Results

• The results were in line, accounting for 96.7% and 99.4% of ours and consensus full year estimates respectively.

Deviations

• None.

Dividends

• Declared DPU of 10.35 sen, bringing FY17 DPU to 36.15 sen (FY16 DPU: 35.65 sen).

Highlights

• QoQ: Normalized PATAMI increased by 5.8% to RM188.0m due to growth in revenue in all business segments.
• YoY: Normalized PATAMI increase by 4.3% mainly due to improved performance of the hotel segment and lower finance costs.
• FY17: Normalized PATAMI slightly increased by 0.7% to RM720.3m mainly due to improved performance from hotel operation with MOKL’s first phase renovation completion, partially offset by lower contribution from office segment.
• Hotel segments: Contribution from MOKL has improved due to the completion of fits first phase renovation and improved demand in F&B. MOKL will continue the ongoing refurbishment of guestrooms throughout FY18 and full completion is expected to be by FY19. 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 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 near future 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

• Unchanged.

Rating

HOLD ↔ , TP: RM7.76↔

• 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 unchanged at RM7.76 and maintained HOLD with unchanged targeted yield of 5.0% (historical average yield spread of KLCCSS and 10-year MGS)

Source: Hong Leong Investment Bank Research - 25 Jan 2018