Keppel Land (KPLD) reported a 38.8% y-y decline in net profit to SGD36.9m for 1Q09, which is line with our estimates. 1Q09 profit was largely derived from the progressive recognition of Marina Bay Residence (SGD15.6m), The Sixth Avenue (SGD7m), Reflections at Keppel Bay (SGD3.7m) and The Arcadia in Tianjin (SGD3m). Property development comprised 86% of the group net profit.

KPLD’s balance sheet remains healthy, with net debt/equity ratio unchanged at 0.54x (4Q08: 0.54x). Management does not expect its net gearing ratio to exceed 1.0x in the next two years due to the deferment of various overseas and local projects to conserve cash. Despite this, the group has a gross cash of SGD627m, which is slightly below the short-term debt of SGD674m. Although its average debt maturity is only 1.32 years, 7% of its total borrowings will only be due in 2009.

KPLD’s projects are benefiting from the recent revived market sentiment with strong home purchases in Singapore and China. In Singapore, YTD, 15 units each were sold at Park Infinia at Wee Nam and The Tresor at about SGD1,200 psf and SGD1,300 psf, respectively. In China, KPLD sold 420 units YTD (i.e. The Botanica, 264 units; Central Park Wuxi, 97, Summer Ville, 37; and Serenity Cove, 22).

Although investors believe that KPLD’s overseas land bank is at a high impairment risk, our study shows otherwise (see our KPLD note dated 23 March). Besides, using history as a guide, KPLD tends to adopt a more defensive strategy during an economic recession. Hence, we believe a cash call is also unlikely. Note, the last rights issue took place in 1996. Maintain BUY with a TP of SGD1.90, based on a 40% discount to our SGD3.17 RNAV estimates. Keppel Land trades at a 45% discount to our RNAV estimates.