The Three Numbers That Keppel Land Can Build On

Keppel Land LogoThere is definitely no shortage of property companies in Singapore. In the Straits Times Index (SGX: ^STI) there are no fewer than six real estate related businesses out of the 30 companies that make up the benchmark.

In the mid-caps, there are 20, and Keppel Land (SGX: K17) is one of those property companies.

Keppel Land is the property division of the industrial conglomerate Keppel Corp (SGX: BN4). It has a market capitalisation of S$5.3b, which values the company at roughly 20% below its Net Asset Value.

Last year, Keppel Land delivered a Return on Equity of 12.9%. That compares well with Hongkong Land (SGX: H78), which only managed a RoE of 4.5%, and City Development (SGX: C09), which delivered $7.20 of bottom-line profit for every $100 equity invested in the business.

Keppel Land’s impressive Return on Equity can partly be attributed to its high Net Income Margin. Last year, it generated approximately S$61 of bottom-line profit for every S$100 of top-line sales. That is nearly four times more than the market average. By comparison, Hongkong Land’s Net Income Margin is 64%, while City Developments’ is about 22%.

However, Keppel Land is not massively efficient in terms of its Asset Turnover. That is because property companies are, by their very nature, quite asset intensive. Consequently, it only generated about S$0.11 of sales for every dollar of asset employed in the business.

Interestingly, the company is not overly leveraged. Its Leverage Ratio of 1.8 is only a smidgen higher than the market average.

By deconstructing Keppel Land’s Return on Equity, we can see how the company’s foundations are built. Its RoE of around 12% is the product of a high Net Income Margin of 61%; a below average Asset Turnover of 0.11 and a modest Leverage Ratio of 1.85.

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore Director David Kuo doesn’t own shares in any companies mentioned.