Highlights

• We attended KLCCSS’s FY15 result briefing on 22 Jan 2016 with neutral view on the flattish outlook for 2016.

• A recap on FY15 results. Gross revenue of RM1.34bn (flat yoy) was translated into normalised PATAMI of RM692.6m (+0.5% yoy). FY15 full year dividend at 34.65 sen (FY15: 33.64), yielding 4.95% at current price.

Key takeaway from the briefing.

• Office Segment:
• 100% occupancy across all office;
• Conversion of atrium spaces at Levels 2,3 & 4 of Menara Dayabumi into circa 23k sqft office space to be assumed by Petronas under NLA which would kick in from Q2FY16 onwards.
• Stable outlook as all under long term lease arrangements and another long-term tenancy renewal with Exxon Mobil is all but secure upon expiry of lease in early 2017.
• Retail Segment:
• Average footfall clocked at >45m, occupancy rate was at 98%, 10% of rental reversion was achieved in 2015.
• Stable to bearish outlook in view of the challenging environment and subdued consumer sentiment.
• Hotel Segment:
• Occupancy rate was at 48% (FY14:63%) but average room rate increased by 4.6% yoy due to renovation in common area and slump in tourist arrivals.
• MO will be undergoing renovation for guestrooms and corridors in Q2FY16.
• Long term demand for hotels remains resilient with stiff competition from upcoming international hotels.
• Updates on City Point Podium. Substructure works commenced, finalizing hotel management agreement with Shangri-La group on the 60-storey office and hotel tower which expected to complete in 2019.

• Capital Management. Now with 85% borrowings are at fixed rate following restructuring exercise, management expects stable finance cost moving forward.

• Flattish year ahead. All in all, we expect 2016 to be largely flattish with slight improvement from MO and flattish growth in other segments.

Risks

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

Forecasts

• Unchanged.

Rating

HOLD , TP: RM7.04

Positives

• (1) Consistent high occupancy rates, 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 RM7.04.
• Targeted yield remains at 5.1% based on historical average yield spread of KLCCSS and 10-year MGS.

Source: Hong Leong Investment Bank Research - 26 Jan 2016