Top share price performer among large-cap developers. Among the large-cap developers, Keppel Land (KepLand) was the best performer in terms of share price performance during the recent market rally, rising 43.9% from its closing price on 9th March. It outperformed the 23.7% gain in the STI and the average gain of 24.5% for the large-cap developers during the same period. Prior to the market rally, KepLand's share price had underperformed its peers and we believe that the outperformance in KepLand's shares could be driven by oversold buying.

Slow sales expected for FY09. Property sale for KepLand is expected to remain slow in 2009 as its unsold properties and landbank are catered more towards the high-end segment. In light of the weak demand for high-end properties, we believe that KepLand will continue to hold back its new launches and allocate the resources to its two ongoing office developments - Marina Bay Financial Centre and Ocean Financial Centre. Nevertheless,earnings in the property development segment will continue to be driven by the progressive profit recognition of sold projects in Singapore (Marina Bay Residences, The Sixth Avenue Residences, The Suites at Central and Reflections at Keppel Bay) and overseas. Risk of write-down in landbank is minimal as the carrying value of KepLand's landbank is low and it had not acquired during the property upcycle.

Downgrading to HOLD on valuations; Fair value of S$1.79. To reflect the increase in market valuation of K-REIT and Evergro, our RNAV estimate of KepLand has now been raised marginally to S$3.70 (previously S$3.67). At current share price of S$1.64, KepLand is trading at price/book of 0.48x and price/RNAV of 0.44x. Risk for KepLand is relatively higher than its peers, given its higher RNAV exposure (~38% of RNAV, inclusive of K-REIT) to the Singapore office sector that faces significant headwind going forward, and the limited scale of diversification in its operations in comparison to peers. To reflect its higher risk profile, we have pegged a 60% discount to our valuation of KepLand's development profits and investment properties and no discount has been ascribed to its listed investments. Our fair value of KepLand has now been raised to S$1.79. We believe that current market value fairly reflects the risk of KepLand. With a limited upside potential of 9.2%, we are now downgrading KepLand to HOLD.