Analysts' take on Keppel Corp's offer to take Keppel Land private

SINGAPORE - Analysts recommended on Monday that Keppel Land shareholders accept parent company Keppel Corp's buyout offer for the mainboard-listed property developer, but they were not as positive about what the takeover would mean for KepCorp.

KepCorp will be paying a hefty price to take KepLand private and the benefits of this move are not immediately obvious, they said.

It is offering a two-tier price for the KepLand shares it does not already own: a base one of $4.38 apiece and $4.60 if it successfully buys over KepLand. This offer price includes KepLand's proposed 14-cent dividend.

Analysts said that KepLand shareholders would do well to accept KepCorp's offer, partly given the uncertain outlook for the developer's core markets, Singapore and China.

KepCorp, however, may see its share price weaken over the next few days, they added.

"Given the rich price offered for KepLand and that synergies for the combination may not be immediately apparent, there may be some near-term weakness in KepCorp's share price," OCBC Investment Research said in a note on Monday morning.

"We incorporate a higher conglomerate discount of 10 per cent (from 5 per cent previously) for the privatisation of KepLand ... our fair value estimate drops from $9.89 to $9.14." The value of a diversified company may often be weighed down by a so-called "conglomerate discount" on the sum of its parts.

Maybank Kim Eng also said in a note to clients on Monday that KepCorp's takeover of KepLand may be a move to "buttress its earnings and plug a potential offshore and marine earnings gap should rig orders dry up".

However, analysts said that KepCorp still had potential to rise in the longer term.

KepCorp chief executive Loh Chin Hua told a briefing on Friday last week that the conglomerate has made major moves in the past that the market "did not fully appreciate" at the time.

One example he cited was the development of the site of its old shipyard at Keppel Bay into private condominiums. It had to pay a development charge of about $1 billion to convert the site to residential use, but the properties there are now a source of good returns, he said. "Even now, every unit we sell in Keppel Bay goes straight to our bottomline because costs are quite low."

KepCorp shares rose 12 cents, or 1.5 per cent, to $8.22 by around 11.30am on Monday. KepLand rose 89 cents. or 24.4 per cent, to $4.54, its highest since April 2011.

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