Keppel Corporation - UOB Kay Hian 2019-10-02: Exposed To One Of The Fastest Growing Property Markets In Asia


Keppel Corporation - Exposed To One Of The Fastest Growing Property Markets In Asia

  • We visited Keppel Corp’s commercial and residential property operations in Ho Chi Minh City and came away with a very positive impression.
  • With a young population that is likely to see its income expand considerably in the coming decade, we believe that Keppel Land is in a prime position to benefit from Vietnam’s fast-growing middle class which is keen on property acquisition.
  • Maintain BUY. Target price: S$7.61.


Highly experienced in Vietnam.

  • KEPPEL CORPORATION (SGX:BN4) has over 30 years’ experience in Vietnam and cumulatively has completed 20 projects with over US$3.4b in invested capital in the country. Its net profit from Vietnam has grown at 138% CAGR over the 2015-18 period, and contributed 32% of Keppel Land’s net profit in 1H19.
  • At present, the company’s RNAV in Vietnam is over S$1.5b – this comprises:
    1. an established residential landbank of 17,100 units of which 5,700 (or 33%) are launch-ready from now to 2021, and
    2. 405,600 sqm in prime commercial GFA (62% under development).

A great country to be in: Vietnam’s economy expanded 7.3% yoy in 9M19

  • Vietnam’s economy expanded 7.3% yoy in 9M19 (2Q19: 6.7%), beating market expectations and the Bloomberg median forecast of 6.8%. The main growth drivers were the industry & construction (+9.4% y-o-y) and services (+6.9% y-o-y) sectors.
  • According to UOB Economics, Vietnam’s economic growth is likely to be supported by healthy FDI (particularly from Korea, China, Taiwan and Hong Kong) and public investment flows.

Supply remains an issue in the broader property market in Vietnam,

  • of note is the fact that there is minimal new supply of 5-star hotels and Grade A offices & retail in Ho Chi Minh City (HCMC) in the next few years. The key challenge is that large contiguous spaces are difficult to acquire in prime areas in HCMC due to the difficulty in resettling landowners.
  • Keppel Corp is well-positioned in this regard given its ownership of Saigon Centre in District 1 where the retail mall started operations in 2016 and is anchored by Takashimaya with a 25-year lease. Its two office towers comprise 17,000 sqm of Grade A office space and 89 serviced apartments.

Since 2017, the Vietnamese government’s anti-corruption campaign has delayed the licensing process for property projects

  • Since 2017, the Vietnamese government’s anti-corruption campaign has delayed the licensing process for property projects, thus leading to a fall in new supply. Combined with overall demand that has not shown signs of abating, property prices have surged in the past couple of years, according to Keppel Corp’s management.


Despite the short-term challenges, Keppel Corp has concentrated on working on building up its portfolio.

  • In Jul 19, the company bought a 60% interest in three land parcels in the up-and-coming Nha Be district in HCMC for S$76m. Together with its JV partner, Phu Long Real Estate Corp (a subsidiary of Vietjet), it intends to develop 2,400 premium apartments with 14,650 sqm of commercial space. Total development cost will be around S$425m and will commence in 1Q20 after approvals have been obtained.
  • Keppel Corp commented that JVs with local partners are essential as access to land is a major issue; land tenders are very sporadic and rare.

Saigon Sports City is another one of Keppel Corp’s major developments

  • Saigon Sports City is another one of Keppel Corp’s major developments and is unusual in that this project has been approved for 100% foreign ownership. The 64ha, sports-oriented township project will also be the first in which Keppel Urban Solutions will play a role in advising on solar power and integration of services.
  • In total, Keppel Corp has planned for 4,000 residential units and > 130,000sq.m of commercial GFA with Phase 1 expected to be completed in 2022. Total development cost is estimated at more than S$500m.

Observations on the Vietnamese property market.

  • In our view, it is clear that the market in HCMC is moving up the value curve – consumers appear to be more discerning and are demanding for higher quality products for which they have the wherewithal to pay. CBRE data indicates that in 2Q19, aggregate prices for condos in HCMC have increased 20% y-o-y with take-up rates in excess of 80% in the first few weeks of launch (and deposits being paid in cash, with a very small percentage of buyers using financing).
  • Due to the increase in land prices, it appears that the Vietnamese market now favours condos, which is positive for Keppel Corp’s residential projects.


  • No changes to our earnings forecasts


  • Reiterate BUY and target price of S$7.61, based on SOTP valuation. The company clearly has a very capable and experienced management team that is executing well in Vietnam – this will reinforce the company’s profit growth in the next few years in our view.
  • Keppel Corp’s current one-year forward P/E of 12.5x based on our 2020 forecasts appears inexpensive as it is below its 5-year average of 14.5x. In addition, the company’s 1-year forward P/B multiple of 0.9x is > 1SD below its 10-year historical average of 1.5x.


  • Inorganic and earnings accretive acquisitions in the property space in China and Vietnam.
  • New order wins for the offshore & marine segment.

Adrian LOH UOB Kay Hian Research | 2019-10-02
SGX Stock Analyst Report BUY MAINTAIN BUY 7.610 SAME 7.610