Quick Comment – CapitaLand’s and Keppel Land’soutperformance is premature, on the back of ChinaState Council’s intention to revive the property marketrecently. CapitaLand and KepLand outperformed theSTI Index yesterday by 7.0-8.4%. While the news ispositive, our China property team believes it is too earlyto call a recovery in the physical market, awaiting clarityon macro growth expectations and domestic stockmarket recovery. The importance of the policy pointstowards a more relaxed stance on bank lending to Chinadevelopers, which will alleviate worries on solvency andrefinancing risks, which were never issues forCapitaLand and KepLand. Hence, the recent share pricesurge is unjustifiable, in our view. We maintain ourEqual-weight rating on both stocks due to Singaporeasset devaluation risk, which could see them tradedownwards.

Benefits Limited For Now: Both companies couldpotentially benefit from the policy to extend preferentialmortgage terms to second home purchases and shortenthe holding period for business tax from 5 to 2 years,with the tax now on the gain rather than the transactionvalue. Both companies are less beneficiaries of thepolicies relating to low-end housing to which CapitaLandhas zero exposure and KepLand has a mere 3.6%exposure of its total group NAV. CapitaLand’s remainingexposure in China is 12% in commercial and 6% inmid-high end residential, while KepLand has 6.6% in theChina mid-high end residential. With Singapore assetdevaluation risk looming and less visibility in the Chinaphysical market recovery, the recent outperformance isunjustifiable.

China Property Developers: More direct andcheaper way to play this theme, trading at an average of42% discount to forward NAV versus 20% discount toNAV for Singapore developers, at best. For Singaporeexposure, as the sector lacks positive catalyst, we preferthe high dividend yield play of CapitaCommercial Trust,our sector top pick, which offers 12.7% FY09F DPUyield, sustainable in the next 6 months.