Results

• FY16 reported gross revenue of RM1.34bn (+0.2% yoy) which translated into normalised PATAMI of RM719.0m (- 0.1% yoy), accounting for 98.4% and 95.1% of HLIB and consensus forecasts, respectively.

Deviations

• None.

Dividends

• Declared dividend of 9.85 sen (4Q15: 9.82), going ex on 6 Feb 2017. FY16 dividend amounted to 35.65 sen (FY15: 34.65) representing a yield of 4.6% at current price.

Highlights

• YoY: Revenue was flat, affected by lower income from hotel (-3.4%) and management services (-9.2%) following hotel’s refurbishment works and high base effect for one-off management service rendered in FY15. As a result, bottom line contracted by 2.2% (after adjustment for fair value gain and tax credit in relation to that for KLCC REIT).
• QoQ: Revenue was up by 4.6% as retail and hotel income came in stronger supported by higher rental reversions and better occupancy (50%). Meanwhile, bottom line grew at a slower pace a 1.1% after accounting for higher opex.
• FY16: Bottom-line was slightly down (-0.1%) due to marginal drop in retail caused by higher opex following tenant remixing and loss making hotel segment attributable to one- off write-off cost and refurbishment works. This is partially offset by higher contribution from management services segment (+4%) thanks to additional services provided.
• In FY17, office segment is expected to have a slight dip in rental income due to loss of income during the transition period of 40% space vacanted by ExxonMobil, partially offset by the incremental income from extra space and rental reversion at Menara DayaBumi.
• Retail segment to be largely stable despite drop in occupancy rate and partial loss of income due to tenant remixing, but the rental reversion of circa 5% achieved during FY16 is sufficient to offset the gap.
• Hotel segment will be challenging in view of the difficult market conditions and ongoing renovation works. However, FY17 may see an improvement given the low base effect of loss making FY16, which was hugely impacted by the one- off furniture impairment and absence of MICE event.

Risks

• Prolonged weak hotel performance.
• Competition from upcoming new iconic office building and hotels within Kuala Lumpur Central Business District.

Forecasts

• We incorporate latest FY16 numbers and assumptions, resulting in lower FY17-18F bottom-line by 2.5% and 2.6%, respectively.

Rating

HOLD ↔, TP: RM7.44 ↓

• Maintain HOLD as we deem the yield at this level is less attractive vis-a-vis current MGS yield while growth catalyst is lacking. However, we like its shariah-compliant status on the back of super prime assets and stable income while gearing is below industry average.

Valuation

• TP is lowered to RM7.44 from RM7.66 based on FY17 DPU with unchanged targeted yield of 5.0% (historical average yield spread of KLCCSS and 10-year MGS).

Source: Hong Leong Investment Bank Research - 23 Jan 2017