Highlights

• We attended KLCCP Stapled Group Property Tour yesterday, hosted by the IR department.

• We visited the Skybridge at Level 42 and the highest floor at Level 86 of Petronas Twin Towers as well as a tour to the Mandarin Oriental Hotel (MO), Kuala Lumpur.

• The team walked us through the history of this masterpiece building and some resources management such as water and energy saving measures.

• Below are some takeaways from the tour.

• Retail segment:

• Stabil despite the challenging economic environment as it is cushioned by the weaker ringgit.

• Hotel segment:

• Renovation/Upgrading works at Level 2 (meeting rooms) and Level 3 (recreational facilities) have been completed;

• We were assured that occupancy rate is normalizing after the weak results in the previous two quarters; and

• Weaker ringgit is rather positive but was offset by the overall down cycle of O&G related spending.

• Office segment:

• Stable with the occupancy rate close to 100%.

• Updates on future developments shared by their project development team are depicted in Figure 1 on page 2. At current juncture, no numbers are being factored and incorporated into our forecasts.

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 - 3 Nov 2015