Results

1H14 core PAT came in at RM334.9m, making up 50% of HLIB and consensus estimates.

1H14 PAT yoy comparison not applicable as the current stapled REIT structure began in 2 Apr 2013.

Deviations

None.

Dividends

8.05 sen DPS was declared in 2Q14, bringing YTD DPS to 16.7 sen, or 50% of our 33.25 sen DPS forecast.

Highlights

Office segment: Revenue benefited from implementation of new triple net lease (TNL) for Menara Dayabumi which was effective 1 January 2014.

Retail segment: Posted healthy 12.3% yoy growth in 2Q, resulting from higher rental rates and rent reviews.

Hotel segment: 2Q Revenue posted a decent 3.3% yoy growth thanks to contribution from the F&B segment and the reopening of the ballroom facilities after the completion of the renovation of Mandarin Oriental KL in 1Q14.

Cost pressures in 2Q. PBT margin declined 7.8ppts yoy in 2Q14, we believe due to higher provisioning for DBKL assessment rates as KLCCSS’ assets are all located in KL, as well as due to the 17% electricity tariff rate hike.

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; and performance drag from the hotel segment.

Valuation

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

Source:Hong Leong Investment Bank Research- 12 Aug 2014