Property plays a big part in the Singapore economy. It also plays a big part in the stock market. Within the Straits Times Index (SGX: ^STI), there are six companies directly linked to property. That’s a fifth of the benchmark’s constituents. And amongst the mid-caps, there are no fewer than 22 property companies. With property being a big driver of the economy, what would Peter Lynch make of Keppel Land (SGX: K17), which is the property arm of industrial conglomerate Keppel Corporation (SGX: BN4). Keppel Land knows a thing or two about making money from bricks and…
Within the Straits Times Index (SGX: ^STI), there are six companies directly linked to property. That’s a fifth of the benchmark’s constituents. And amongst the mid-caps, there are no fewer than 22 property companies.
Keppel Land knows a thing or two about making money from bricks and mortar. Over the last 10 years, bottom-line profits have increased over six-fold. This equates to an earnings growth rate of around 20% a year.
Currently, with the shares at S$3.44, and forecast earnings per share of S$0.27, Keppel Land is valued at about 13 times earnings. Couple that with the 20% historic growth rate and the resultant PEG ratio is a not too unattractive 0.6.
Lynch is not a big fan of debt. In fact, he prefers to see net cash on the balance sheet rather than lots of borrowings. That, however, is not always possible with property developers, given the capital intensive nature of their business.
That said, Keppel Land does not fare too badly. Admittedly it has Net Debts of S$3.1b. But Total Debt to Equity is 59% and Total Debt to Capital is 37%. Additionally, interest payments are adequately covered by earnings, which should help to alleviate interest-rate risk.
Keppel Land pays a dividend, which is never a bad thing in the eyes of Peter Lynch. What’s more, the payout ratio is a conservative 20%, which means that the company should have plenty of room to grow its dividend.
We don’t normally associate Peter Lynch with property developers. But by the same token, Lynch is unlikely to look a possible gift horse in the mouth.
The Motley Fool's purpose is to help the world invest, better. Click here now for your FREE subscription to Take Stock -- Singapore, The Motley Fool's free investing newsletter. Written by David Kuo, Take Stock -- Singapore tells you exactly what's happening in today's markets, and shows how you can GROW your wealth in the years ahead.
Like us on Facebook to keep up-to-date with our latest news and articles. The Motley Fool's purpose is to help the world invest, better.
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.