KLCCSS’ 9M18 core PATAMI of RM541.3m (+1.7% YoY) was in line with both ours and consensus expectations. Declared dividend of 8.70 sen per share. The improvement was contributed by growth in all business segments; with hotel segment showing the greatest increment thanks to the completion of room renovations. However, this was partially offset by increased operating expenses. We retain our forecast and maintain HOLD call with unchanged TP of RM7.88 based on targeted yield of 5.0%.

Within expectations. 9M18 revenue of RM1,039.6m (+2.5% YoY) translated into core PATAMI of RM541.3m (+1.7% YoY). The results were in line with both ours and consensus expectations, accounting for 76.1% and 74.2%, respectively.

Dividend. Declared 3rd interim dividend of 8.70 sen per share (KLCC REIT: 5.71 sen, KLCC Property: 2.99 sen) going ex on the 28 November 2018 (3Q17: 8.60 sen).

QoQ. Revenue of RM349.5m showed an increase of 1.3%, followed by an increase of 1.3% in core PATAMI at RM181.4m. This was mainly supported by the hotel segment; with an increase of 22% in revenue thanks to higher room occupancy with the completion of refurbished rooms paired with higher revenue from food and beverage.

YoY. Revenue in 3Q18 recorded a 2.6% improvement from RM340.5m in 3Q17, which followed by an increase in core PATAMI of 2.1% to RM181.4m. This primarily resulted from better performance in hotel and retail segments. Hotel segment achieved higher occupancy and higher average room rate (ARR) generated by the newly refurbished rooms, whereas retail segment showed significant increase driven by the tax holiday period as well as higher occupancy rates and higher rental rates. Nevertheless, bottom line growth was slightly lower as the overall top line increment was slightly offset by the increase in operating expenses.

YTD. Revenue for 9M18 increased by 2.5% to RM1,039.6m. Likewise core PATAMI of RM541.3m showed improvement of 1.7%. Essentially, the increment was backed by revenue growth in all segments: (1) office segment increased 0.9% reflecting the 100% occupancy achieved in Menara ExxonMobil; (2) retail segment improved by 2.1% thanks to higher rental rates from new and renewed leases as well as better occupancy which was supported by a 6% increase in footfall during the tax holiday period; (3) stronger hotel segment by 6.5% driven by higher ARR achieved due to the return of full room inventory (629 rooms) from the completion of refurbished rooms; (4) management services increased due to new contracts received under facilities management services for the Workplace for Tomorrow project for PETRONAS (currently 45% completed, with full completion targeted by April 2020), one-off facility management works of car park in Mesra Mall, Kertih, Terengganu and higher car park income from the new operating lots at KLCC Precinct. However, the overall increment was slightly offset by higher depreciation on the hotel’s fully refurbished rooms.

Forecast. Maintain as the Results Were in Line.

Maintain HOLD, TP: RM7.88. We maintain our HOLD call with unchanged TP of RM7.88 based on targeted yield of 5.0% which is derived from 2 years historical average yield spread of KLCCSS and 10 year MGS.

Source: Hong Leong Investment Bank Research - 14 Nov 2018