Results

4Q13 core PAT rose 94.4% yoy to RM193.6m, with YTD net profit of RM646m making up 112% and 112% of HLIB and consensus estimates respectively.

Deviations

Due to stronger than expected performance in the office and retail segments.

Dividends

8.71 sen DPS was declared in 4Q13, bringing YTD DPS to 28.94 sen, or 101% of our 28.64 sen DPS forecast.

Highlights

Revenue from the office segment was flat yoy in 4Q13, as the new triple net lease (TNL) for the PETRONAS Twin Towers (PETT) was effective from 1 Oct 2012. Hence the impact of the higher revenue was fully recognized since 4Q12.

Revenue from the retail segment decreased 1.3% yoy in 4Q13, as there was a recognition of RM10.5m in Suria KLCC in 4Q12 relating to percentage rent for previous periods. On a normalised basis, the performance for 4Q13 would be 8.7% higher due to higher rates arising from rental reviews and renewal.

Revenue from the hotel segment rose 9.2% qoq in 4Q13, mainly from improvement in room segments and other facilities provided by the Mandarin Oriental.

Risks

Potential holding company discount for the stapled security.

Forecasts

Rolling over our numbers, we raised our FY14-15 forecasts by 4-5%.

Rating

BUY

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

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

Valuation

Due to sector headwinds, we raise our target yield from 5.5% to 6.0%, but our TP is raise from RM6.28 to RM6.52 due to higher payout of DPSS from the new stapled REIT structure.

We believe the recent decline in share price has been overdone, we upgrade KLCCSS to BUY.

Source: Hong Leong Investment Bank Research - 22 Jan 2014