KepLand is expected to report its FY08 results on 21 Jan 09. The street expects KepLand to post a net profit of $212.1m, while we have slightly reduced our expectation to $219.0m. This represents a 72% Y/Y fall in earnings. Stripping out one-off gains of $500.2m in FY07, core earnings are still expected to fall by about 24% Y/Y.

We expect earnings to be underpinned by the progressive recognition of profits mainly from the Singapore residential projects, namely the Suites at Central, Marina Bay Residences, the Sixth Avenue Residences and Reflections at Keppel Bay. Profits will also be recognised from the Arcadia in Tianjin and Elita Promenade in Bengalore, India.

In the previous downturn of 2001, KepLand wrote down its landbank by $455.1m, resulting in a net loss of $366.5m for FY01. After re-evaluating KepLand’s current landbank, we are of the belief that similar writedowns are unlikely this time round due to the low historical cost of its landbank. In fact, sites like Madison Court and the Promont were already written down in 2001.

In Singapore, KepLand’s exposure is mainly in the mid-to-high end segments, where demand is really weak. The regional markets China and Vietnam are also experiencing slow sales. While the Chinese have stimulus packages to spur the property market, the Vietnamese government has not followed suit. We expect fewer launches in 2009.

We are lowering our FY08 and FY09 forecasts by 2.4% and 13.8% respectively, deferring most of its Singapore project launches to 2010 and beyond. We have trimmed our target price to $2.68 based on a 50%-discount to RNAV. While lacking in near-term catalysts, we think that too much pessimism has been priced into the share price. Reiterating our BUY recommendation.