Results

• 1QFY16 gross revenue of RM334.8m (+2.4% yoy) was translated into normalised PATAMI of RM182.8m (+2.4% yoy), accounting for 25.4% and 25% of HLIB and consensus forecasts, respectively.

Deviations

• None.

Dividends

• Declared dividend of 8.60 (FY15: 8.34) sen per share, representing an annualized yield of 4.78% and accounting for 24% of HLIB and 23.8% of consensus forecasts.

Highlights

• Full year revenue was up 2.4% yoy with better performance from its hotel operations due to low base, having affected by renovation works of common areas and facilities in 1Q15. Revenue from office operations was flat yoy at stable condition; while retail operations (+2.3% yoy) with higher rental reversion kicked in.

• However, moving annual turnover (MAT) from tenant sales declined 3.3% yoy at Suria KLCC given the challenging retail envi ronment and high base effect due to pre-GST loading last year.

• Bottom-line posted 2.4% growth with stable operating expenses and finance costs, while overall occupancy rate is close to 100% and NPI remained stable at 75%.

• On the refurbishment of MOKL, the final phase renovation involving guestroom renovation will commence end-2Q in phases to ensure minimal operation disruption.

• An additional 45k sq ft office space at Kompleks Dayabumi is on track for completion in 1HFY16, which is estimated to bring in additional rental income of RM3m p.a.

• For 2016, management expects office segment to be rather stable given the long term lease tenancy agreements but remains cautious on retail and hotel segments in view of difficult market conditions.

Risks

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

Forecasts

• We update our model using latest assumptions and updated information post reviewing annual report, resulting a slightly higher DPU of 36.2 sen (from 35.9 sen previously).

Rating

HOLD , TP: RM7.25

Positives

• (1) Consistent high occupancy rates, strong human traffic and desi rable 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 with TP raised to RM7.25 from RM7.18 based on FY16 forecasted DPU.
• Targeted yield remains at 5.0% based on historical average yield spread of KLCCSS and 10-year MGS.

Source: Hong Leong Investment Bank Research - 9 May 2016