Results

1Q14 core PAT came in at RM184m, making up 28% and 27% of HLIB and consensus estimates respectively.

Yoy PAT comparison not applicable as the current stapled REIT structure began in 2 Apr 2013.

Deviations

None.

Dividends

8.65 sen DPS was declared in 1Q14, or 26% of our 33.25 sen DPS forecast.

Highlights

Office segment: Revenue from the office segment was flat yoy in 1Q14, despite the implementation of new triple net lease (TNL) for Menara Dayabumi which was effective 1 Jan 2014. KLCC cited lower other operating income from its other office assets for the flattish performance.

Retail segment: posted decent 3.7% yoy growth thanks to rental reversions in 1Q14.

Hotel segment: Revenue increased 34.9% yoy as the ballroom facilities were reopened after the completion of renovation in 1Q14.

Risks

Potential holding company discount for the stapled security.

Forecasts

Maintained.

Rating

HOLD 

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

Maintain TP at RM6.28 (6.0% target yield).

Due to recent increase in share price, we downgrade to HOLD (less than 10% overall return).

Source:Hong Leong Investment Bank Research - 12 May 2014