Results

• Reported 1QFY17 gross revenue of RM336.7m (-2.3% qoq, +0.6% yoy) which translated into normalised PATAMI of RM176.7m (-1.9% qoq, -3.3% yoy), accounting for 23.7% and 23.8% of HLIB and consensus forecasts, respectively.

Deviations

• None.

Dividends

• Declared dividend of 8.6 sen (1Q16: 8.6sen), accounting for 23.2% of both HLIB and consensus forecast.

Highlights

• YoY: Revenue was flat, affected by lower income from office (-1.36%) and retail (-1.35%) due to lower occupancy rate, but offset by higher contribution from hotel (+6.92%) and management services (+7.41%). However, bottom line contracted by 2.85% due to negative impact of minimum wage and lower interest income.
• QoQ: Both revenue and profit before tax were down 2.3% due to lower contribution from hotel and retail segment.
• Outlook: 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 vacated by ExxonMobil, but partially offset by the incremental income from extra space and rental reversion at Menara DayaBumi. We understand that management is in the final stages of concluding the lease agreement with a potential tenant to occupy the remaining space vacated by ExxonMobil.
• For the retail segment, Suria KLCC and the retail podium of Menara 3 PETRONAS are currently undergoing tenant re- mixing to better reflect current shopping trends while enhancing customer experience.
• Hotel segment will be challenging in view of the difficult market conditions. The hotel performance will be impacted by the ongoing refurbishment of the rooms which is scheduled for completion by end of 2018.

Risks

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

Forecasts

• Maintained.

Rating

HOLD ↔ , TP: RM7.66 ↑

• We deem the yield at this level 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

• Maintain HOLD with higher TP of RM7.66 (from RM7.44) as we roll forward our valuation to FY18 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 May 2017