Results

• 6MFY15 gross revenue of RM655.9m (-2.6% yoy) was translated into normalised PATAMI of RM358.4m (+7.0% yoy), accounting for 51.7% and 51.1% of HLIB and consensus forecasts, respectively.

Deviations

• Largely in-line.

Dividends

• Second interim dividend of 8.34 sen (2Q14: 8.31 sen) was declared during the quarter of which 3.02 sen comes from KLCCP and 5.32 sen from KLCC REIT.

• This bring YTD dividend of 16.7 sen, which represents 48.3% of our full year DPU forecast.

Highlights

• Top-line for 6M15 decline by -2.6% yoy mainly due to continuous poor performance of hotel segment (-29.5% yoy) and a slight decrease in office segment (-0.6% yoy), mitigated by its retail (+1.7%) as well as management service (+9.9%).

• We are not overly worried on marginal decline in office segment as it is due to closure of City Point Kompleks Dayabumi for redevelopment works.

• However we are more concern on the performance of its hotel segment, which is impacted by lower demand from O&G related seminars and conference since oil price plunge, combine with renovation works at meeting room as well as recreational facilities. We think that this situation will prolong at least until completion of renovation works which is schedule on 3Q15.

• In a more positive note, retail segment has shown some improvement with higher rental rates effective 2Q15. Similarly, management services also contribute positively in tandem with higher number of facilities managed.

• All in, NPI margin has been fairly healthy at 76% (Figure #6).

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(s).

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 - 10 Aug 2015