Keppel Corporation - OCBC Investment 2017-10-27: Active In China

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KEPPEL CORPORATION LIMITED BN4.SI

Keppel Corporation - Active In China

• S$290m net gain from divestment.
• Positive on asset recycling strategy.
• Up valuation on Tianjin Eco-City.

Divests stake in Keppel China Marina Holdings 

• Keppel Corporation announced yesterday that Keppel Land China has entered into an agreement with Delight Prime Ltd (unit of HK-listed Logan Property) to divest its 100% stake in Keppel China Marina Holdings Pte Ltd (KCMH) for approx. RMB2.9b (~S$597.4m), subject to completion adjustments. 
• KCMH indirectly owns an 80% effective interest in Sunsea Yacht Club (Zhongshan), a JV which owns and develops Keppel Cove, an integrated residential cum marina lifestyle development on Modao Island in Zhongshan city, China. Recall that Keppel China Marina Holdings entered into a JV with Sunsea Yacht Club (HK) to develop its first integrated residential cum marina lifestyle development in Zhongshan in 2008.

Expects gain of S$290m 

• The consideration was arrived at after taking into account the unaudited NAV of KCMH Group and the market value of the unsold inventories and remaining undeveloped land. With this divestment, a gain of about S$290m is expected to be recognised. Completion is expected to take place by the end of this year.

Land prices in Tianjin Eco-City have increased significantly 

• We are positive on the group’s strategy to recycle assets to seek higher returns and rebalance its portfolio to focus on selected high growth cities in China. 
• KEP’s Tianjin Eco-City project is also bearing fruit, with average selling prices of Eco-City residential land having increased significantly since 2016 – RMB1,700/sm in 2014, RMB1,900/sm in 2015, RMB6,300/sm in 2016 and finally RMB13,800/sm this year. 
• Do note that land sales from this project (to either KepLand or other property developers for development) are accounted for under the “Investments” segment of KEP. 
• Recall that KEP has a 45% effective stake in SinoSingapore Tianjin Eco-City Investment and Development, which acquires land from the Chinese government based on prices that were fixed earlier in 2008. We take this into account in our sum-of-parts valuation, and after adjusting our estimates, our fair value rises from S$7.73 to S$8.31. Maintain BUY.

Low Pei Han CFA OCBC Investment | http://www.ocbcresearch.com/ 2017-10-27

OCBC Investment SGX Stock Analyst Report BUY Maintain BUY 8.31 Up 7.730