Shareholders of Keppel Land will have much to be pleased about as they head into the developer’s annual general meeting today on the back of good first-quarter results, but there will no doubt be concerns that need to be addressed.

For starters, shareholders are likely to be very interested in the company’s plans for asset divestment. KepLand has previously said that it intends to go asset light by divesting all its investment properties. However, since it sold four office buildings to K-Reit in April 2006, the company has been quiet about its plans for the rest of its $1.8 billion worth of investment properties.

In its latest research note, OCBC Investment Research speculated that KepLand might want to redevelop its older prime office assets such as Ocean Building, therefore delaying divestment plans. However, this means that divestment plans will have to be put off for at least a few more years - by which time the real estate investment trust (Reit) market, which is red hot at the moment, could have cooled down substantially.

There should also be some questions about the company’s plans for its overseas division, which is underperforming KepLand’s Singapore unit.

The developer’s latest first-quarter results were boosted by the company’s Singapore business, where net profit grew 162.8 per cent to $45.2 million in the first quarter. However, profit from KepLand’s overseas ventures fell 9.4 per cent to $17.3 million. Earnings from overseas represented about 26 per cent of the company’s attributable profit, compared with 53 per cent for the same three months last year. KepLand attributed this to its strong performance in Singapore. However, the developer also said that it saw lower contributions from The Seasons and 8 Park Avenue in China, and Elita Promenade in India in the first quarter of 2007, compared to the last quarter of 2006.

China, where KepLand has a substantial amount of investment, is a particular concern. The fast pace at which the Chinese economy is growing has given rise to fears that the growth is a ‘bubble’ which might soon burst. Also, measures that could potentially be taken by the Chinese authorities to cool the market could affect KepLand’s business. Shareholders need some assurance from the management that the situation in China is being closely monitored.

Lastly, investors might want to know if KepLand is planning a stock split in the near future. KepLand’s stock has appreciated 30.4 per cent since the start of the year, and climbed 50 cents to close at $9 yesterday.

By most analysts’ estimates, the stock is trading above its fair value, leading to ‘hold’ calls by some research houses. A stock split will offer shareholders more liquidity.

Source: The Business Times, 27 April 2007