Results

2Q13 core PAT rose 22.8% yoy to RM112.6m, taking 1H to RM200m or only making up 31% and 35% of HLIB and consensus estimates respectively.

Deviations

Due to deviation in minority interest following the change to the stapled security structure. We have adjusted our minority interest assumption to factor this.

Dividends

7.45 sen DPS was declared in 2Q13, bringing YTD DPS to 11.45 sen, or 43% of our 28 sen DPS forecast.

Highlights

Revenue from the office segment increased 17% yoy to RM146.9m in 2Q13, primarily due to the renewal of the triple net lease for the PETRONAS Twin Towers (PETT) for another 15 years effective 1 Oct 2012.

Revenue from the retail segment increased 12% yoy to RM102.4m in 2Q13, driven by higher rates from renewals, improved occupancy and higher percentage rents.

Revenue from the hotel segment declined 10% yoy to RM42.9m in 2Q13, mainly due to the overall softer market and renovation of the ballrooms.

Risks

Potential holding company discount for the stapled security.

Forecasts

Reduced net profit forecast by 36-43% to account for change in minority interest structure.

Rating

HOLD

Positives: (1) High occupancy rates (>90%), consistently strong human traffic and desirable tenant profile due to prestigious and desirable KLCC address; (2) Stability of rental yield and scope for capital appreciation; and (3) Confirmed announcement of the stapled securities.

Negatives: Lower than expected dividend payout; performance drag from the hotel segment.

Valuation

Given the increase in MGS and REIT yields following the concerns over potential Fed tapering, we have now increased our target FY14 DY from 4.5% to 5.0%, and reduce our TP from RM7.06 to RM5.60. We maintain our HOLD recommendation on the stock.

Source: Hong Leong Investment Bank Research - 22 Aug 2013