LOW KENG HUAT-Benefitting From Increasing Property Prices

Duchess Residences, a 30:70 joint development between United Overseas Land
(UOL) and LKH began previewing last week, with 85% of the units having been
sold at a price of S$1,700-1,800psf, significantly higher than our earlier pricing
assumption of S$1,200psf. The highest price fetched was in the region of
S$2,100psf.
Set to benefit from the run-up in mid-tier residential prices in Singapore.
Management is confident of obtaining Strata Title Board (STB) approval to
complete the en-bloc purchase of Minton Rise as it has managed to secure more
than 80% approval from the residents. With property prices in the mid-tier
market starting to pick up, we are also raising our estimated selling price for
this development to S$750psf. Latest transactions for existing developments in
the area are in the region of S$600-650psf.
Potential growth from outside of Singapore. We are raising our pricing
assumptions for LKH's Pesiaran Hampshire in Kuala Lumpur to RM750psf from
RM600psf given similar developments in the region are transacting at around
RM700psf. LKH has about 11m sqf of land in the Iskandar Development Region
(IDR). However, as more than 50% of this land is designated for agricultural
purposes and LKH is still applying for government approval to convert this land
for residential and commercial use, we have yet to factor potential contributions
from the IDR projects into our valuation.
Valuation remains attractive; target price raised to S$1.03. We maintain our
BUY recommendation on LKH and have raised our target price/RNAV of LKH
to S$1.03 (previous: S$0.81) given the higher pricing assumptions for LKH's
development projects. Investors with a more conservative view regarding STB's
approval for the Minton Rise en-bloc should subtract S$0.12 from our valuation.
Key risks come from LKH's construction segment, which could see losses for
some of its projects if LKH is unable to share the recent increase in sand/
granite costs with its customers (-S$0.06 from valuation).