Results

• 1QFY15 gross revenue of RM326.9 (-4.1% yoy) was translated into normalised PATAMI of RM178.5m (-3.0% yoy), accounting for 25.8% and 25.3% of HLIB and consensus forecasts, respectively.

Deviations

• Largely in-line.

Dividends

• As expected, first interim dividend of 8.34 sen (1Q14: 8.65 sen) was declared during the quarter of which 3.02 sen comes from KLCCP and 5.32 sen from KLCC REIT.

Highlights

• Topline and bottomline dipped by -4.1% and -3.0% yoy respectively mainly due to weaker performance by its hotel segment (-36.2% yoy). Nonetheless, operating profit margin remains healthy at 76% (Figure #5).

• Hotel segment experienced weaker market demand – evident by lower occupancy rate (Figure #6) and also believed to be impacted by plunge in oil prices, which was leveraged by Mandrin Oriental (MOKL) as well as other luxury hotels surrounding the city centre. On top of that, we also understand that lower occupancy in MOKL is attributable to renovation works at Level 2 (meeting room) and Level 3 (recreational facilities). We opine that upon completion of the renovation works in 3Q15, hotel segment should continue to contribute positively to topline growth.

• Office segment which enjoys 100% occupancy also experienced marginal decrease in revenue contribution due to demolition of City Podium at Kompleks Dayabumi. Management also shared that hotel operator has been secured for Phase 3 of the redevelopment project. On a different note, management is at advanced stage of negotiation with ExxonMobil for new long term lease which is due for expiry in 2017.

• Retail segment performed fairly stable while revenue from management services segment improved +16.1% on the back of additional facilities managed by the management.

Risks

• Potential holding company discount for the stapled security.
• High portfolio concentration on office segment.
• Competition from upcoming new iconic office building within Kuala Lumpur Central Business District.

Forecasts

• Unchanged.

Rating

HOLD , TP: RM6.90

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

• Lack of near-term catalyst.

Valuation

Maintain HOLD recommendation on the equity and unchanged TP of RM6.90.

• Targeted yield remains at 5.2% based on historical average yield spread of KLCCSS and 7-year MGS.

Source: Hong Leong Investment Bank Research - 6 May 2015