Results

• Reported 9MFY17 gross revenue of RM1014.7m (+1.6% yoy) which t ranslated into normalised PATAMI of RM532.4m (-0.6% yoy), accounting for 71.4% and 70.2% of HLIB and consensus forecasts, respectively.

Deviations

• None as we deem results broadly in-line.

Dividends

• Declared dividend of 8.6 sen (3Q17: 8.6 sen), representing a payout ratio of 93.4% (2Q16: 92.7%)

Highlights

• YoY: Normalized PATAMI remained flattish (yoy: -0.3%) at RM177.7m as improved performance of hotel segment, was offset by lower contribution from management services.
• QoQ: Normalized PATAMI was flattish at -0.1% as higher contribution from hotel operation and management services was offset by weaker performance from office and retail segments.
• YTD: Normalized PATAMI remained flattish (-0.6% yoy) as improved performance from hotel operation was offset by lower contribution from management services.
• Hotel segments: Contribution from Mandarin Oriental Kuala Lumpur (MOKL) has improved due to increased occupancy rate contributed by SEA Games and improved demand in F&B. Second phase of guestroom renovation has commenced and is expected to complete in 2018. Going forward, we expect improved contribution from the hotel segment due to completion of renovation works and growth in tourist arrivals.
• Outlook: Going forward, management expects stable performance for the company primarily on the back of long term office tenancy agreements. However, we do not expect the oversupply issue in office sector to be resolved in the short term due to significant incoming supply of new office spaces over the next 2-3 years.

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 Shariah-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 - 14 Nov 2017