Highlights

KLCC Stapled Securities - Sturdy Results From Hotel and Retail Segments

Date: 21/08/2019

Source  :  HLG
Stock  :  KLCC       Price Target  :  8.51      |      Price Call  :  BUY
        Last Price  :  7.98      |      Upside/Downside  :  +0.53 (6.64%)
 


KLCCSS’ 2Q19 core net profit of RM180.4m (-1.9% QoQ, +0.7% YoY) brought 1H19 core net profit to RM364.3m (+1.3% YoY). The result was in line with both ours and consensus expectations. Declared dividend of 8.80 sen per share. The lift YoY was contributed by growth in all business segments except for management services. However, this was partially offset by increased in operating expenses and finance costs. Going forward, we expect stable performance for office segment and better contribution from hotel and retail segment. We retain our forecast; revise our 10-year MGS yield to 3.7% (from 3.8%) following the downward trend (currently at 3.3%). We upgrade to BUY with higher target price of RM8.51 (from RM8.34).

Within expectations. 2Q19 core net profit of RM180.4m (-1.9%% QoQ, +0.7% YoY) brought 1H19 core net profit to RM364.3m (+1.3% YoY). The results were in line with both ours and consensus expectations at 49%.

Dividend. Declared 2nd interim dividend of 8.80 sen per share (KLCC REIT: 6.23 sen, KLCC Property: 2.57 sen) going ex on the 6 Sept 2019 (2Q18: 8.70 sen).

QoQ. Revenue of RM351.1m fell by 0.7%, followed by a 1.9% decrease in core PATAMI at RM180.4m. The decline principally resulted from lower contribution from the retail (reduction in leased area due to reconfiguration exercise) and hotel segments (lower occupancy at 58% from 1Q19: 64% and slower demand on F&B). Also, higher marketing and promotional expenses occurred in retail segment during the festive season led to the slight dip.

YoY. Revenue increased by 1.8%, followed by an increased in core PATAMI by 0.7% to RM180.4m. This was supported by growth in all segments except for management services (-6.7%) that fell due to one-off projects under the facilities management operations back in FY18. Improvement in office segment (+0.4%) was mainly due to higher recovery of utility charges. Retail segment improvement (+3.8%) came on the back of higher rental rates and increased revenue from internal digital advertising income but were offset by higher maintenance works and upgrades. Stronger hotel segment (+12.5%) was driven by improved occupancy at 58% (2Q18: 47%) given newly refurbished rooms (June 2018) and higher F&B revenue. However, the group’s bottom line growth was lower as the overall top line increment was slightly offset by the increase in operating expenses (+4.4%) and finance costs (+4.5%).

YTD. Revenue for 1H19 increased by 2.1% to RM704.5m. Likewise core PATAMI of RM364.3m showed improvement of 1.3%. Essentially, the increment was contributed by revenue growth in all business segments (office +0.4%, retail +4.4% and hotel +3.9%), except for management services (-1.1%). The overall increment was slightly offset by higher operating expenses and finance costs.

Outlook. Management anticipates stable performance mainly on the back of its long term office tenancy agreements. Going forward, we do expect improved contribution from the hotel segment with its fully refurbished rooms (June 2018) and retail segment from the mall’s reconfiguration exercise (started in April 2019) with the first phase completion is expected by end of FY19.

Forecast. Maintain as the Results Were in Line.

Upgrade to BUY, TP: RM8.51. We revise our 10-year MGS yield to 3.7% from 3.8% following the downward trend (currently at 3.3%). We upgrade to BUY with higher target price RM8.51 (from RM8.34), based on targeted yield of 4.7% which is derived from 2 years historical average yield spread of KLCCSS and 10 year MGS.

 

Source: Hong Leong Investment Bank Research - 21 Aug 2019

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