2%
-47.6%
-17.8%
-11.6%
-12.6%
-15.1%
-12.3%
-10.4%
-39.5%
-37.7%
-38.2%
-40.0%
-35.4%
-38.4%
-40.2%
-36.5%
-37.7%
-38.2%
-34.7%
-37.7%
Source: J.P. Morgan estimates, Bloomberg.
· Impact #2: Prospe ctive Candidate s. Given that the subdued outlook for residential properties has weighted on
sentiment, we believe investors will start looking at developers which have been trading at depressed valuations
(i.e. low P/B), with the largest shareholder holding a significant stake. These are key criteria for any potential
privatization, in our view. In addition, QC extension charges could spur further interest in privatizations, following
the example of Soilbuild, SC Global and now Popular Holdings.
Table 4: Prospective Candidates
Specified
Developers
UOL Group
Ho Bee Land
Sim Lian Group Ltd
Rox y -Pacific Hldgs Ltd
Hotel Properties Ltd
Wheelock Properties (S) Ltd
United Industrial Corp Ltd
Tuan Sing Holdings Ltd
Guocoland Ltd
Mkt
Cap*
23-Jan-15
Last
Price*
23-Jan-15
(S$m )
(S$)
(S$)
(S$)
Pre/
(Disc)
to
NAV
(%)
5,724
1,354
855
633
2,133
2,256
4,847
500
2,118
7.27
2.03
0.85
0.53
4.11
1.89
3.48
0.43
1.79
9.18
3.52
0.98
0.28
3.47
2.51
4.88
0.65
2.51
9.29
3.27
1.05
0.30
3.15
2.66
3.99
0.66
2.44
-20.8%
-42.3%
-13.5%
91.7%
18.4%
-24.9%
-28.7%
-34.2%
-28.8%
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NAV
Bk
Val.
Pre/
(Disc)
to
Bk val.
(%)
P/B
-21.7%
-37.9%
-18.7%
78.3%
30.4%
-29.1%
-12.9%
-36.0%
-26.6%
0.78
0.62
0.81
1.78
1.30
0.71
0.87
0.64
0.73
(x)
Majority Shareholder
Wee Cho Yaw
Ho Bee Holdings Priv ate
Sim Lian Holdings
Kian Lam Inv estment
68 Holdings
Star Attraction Limited
Uol Group Limited
Nuri Holdings S
Guoco Group
Stake
31.8%
72.8%
54.9%
49.3%
56.5%
75.8%
48.8%
46.5%
68.0%
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Hong Fok Corp Ltd
Hiap Hoe Ltd
Heeton Holdings Ltd
Wing Tai Holdings
Weighted Average
720
381
169
1,438
23,127
0.91
0.81
0.63
1.83
1.98
0.79
1.13
4.00
1.87
1.52
1.13
3.82
-53.9%
2.1%
-44.2%
-54.3%
-21.1%
-51.2%
-47.1%
-44.4%
-52.1%
-18.0%
0.49
0.53
0.56
0.48
0.82
Hong Fok Land Intl
Hiap Hoe Holdings
Heeton Inv estments
Cheng Wai Keung
20.4%
69.5%
25.1%
60.9%
Source: J.P. Morgan estimates, Bloomberg.
· Impact #3: Fund Flows & Inde x Implications. We believe investors who decide to accept the offer would also
start thinking about where to put their money next. Among Developers, we continue to like GLP and CAPL, while
SUN, AREIT, CRCT and ART are our top REIT picks. Lastly, given that KPLD is now in two major indices
(FTSE EPRA/NAREIT Developed Index and MSCI Singapore Index), there should be new companies which
could potentially replace KPLD, which results in improved liquidity.
Table 5: S-Developer valuation summary
Specified
Company
CapitaLand
City Developments
Keppel Land
Overseas Union Enterprise
Global Logistic Properties
Total / Weighted Average
Total / Weighted Avg (Ex
GLP)
JPM
Sh price
Rating Mkt cap 23-Jan-15
(S$ MM)
(S$)
OW
15,161
3.56
N
9,575
10.53
N
5,640
3.65
UW
1,984
2.18
OW
12,535
2.59
44,895
32,360
Price
target
(S$)
3.80
10.05
3.50
2.10
3.30
RNAV
JPM used
Dividend yield 20 Day
upside RNAV Disc/prem Disc/prem BVPS P/B FY15E FY16E ADTV Gearing
(%)
(S$)
(%)
(%)
(S$)
(x)
(%)
(%)
(S$m)
(%)
6.7%
5.83
-38.9%
-35%
3.72 0.96 2.2% 2.2%
37.2
59.9%
-4.6% 12.54 -16.1%
-20%
8.79 1.20 1.5% 1.5%
8.4
36.4%
-4.1% 5.86
-37.7%
-40%
4.59 0.80 3.6% 3.6%
9.9
36.8%
-3.7% 4.25
-48.7%
-50%
4.06 0.54 2.3% 2.3%
0.7
44.6%
27.4% 3.30
-21.4%
0%
2.35 1.10 1.5% 1.5%
27.3
-4.6%
8.3%
-29.4%
-23.3%
1.01 2.1% 2.1%
33.3%
0.9%
-32.5%
-32.4%
0.97
2.3%
2.3%
48.0%
YTD Sh
Perf
(%)
7.6%
2.5%
6.7%
6.9%
4.4%
5.5%
5.9%
Source: J.P. Morgan estimates, Bloomberg, Company data.
Investment Thesis
KPLD is a diversified developer primarily exposed to the China residential market. Contract sales more than tripled and sales units
more than doubled Y/Y in 2013. The company plans to deepen its presence in core China and Singapore markets, while investing
opportunistically in growth markets Indonesia and Vietnam. Management plans to achieve a target profit mix of 70% from property
trading and 30% from other businesses.
Valuation
Our Dec-15 PT of S$3.50 is derived from a 40% discount to our forward RNAV estimate of S$5.86.
Av erage premium/(discount) to RNAV
1 s.d. abov e av erage prem/(disc) to RNAV
1 s.d. below av erage prem/(disc) to RNAV
-26%
-4%
-49%
Max prem/(disc) to RNAV
Min prem/(disc) to RNAV
41%
-83%
Source: J.P. Morgan estimates, Bloomberg.
Risks to Rating and Price Target
Key downside risks to our rating and PT include: (1) prolonged weakness in the Singapore and China residential property markets;
(2) an inability to redeploy capital from divestment proceeds to higher-yielding investments; and (3) entry into overseas
geographies outside of focus/specialized markets. Key upside risks include: (1) a pickup in residential volumes in Singapore, China
and Vietnam, which could be caused by the easing of policies; (2) the divestment of non-core assets, with capital redeployed to
higher-yielding assets or paid out as special dividends; and (3) a quicker-than-expected stabilization of income from growing
commercial portfolio.
Property
Brandon Lee
AC
(65) 6882-7073
brandon.lee@jpmorgan.com
J.P. Morgan Securities Singapore Private Limited
Cusson Leung
(852) 2800-8526
cusson.leung@jpmorgan.com
J.P. Morgan Securities (Asia Pacific) Limited
Terence M Khi
(65) 6882-1518
terence.ml.khi@jpmorgan.com
J.P. Morgan Securities Singapore Private Limited
www.jpmorganmarkets.com
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Other Companies Discussed in This Report (all prices in this report as of market close on 23 January 2015)
A-REIT (AEMN.SI/S$2.57/Overweight), Ascott Residence Trust (ASRT.SI/S$1.29/Overweight), CapitaLand
(CATL.SI/S$3.56/Overweight), CapitaRetail China Trust (CRCT.SI/S$1.69/Overweight), Global Logistic Properties Ltd
(GLPL.SI/S$2.59/Overweight), Suntec REIT (SUNT.SI/S$2.00/Overweight)
Analyst Certification: The research analyst(s) denoted by an “AC” on the cover of this report certifies (or, where multiple research analysts
are primarily responsible for this report, the research analyst denoted by an “AC” on the cover or within the document individually certifies,
with respect to each security or issuer that the research analyst covers in this research) that: (1) all of the views expressed in this report
accurately reflect his or her personal views about any and all of the subject securities or issuers; and (2) no part of any of the research analyst's
compensation was, is, or will be directly or indirectly related to the specific recommendations or views expressed by the research analyst(s) in
this report. For all Korea-based research analysts listed on the front cover, they also certify, as per KOFIA requirements, that their analysis was
made in good faith and that the views reflect their own opinion, without undue influence or intervention.
J.P. M organ does and seeks to do business with companies covered in its research reports. As a result, investors should be aware that the firm
may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single factor in
making their investment decision.
Important Disclosures
· Lead or Co-manager: J.P. M organ acted as lead or co-manager in a public offering of equity and/or debt securities for CapitaLand, Ascott
Residence Trust within the past 12 months.
· Analyst Position: The following analysts (and/or their associates or household members) own a long position in the shares of CapitaRetail
China Trust: Brandon Lee.
· Client: J.P. M organ currently has, or had within the past 12 months, the following company(ies) as clients: Keppel Land, Global Logistic
Properties Ltd, CapitaLand, Suntec REIT, CapitaRetail China Trust, Ascott Residence Trust.
· Client/Investment Banking: J.P. M organ currently has, or had within the past 12 months, the following company(ies) as investment
banking clients: Global Logistic Properties Ltd, CapitaLand, Ascott Residence Trust.
· Client/Non-Investment Banking, S ecurities-Related: J.P. M organ currently has, or had within the past 12 months, the following
company(ies) as clients, and the services provided were non-investment-banking, securities-related: Keppel Land, Global Logistic Properties Ltd,
Ascott Residence Trust.
· Investment Banking (past 12 months): J.P. M organ received in the past 12 months compensation from investment banking Global Logistic
Properties Ltd, CapitaLand, Ascott Residence Trust.
· Investment Banking (next 3 months): J.P. M organ expects to receive, or intends to seek, compensation for investment banking services in
the next three months from Global Logistic Properties Ltd, CapitaLand, Ascott Residence Trust.
· Non-Investment Banking Compensation: J.P. M organ has received compensation in the past 12 months for products or services other than
investment banking from Keppel Land, Global Logistic Properties Ltd, Ascott Residence Trust.
· “J.P. M organ (S.E.A.) Limited (“J.P. M organ”) is acting as a Joint Lead M anager and Joint Bookrunners for DBS Trustee Limited in its
capacity as trustee of Ascott Residence Trust (“Ascott”) for its subordinated perpetual issuance as announced on 17 October 2014. J.P. M organ
will be receiving fees for so acting. J.P. M organ and/or its affiliates may perform, or may seek to perform, other financial or advisory services for
Ascott and/or its affiliates and may have other interests in or relationships with Ascott and/or its affiliates, and receive fees, commissions or other
compensation in such capacities. This research report and the information herein is not intended to serve as an endorsement of the proposed
transaction or result in procurement, withholding or revocation of a proxy or any other action by a security holder. This report is based solely on
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Date
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Rating Share Price Price Target
(S$)
(S$)
08-Nov -06 N
4.20
5.39
26-Jan-07
N
5.09
7.50
10-Apr-07
N
6.51
8.65
24-Jul-07
N
6.08
8.65
17-Aug-07
UW
5.37
6.15
24-Sep-07
UW
5.87
6.10
24-Oct-07
UW
5.87
7.25
06-Dec-07 UW
5.44
6.82
21-Jan-08
N
4.08
6.39
28-Feb-08
UW
4.32
5.35
23-Apr-08
UW
4.32
5.10
02-Sep-08
UW
2.65
3.50
06-Nov -08 UW
1.62
1.56
19-Mar-09
N
0.88
1.75
24-Apr-09
UW
1.25
1.50
22-Jul-09
N
2.49
2.40
20-Jan-10
N
3.52
3.60
26-Jan-10
N
3.36
3.70
18-Mar-10
N
3.65
3.65
14-Oct-10
N
4.28
4.70
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25-Jun-11
N
3.58
4.50
14-Sep-11
N
2.87
2.85
16-Jan-12
N
2.45
2.85
19-Jul-12
N
3.39
3.70
18-Apr-13
N
3.99
4.00
16-Oct-13
N
3.58
4.20
25-Aug-14
NR
3.49
--
3.35
3.50
09-Dec-14 N
The chart(s) show J.P. M organ's continuing coverage of the stocks; the current analysts may or may not have covered it over the entire period.
J.P. M organ ratings or designations: OW = Overweight, N= Neutral, UW = Underweight, NR = Not Rated
Explanation of Equity Research Ratings, Designations and Analyst(s) Coverage Universe:
J.P. M organ uses the following rating system: Overweight [Over the next six to twelve months, we expect this stock will outperform the average
total return of the stocks in the analyst’s (or the analyst’s team’s) coverage universe.] Neutral [Over the next six to twelve months, we expect
this stock will perform in line with the average total return of the stocks in the analyst’s (or the analyst’s team’s) coverage universe.]
Underweight [Over the next six to twelve months, we expect this stock will underperform the average total return of the stocks in the analyst’s
(or the analyst’s team’s) coverage universe.] Not Rated (NR): J.P. M organ has removed the rating and, if applicable, the price target, for this
stock because of either a lack of a sufficient fundamental basis or for legal, regulatory or policy reasons. The previous rating and, if applicable, the
price target, no longer should be relied upon. An NR designation is not a recommendation or a rating. In our Asia (ex-Australia) and U.K. smalland mid-cap equity research, each stock’s expected total return is compared to the expected total return of a benchmark country market index, not
to those analysts’ coverage universe. If it does not appear in the Important Disclosures section of this report, the certifying analyst’s coverage
universe can be found on J.P. M organ’s research website, www.jpmorganmarkets.com.
Coverage Universe: Lee, Brandon: A-REIT (AEM N.SI), Ascott Residence Trust (ASRT.SI), CDL Hospitality Trusts (CDLT.SI),
CapitaCommercial Trust (CACT.SI), CapitaLand (CATL.SI), CapitaM all Trust (CM LT.SI), CapitaRetail China Trust (CRCT.SI), City
Developments (CTDM .SI), Far East Hospitality Trust (FAEH.SI), Frasers Centrepoint Trust (FCRT.SI), Global Logistic Properties Ltd
(GLPL.SI), Keppel Land (KLAN.SI), Keppel REIT (KASA.SI), M apletree Commercial Trust (M ACT.SI), M apletree Industrial Trust
(M API.SI), Overseas Union Enterprise Ltd (OVES.SI), Suntec REIT (SUNT.SI)
J.P. Morgan Equity Research Ratings Distribution, as of January 1, 2015
J.P . Morgan Global Equity Research Coverage
IB clients*
JP MS Equity Research Coverage
IB clients*
O ve rwe igh t Ne u tral
(buy)
(hold)
45%
43%
56%
49%
45%
48%
75%
67%
Un de rwe igh t
(sell)
12%
33%
7%
52%
*P ercentage of investment banking clients in each rating category.
For purposes only of FINRA/NYSE ratings distribution rules, our Overweight rating falls into a buy rating category; our Neutral rating falls into a hold
rating category; and our Underweight rating falls into a sell rating category. P lease note that stocks with an NR designation are not included in the
table above.
Equity Valuation and Risks: For valuation methodology and risks associated with covered companies or price targets for covered companies,
please see the most recent company-specific research report at http://www.jpmorganmarkets.com, contact the primary analyst or your J.P.
M organ representative, or email research.disclosure.inquiries@jpmorgan.com.
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not be subject to FINRA Rule 2711 and NYSE Rule 472 restrictions on communications with covered companies, public appearances, and
trading securities held by a research analyst account.
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