Contrary to the perception among investors that Keppel Land’s overseas land bank is at a high impairment risk, a glance at its land bank shows otherwise. Bulk of its land bank was acquired some 5-10 years ago. Some of it has existed since Straits Steamship Land period (renamed to Keppel Land in 1996). So we believe the carrying costs of its land bank stays low. Furthermore, Keppel Land wrote down land bank carrying costs in the past cycle, i.e. SGD438m in 1998 and SGD484m in 2001. In Singapore, its land bank was purchased at a low cost: Marina Bay Suites (SGD437/sqft) and Keppel Bay (SGD300/sqft), hence impairment is unlikely.

Keppel Land has been prudent in acquisition in recent years. During the property market boom between 2006 and 2007, Keppel Land has only added a few land parcels to its portfolio, i.e. one site in Shanghai, one in Shenyang, one site in India, one site in Saudi Arabia and seven sites in Vietnam.

Although we believe Keppel Land’s aggresiveness in Vietnam JVs in 2007 was untimely, the risk is low. This is due to the fact that these JVs have yet to commence works. Furthermore, the land parcels are not recorded in the company’s book. So, the JV partners who contribute the land parcels will bear the impairment risk, if any. Keppel Land does not need to commence the developments if they are money-losing.

Keppel Land’s net gearing ratio is at a healthy level of 0.5x. As its total cash of SGD663m exceeds short-term (ST) debt of SGD246m, the ST refinancing risk is minimal. Using history as a guide, KPLD tends to adopt a more defensive strategy during an economic recession. Hence, we think a cash call is unlikely. As evidence, the last rights issue was done in 1996. Reiterate BUY with a TP of SGD1.90, based on a 40% discount to our SGD3.17 RNAV estimates. Keppel Land trades at a depressed 60% discount to our RNAV estimates, which is comparable to the discount observed in big developers during the Asian financial crisis.