Keppel Corporation - CGS-CIMB Research 2019-09-27: Postcard From Vietnam – Good Trajectory


Keppel Corporation - Postcard From Vietnam – Good Trajectory

  • We visited some of Keppel Land’s residential and commercial projects in Ho Chi Minh City. Vietnam contributes c.1/3 of property profit as of 1H19.
  • Keppel Land has land bank of 17,100 homes with 5,700 launch-ready units until 2021. It has a presence from the low-end to the luxury segments.
  • We believe Keppel Corp (SGX:BN4) can leverage robust demand and firm home price appreciation of 8-25% p.a. in Vietnam. Maintain ADD and SOP Target Price of S$8.41.

Vietnam dominates 1/3 of property profit

  • Our visit to some of Keppel Corp projects showed that on-the-ground activities are fairly vibrant. Vietnam contributed S$84m of net profit to Keppel Land’s earnings in 1H19, or one-third of the property division.
  • Our ground checks showed that Keppel Corp’s branding is high-quality and its breadth and depth in low-, mid-, high-end and luxury markets makes the group competitive vs. local players. It has established its presence in prime districts 1 & 2 and has solid expansion plans in up-and-coming precincts such as Thu Theim and Saigon South.
  • Keppel Corp has land bank of 17,100 residential homes with 5,700 launch-ready until 2021. It has 405,600 sm in its prime commercial portfolio, of which 62% is under development.

Robust demand and delays in regulatory approvals drive prices

  • Vietnam’s residential property demand currently outstrips the supply, partly due to strong economic growth as well as delays in the regulatory process. This has resulted in an accelerated increase in home prices across segments.
  • According to CBRE Vietnam, the average home price has increased annually, ranging from 8% (affordable), 13% (mid-end), 23% (high-end) and 15% (luxury) since 2009. Absorption rates have been high since 2015 at 80-90%, but have dropped in recent years due to lower supply.
  • Overall, launches have dropped by 42% y-o-y to 8,547 units, a slight reprieve for the market.

Who’s buying the homes?

  • Condominium units in the mid-end segment range between US$70k and US$150k and command strong buyer interest. The high-end segment is generally dominated by foreign buyers from China and Korea.
  • Our channel checks with locals also showed that about 1% of the local population are capable of buying high-end properties (supported by family affluence or income from entrepreneurship).

Maintain ADD and target price of S$8.41 on SOP valuations

  • We think strong ASP growth on the back of a supply crunch is likely to support firm PBT margins of > 30% for its Vietnam projects. Key risks lie in the prolonged delay of launch permits and approval of the master plan for Saigon City.
  • Keppel Corp is trading at undemanding valuations of 0.9x CY19F, or -1 s.d. of its mean.
  • Key catalysts include stronger enbloc sales in properties and orders in the offshore and marine sector. We see this as an opportunity to accumulate. See Keppel Corp's share price.

LIM Siew Khee CGS-CIMB Research | https://www.cgs-cimb.com 2019-09-27
SGX Stock Analyst Report ADD MAINTAIN ADD 8.410 SAME 8.410