Results

• Reported 9MFY16 gross revenue of RM998.9m (+0.6% yoy) which translated into normalised PATAMI of RM538.8m (+0.6% yoy), accounting for 73.7% and 72.5% of HLIB and consensus forecasts, respectively.

Deviations

• None.

Dividends

• Declared dividend of 8.60 (FY15: 8.15) sen, going ex on 16 Nov 2016, representing an annualized yield of 4.59% and accounting for 71.6% of our forecast. We deem this is in-line as higher dividend is usually paid in 4Q.

Highlights

• Yoy, revenue was down by 2.3%, affected by lower income from retail segment (-3.4%) due to slightly lower occupancy rate as a result of ongoing reconfiguration of men’s & women’s luxury precinct on level 1 and lacklustre hotel operations (-22.1%). Bottom-line was largely flat with stable NPI margin at 75%.

• Qoq, revenue contracted by 1.5% as retail income came in lower due to lower occupancy and high base effect due to recognition of the back charge of rental and service charge from litigation case last quarter. Meanwhile, bottom-line was largely flat as opex was lowered by 5.4%.

• YTD, revenue grew marginally with notable better performance from its management services (+7.2%) with higher provisioning of facilities management to additional properties and higher car park fee, additional income from office spaces at Dayabumi with the conversion of atrium space while retail segment was largely stable.

• Hotel operations still posted a loss with weak F&B performance continued to be impacted by weak market conditions, closure of Sultan’s Lounge & Casbah coupled with intense competition from Ritz Carlton and St Regis.

• Going forward, management expects office and retail segments to be largely stable despite drop in occupancy rate due to tenant remixing and challenging environment but remains downbeat on hotel segments in view of difficult market conditions and ongoing renovation works.

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

• Unchanged.

Rating

BUY ↔, TP: RM8.35 ↔

• We expect appetite for KLCCSS will continue to grow especially with increasing interest in shariah-compliant stocks (with EPF shariah-compliant fund launch by FY17) on the back of super prime assets on triple-net lease and stable income under its portfolio while gearing of circa 15% is below industry average.

Valuation

• Maintain BUY recommendation with unchanged TP of RM8.35 based on FY17 forecasted DPU.
• Targeted yield remains at 4.6% based on historical average yield spread of KLCCSS and 10-year MGS.

Source: Hong Leong Investment Bank Research - 4 Nov 2016