Highlights

• We attended KLCCP’s second corporate day for 2015 and were assured by the management that performance for 2H15 will be pretty much flat, if not better than 1H15.

• Office segment:
• 100% occupancy across all office building is maintained during 1H15; and
• Phase 3 redevelopment of Kompleks Dayabumi is underway with demolishment works already started.
• Retail segment:
• Weak consumer sentiment has dragged tenant sales down, albeit footfalls showing YTD improvement of +20%;
• Some new tenants already opened in Suria, some of them are 1st time in Malaysian market – Mama San, Alexander McQueen, Sticky, Dal.komm Coffee, Box Of Bricks and etc;
• 50% of tenancies expire in 2015 has renewed leases; and
• Base rent for YTD has inched-up slightly to RM29 psf from RM28 psf in FY14.
• Hotel segment:
• With renovation works going on, YTD average room rate at Mandrin Oriental (MO) declined by -4.2%;
• We note that bookings for rooms and F&B in July have been favourable; and
• Management reiterated that with slow-down in overall demand, it is timely for MO to undergo refurbishment works.
• Management service segment:
• Continued modest improvement as a result of additional management facilities mainly from Petronas.
• No further development on Lot D1 (vacant l and) as management has yet to secure anchor tenant for the property.

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 - 11 Aug 2015