Results

• Reported 1HFY17 gross revenue of RM674.2m (+0.7% yoy) which translated into normalised PATAMI of RM354.7m (- 0.7% yoy), accounting for 47.6% and 47% of HLIB and consensus forecasts, respectively.

Deviations

• None.

Dividends

• Declared second interim dividend of 8.6 sen (KLCC REIT: 5.44 sen, KLCC Property: 3.16 sen), representing a payout ratio of 95% (2Q16: 92.9%)

Highlights

• YoY: Normalized PATAMI increased by 2.1% to RM178m due to higher rental rates from retail segment and improved performance of hotel segment, partially offset by lower contribution from management services.
• QoQ: Normalized PATAMI was up marginally by 0.7% as a result of securing the new lease for the remaining vacant spaces in Menara ExxonMobil but was offset by poorer performance from the hotel operations during the Ramadan month due to fall in room occupancy rate.
• YTD: Normalized PATAMI remained flattish (-0.7% yoy) as higher contribution from retail segment and improved performance from hotel operation were offset by lower contribution from office segment due to 2 months of vacancy at Menara ExxonMobil.
• Outlook: Going forward, management expects stable performance for the company primarily on the back of long term office tenancy agreements. Note that new lease has been secured for the remaining vacant spaces in Menara ExxonMobil effective 1 April 2017.
• Retail and hotel segments remained challenging due to difficult market conditions. Refurbishment of the hotel rooms is still ongoing and is scheduled for completion by end 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↔

• 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 Syariah-compliant status on the back of super prime assets and stable income while gearing is below industry average.

Valuation

• Maintain HOLD with unchanged TP of RM7.66 based on 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 - 16 Aug 2017