Investment Research report of Keppel Land Ltd Singapore prepared as part of Corporate valuation course

1. Keppel Land Ltd Singapore Property
Sunday, 27 July 2008
News: Buy
• Keppel land from its property fund management unit Alpha investment
partners has raised $1.2 billion from 15 institutional investors for a new Price -S$5.13
property development
• Keppel land has said that its alpha asia macro trends fund will target
real estate in singapore,Japan, Taiwan, South Korea and Hong Kong, Target –S$ 8.85
and the emerging markets of China, India.
• On full investment of funds Alpha will have gross assets under
management of about 7mn S$.
Vietnam : A growth Prospect Stock Information
Vietnam is one of the most promising markets for property development and
investment in Asia. It has a very young population with 70% (around 60 million) of them
under the age of 35 years. The GDP growth rate of the country has averaged at 8% in
the last 5 years. It is expected that more and more of these young and ambitious
Vietnamese would aim at home ownership in the near future.
Continues to strengthen the foothold in Singapore
As far as the economy of Singapore is concerned, it is in pretty good shape, giving a
positive outlook for the real estate sector in the country. The economy expanded by an
impressive rate of 7.7% in 2007. The construction sector expanded by a robust 20.3%
and is expected to continue to do well in the years to come. A couple of points of
concern are the effect of the subprime crisis and slowdown in the United States as well
as the inflation rate in Singapore which reached a 26 year high of 7.5% in June 2008.
Targeting Emerging markets of China and India
China
China is the world’s fastest growing economy which grew by 11.4% in 2007, marginally
higher than 11.1% in the previous year. This was the fifth consecutive year of double
digit growth and the strong growth is estimated to continue. Foreign Direct Investments
also increased by 13.8% to reach $82.7 billion. These impressive economic numbers
indicate that the income of the citizens of China is increasing which would definitely
lead to increase in the demand for residential property. In November 2007, Keppel
Land acquired a 264,090 sm land in Shanghai for large-scale residential development.
The aggregate projects in the pipeline in China now are of gross floor area (GFA) of 33
million sf which would make around 21,000 houses.
India
India is the 12th largest and second fastest growing economy in the world. It is
expected to continue to the robust growth and is estimated to grow at 8.7% in 2008.
The country is expected to have one of the largest middle class populations soon. This,
coupled with the fact that the country is urbanizing rapidly has fuelled the demand for
residential property. The rapid growth of the IT sector in the country in general and
Bangalore in particular has also increased the demand of housing units in these areas.
7

2. Currently Keppel Land has operations in Bangalore and Kolkata.
7

3. Keppel Land -
25 Jul 08
Last
5.13
change
-0.07
%
-1.3
volume
1608
B vol
8
Buy
5.12
Sell
5.13
S Vol
7
High
5.15
Low
5.05
Sector
Property
7

4. stock prices, volume and the momentum in the stocks.
Financial Summary
2010-F 2009-F 2008-F 2007
1,305,21 1,175,77 1,163,06 1,407,88
Revenue (S$ m) 0 0 0 6
EBIT (S$ m) 285,236 256,948 254,171 312,269
EBIT margins 21.85% 21.85% 21.85% 22.18%
Pretax profit (S$
m) 362,611 322,180 318,484 988,736
Net profit (S$ m) 27.78% 27.40% 27.38% 70.23%
EPS (S cts) 49.60 45.08 44.66 71.5
EPS growth (%) 10.03% 0.93% -37.53%
P/E (x) 20.74 20.88 19.82
Gross DPS (S cts) 17 15 15 8
Dividend yield (%) 1.57% 1.46% 1.58% 0.90%
P/BV (x) 2.31 2.42 2.38 2.41
ROE (%) 11.68% 11.39% 12.16% 44.02%
EV/EBITDA (x) 26.57 27.92 26.66 20.40
7

5. Sector Comparison
Targ 3-yr P/BV ROE Div
et EPS
Bloomberg Price price Mkt cap P/E (x) CAG (x) (%) yield
R (%)
ticker (Loc (Loc (US$ CY20 CY20 (%) CY20 CY2 CY20
Recom. al) al) m) 08 09 08 008 08
Keppel Land KPLD SP O 5.13 8.85 2,700 20.92 20.1 28.8 2.38 12.16 1.58
Allgreen AG SP U 1.02 1.35 1,177 11.3 6.8 33.6 0.7 6.3 1.4
Bukit Sembawang BS SP O 9.09 13.0 712 16.3 3.6 109.7 1.8 14.5 0.9
4
Capitaland CAPL SP U 5.85 6.86 11,981 21.9 18.4 7.9 1.6 8.0 2.8
City Devt CIT SP O 10.6 13.9 6,993 15.0 13.0 19.6 1.8 12.7 2.7
0 0
Ho Bee HOBEE SP O 0.85 1.75 452 4.7 1.6 (0.80 0.7 15.2 1.7
)
Hotel Properties HPL SP O 2.91 3.87 1,065 13.5 9.5 47.8 1.2 8.5 3.3
Singland SL SP U 6.35 7.32 1,900 16.3 9.6 19.9 0.6 3.9 3.7
United Engineers UEM SP O 3.77 4.75 605 6.9 3.8 64.4 1.0 13.4 6.4
UOL UOL SP N 3.67 4.32 2,120 13.6 8.0 41.1 0.7 5.4 6.3
Wheelock WP SP O 1.84 2.85 1,597 16.9 5.9 84.2 1.0 5.9 3.7
Profile
Keppel Land is one of the largest multinational groups of Singapore and is the property arm of the
Keppel Group. The company has business interests in Singapore, China, Indonesia, Vietnam,
India and the Middle East. Thus it has a well diversified business covering most of Asia.
Ownership by total holdings:
a) Keppel Corp Ltd.
b) Lee Family holdings
c) Island Investment Co. Pte. Ltd.
d) Wong Kingcheung Kevin
e) Tokio Marine Holdings, Inc
7

6. Businesses
Keppel Land has two core businesses property development and property fund management. The
property development segment concentrates more on developing quality homes in the region. As
far as Singapore is concerned their main projects are commercial development in New Downtown
and CBD, luxury waterfront and mid tier housing. Majority of the overseas projects are residential
developments, which include townships and integrated lifestyle projects. Alpha now has 40
properties in 10 countries and is starting new funds to focus on the macro trends in Asia. K-REIT
Asia now has a portfolio value of SGD 2.1 billion.
The above graphs show the asset management and the funds
allocated to the various investment arms of Keppel land .
7

7. Countries
Vietnam
The Housing Law which has been in effect since July 2006, allows Viet Kieus to own homes and
the Real Estate Trading law which has been in effect since January 2007, creates a transparent
legal structure for trading in the real estate sector. Also the government is working on making a
provision by which foreigners who live and work in Vietnam will permitted to own property with 70
year lease.
Keppel Land aims to fulfil the rising demand of homes in the country.
Singapore
Residential – In terms of residential sales revenue, Keppel Land is one of the top three listed
developers in Singapore. In 2007, it sold more than 760 homes. The demand for residential
property is buoyant in Singapore and to meet the increases demand, Keppel Land has around
1,500 prime residential units lined up for launch. As per the Urban Redevelopment Authority (URA)
the prices of private residential properties increased by 31.2% in the year 2007, which was
relatively high as compared to the 10.2% increase in the previous year. The sale of new homes
increased by 32.9% from 11,147 in 2006 to 14,811 in 2007.
7

8. Commercial – The demand for office space in Singapore remained strong at 2.07 million sf,
though it was lower than that of 2.4 million sf in 2006. Grade A office occupancy increased to
99.8% in 2007 as compared to 99.2% in the previous year. The rent for Grade A office space
increased by a staggering 96.5% from $8.73 psf in 2006 to $17.15 psf in 2007.
K-REIT Asia – This is a commercial real estate investment trust sponsored by Keppel Land. It
acquired a one-third interest in One Raffles Quay from Keppel Land in December 2007, which
takes the total number of assets of the portfolio to 5. The portfolio size of the fund is now around
1.23 million sf of prime office space. In 2007, the property income of the fund increased by 18.6%
to reach $40.1 million. All the assets of the fund are currently in Singapore, however the manager
is planning for acquisitions in China and Vietnam.
Alpha Investment Partners – This is a real estate investment advisory firm of the group. It
invested around $530 million in 14 projects in 2007. These investments were made in Hong Kong,
Japan, Thailand, Singapore and China. By the end of 2007, the total portfolio of Alpha consisted of
7

9. 45 investments in eight countries across Asia with total assets under management reaching $3.7
billion.
Valuations and Recommendations
We have reduced the revenue expected in the year 2007-2008 because of rising inflation in
Vietnam, expected correction in real estate property valuation in Singapore and the global
recession due to US sub-prime housing problems. The pre-tax profits from existing properties are
very much sensitive to lease rentals, property prices and occupancy rate. The private property
price index has increased by 31% in year 2007 as compared to year 2006 and the risk of
correction is very high. Average office space rentals have sky rocketed from $8.73 to $17.15 from
2006 to 2007 and is expected to fall back or remain stagnant due to recessionary pressure. This
recession and downfall is expected to recover back by 2009 and hence thereafter revenue is
expected to increase. Moreover profits in 2006-2007 shoot up giving net ROE of 46.20% as
compared to previous year ROE of 12.8% because of revaluation of most of the properties and
sale of one third stake in One Raffles Quay. However for the upcoming years we have assumed
the ROE to remain between 11%-12%. Also the terminal value growth has been assumed to be
7.5% which is slightly higher compared to GDP of Singapore which is expected to be around 6% in
2010.
The company have plans to make lot of investments in the coming years, the revenue for which
would be realised in the later years. Office space supply is going to remain 1.7 million sf from 2008
to 2012. Occupancy will remain around 90% for next five years. Hence any abnormal increase in
revenue is very unlikely to happen with ROE remaining around 11%-12%
The company has changed the dividend policy from 2007 and has decided to increase the dividend
payout to one third of net income ever year. Hence the dividends per share have increased
significantly compared to year 2006-2007. EPS is expected to come down from 71.5 to 41.66 SGD
because of high revaluation earnings recognised in 2007 which would not be the case this year.
Our Estimate of target price for Keppel land is between $6.24 on the low side and $8.85 on the
higher side.
7

10. Performa Profit & Loss
Terminal 2010-F 2009-F 2008-F 2007 2006
Value
$’000 $’000 $’000 $’000 $’000 $’000
Sales 17308182 1305210 1175770 1163060 1407886 948018
Cost of sales 12545342 946044 852223 843011 984442 711401
Operating expenses 980378 73930 66598 65879 111175 32535
other Operating income 1162693 87679 78983 78130 696865 73031
Total Operating Profit before tax 4945156 372914 335932 332300 1009134 277113
other operating comprehensive loss 861172 64941 64941 64941 64941 72542
Operating profit after tax 3981338 300233 270458 267534 788261 155678
Interest and investment income 870090 65613 63265 61001 58818 56713
Interest expenses 1006720 75917 77017 74817 79216 70418
other financing comprehensive income 19440 1466 1466 1466 9903 1466
adjustments
impact of comprehensive income from 651306 49115 49115 49115 -844 49115
Subsidiaries
Comprehensive Income including 4542781 342571 310038 307063 781002 195295
minority interest
Total Profit (PAT) 4733207 356931 324398 321423 836884 217256
Cost of equity 8% 8% 8% 8%
Book Value 6311993 3283472 3055092 2848400 2643691
Residual earnings 4295174 112187 95240 107702
Wacc 7% 7% 7% 7%
Present value 3453493 90203 82352 100150
Enterprise Value 7174120 6786969 6369888
Price per share 9.97 9.43 8.85
Price-earnings 20.10 20.92 19.82
7

11. Number of shares 719653 719653 719653
EPS(cents) 49.60 45.08 44.66 71.50 33.30
DPS(cents) 16.53 15.03 14.89 8.00 6.00
ROE 11.68% 11.39% 12.16% 46.20% 12.80%
Performa Cash Flow Statement
Terminal Value 2010- 2009- 2008- 2007 2006
F F F
$’000 $’000 $’000 $’000 $’000 $’000
Cash flows from operations 3188296 240429 209251 206245 458388 151806
Investment in operations 3590246 270740 243891 241254 375126 206917
Free Cash Flow 6778542 511170 453142 447499 833514 358723
Wacc 7% 7% 7% 7%
Present Value 5533309 417267 395792 418223
Enterprise Value 6764591
Value of Debt 2274776
Value of equity 4489815
Number of shares 719653 719653 719653
Price per share 6.24
7

12. Appendix
Reformulated Changes in Statement of Equity
Reformulated 2007 2006 2005 2004 2003 2002 2001 2000 1999
Statement of
equity
$’000 $’000 $’000 $’000 $’000 $’000 $’000 $’000 $’000
Total Equity 190095 195950 183243 169320 166989 186025 260825 254815 220770
2 9 3 6 2 3 9 2 2
Total payout
Issue of 1928 7043 5644 2947 1358 48 251 1952 157458
shares under
share option
scheme
Cost of share- 2771 1542 633 593 0 0 0 0 0
based
payments
Dividend paid -47093 -42512 -41336 -37090 -19347 -16553 -16047 -16050 -15791
Distribution in 0 -26289 0 0 0 0 0 0 0
specie 4
Capital 4131 11052 29685 0 0 0 0 0 0
contribution
Issue of 0 31917 0 0 0 0 0 0 0
convertible
bond- equity
component
-38263 -25385 -5374 -33550 -17989 -16505 -15796 -14098 141667
2
Net 836884 217256 149075 137034 98030 28523 -38378 132238 175434
Income(PAT) 1
Other
Operating
Comprehensi
ve income
Effect of 0 0 -15990 - 0 0 0 -4977 0
accounting
change
Property - -24627 18506 10997 -13552 -16442 -20265 8650 16978
revaluation 8 0 3
reserve
transferred to
revenue
reserves
Deferred tax -10613 0 0 0 0 0 0 0 0
7

13. adjustment 0
for
investment
properties
Exchange -2084 -33589 12128 48854 81157 6240 -3864 -17474 7214
differences on
consolidation
Transfer from - 0 - 0 0 0 0 0 0
revenue
reserves to
capital
reserves
Goodwill 0 0 0 0 0 0 0 0 -843
arising on
consolidation
Transfer to 43273 -14326 -68616 -24108 -21575 45026 -46476 -4029 -
profit and loss
account
Adjustment 0 0 0 0 0 -4123 -536 0 0
for change in
group
structure
Transfer of 0 0 0 0 0 0 0 0 0
goodwill to
retained
earnings
-64941 -72542 -53972 35743 -75946 -11727 -25352 -17830 23349
7 9
Other
Financing
comprehensiv
e income
Net fair value 9157 1466 -1147 0 0 0 0 0 0
change on
available-for-
sale financial
assets
Deferred tax 746 0 0 0 0 0 0 0 0
adjustment
for equity
portion of
convertible
bond
9903 1466 -1147 0 0 0 0 0 0
Minority
Interest
Set-off against 0 65498 0 0 0 0 0 0 0
advances
from a
minority
shareholder
Acquisition of 0 -14755 -2598 0 0 0 0 0 0
7

14. interest from
minority
shareholders
Minority -844 -1628 41092 0 0 0 0 0 0
interest of a
non-wholly
owned
subsidiary
disposed
-844 49115 38494 0 0 0 0 0 0
Comprehensi 781002 195295 132450 172777 22084 -88754 -63731 114408 198783
ve Income 0
Ending Total 264369 190095 195950 183243 167398 175499 195515 264846 254815
Equity 1 2 9 3 7 4 3 2 2
Reformulated Balance Sheet
2007 2006 2005 2004 2003 2002 2001 2000 1999
CSE 2291231 1590934 1678932 1606806 1486904 1480288 1617408 2256141 2166343
MI 352460 310018 280577 225627 206302 189604 277904 371644 397600
OL 1066115 775388 661231 560589 536484 483882 523522 642128 626307
FL 2274776 2550726 2832196 2154633 2100945 2051637 2638067 2328951 2128535
Total 5984582 5227066 5452936 4547655 4330635 4205411 5056901 5598864 5318785
OA 4817473 4654297 4863569 4159257 3836332 3970222 4934701 5534519 5263462
FA 1167109 572769 589367 388398 494303 235189 122200 64345 55323
Total 5984582 5227066 5452936 4547655 4330635 4205411 5056901 5598864 5318785
Reformulated Profit & Loss
2007 2006 2005 2004 2003 2002 2001 2000 1999
Sales 1407886 948018 586391 476165 678781 298968 300537 500492 995981
Cost of sales -984442 -71140 -40550 -34747 -51239 -14790 -14026 -31727 -78852
1 9 6 1 0 8 8 6
Operating expenses -111175 -32535 -34280 -17638 -38419 -31853 -36395 -11994 -50341
Operating profit before 312269 204082 146602 111051 127971 119215 123874 171220 157114
tax
7

15. Other Operating Income
associated companies share 93856 27606 28228 36357 22410 15178 8448 10436 20672
Corporate restructuring 235230 84765 0 0 0 0 0 0 0
surplus
Fair value gain on Revaluation 367779 -39340 0 0 0 0 0 0 0
Total other Operating 696865 73031 28228 36357 22410 15178 8448 10436 20672
income
Total Operating Profit 1009134 277113 174830 147408 150381 134393 132322 181656 177786
before tax
Dirty surplus
adjustments to operating
income
other operating -64941 -72542 -53972 35743 -75946 -11727 -25352 -17830 23349
comprehensive income 7 9
Reported Tax 151852 46152 35562 2881 11432 32780 12267 29362 39398
Tax savings on financing 4080 2741 -1724 1499 3024 1041 4028 4011 7305
expense
Operating tax 155932 48893 33838 4380 14456 33821 16295 33373 46703
Exceptional items(non 0 0 1188 0 -25800 -67886 -48369 0 73569
taxable) 4
Operating profit after 788261 155678 88208 178771 34179 -84591 -62119 130453 228001
tax 6
Financing Expense
Interest and investment -58818 -56713 -34016 -16471 -15008 -21334 -28685 -30944 -14024
income
Interest expenses 79216 70418 25397 23964 30127 26538 48827 51000 50547
other financing -9903 -1466 1147 0 0 0 0 0 0
comprehensive income
adjustments
Tax shields -4080 -2741 1724 -1499 -3024 -1041 -4028 -4011 -7305
Total Financing Expense 6415 9498 -5748 5994 12095 4163 16114 16045 29218
7

16. impact of comprehensive -844 49115 38494 0 0 0 0 0 0
income from minority
interest
Comprehensive Income 781002 195295 132450 172777 22084 -88754 -63731 114408 198783
including minority 0
interest
Reformulated Cash flow statement
2007 2006 2005 2004 2003 2002 2001 2000 1999
$’000 $’000 $’000 $’000 $’000 $‘000 $’000 $’000 $’000
Cashflows from -15929
458388 151806 -34022 297712 117988 -8940 196866 237075
operations 6
Investment in
operations
Purchase of fixed
37039 29765 4549 1409 2230 4430 17545 102453 2670
assets
Divestment of -19187
0 0 0 0 0 0 0 0
investment properties 1
Additional investment
in subsidiary 97059 28602 139517 10214 0 0 36135 171786 15835
companies
Divestment of
-564531 -67292 18780 30440 746 0 0 0 0
associated companies
Sale of shares in -24335
0 0 0 0 0 -61249 0 -295
subsidiary company 5
Development
0 0 0 0 0 0 0 512768 798626
expenditure
Proceeds from -66886
0 0 0 0 0 0 0 -45255
progress billings 6
7

17. Proceeds from sale of
-897 -138 -903 -19 -62 -23473 -9674 -211 -215
fixed assets
Advances from
56204 -5983 -47822 -9322 -6819 -8935 -2428 -47713 -48524
minority shareholders
-37512 -2069 -8922 47978
114121 32722 -3905 41578 69922
6 17 7 2
Free Cash Flow 35872 -14814 -1920 30161 20721 -5051 12694 -2427
833514
3 3 18 7 5 8 4 07
Debt Financing
Investment income
-58818 -56713 -34016 -16471 -15008 -21334 -28685 -30944 -61661
and interest received
Interest paid 79216 70418 25397 23964 30127 26538 48827 51000 98184
Repayments of loan by
14175 -2041 12646 -26960 -5763 -14509 -83167 31320 13586
investee company
Loan repayments less
-10742 -27613 -17997
proceeds from 239924 345869 -645550 -56765 189495 -82417
5 5 8
convertible bond issue
Loans from/(to)
related and associated -83686 -25347 295199 -8150 67334 -4848 170803 -9237 -60932
companies
-13504 -16835 -13783
190811 332186 -346324 19925 175342 -93240
2 7 9
Equity Financing
Proceeds from
-15745
issuance of shares by -1928 -7043 -5644 -2947 -1358 -48 -251 -1952
8
Company
Dividends paid to
43178 35962 28543 22742 19347 16553 16047 15796 14553
shareholders
Contributions from
-9790 -4502 -15149 14348 -11001 4941 44877 50189 -16824
minority shareholders
-15972
31460 24417 7750 34143 6988 21446 60673 64033
9
Net increase in
cash and cash 611243 2120 190431 -91119 274704 10427 57166 200750 10262
equivalents
7

18. Free Cash Flow -19201 -24270
833514 358723 -148143 301617 207215 -50518 126944
8 7
7