KLCCSS’ FY18 core PATAMI of RM707.7m (-1.8% YoY) was in line with both ours and consensus expectations. Declared dividend of 10.9 sen per share. The improvement was contributed by growth in all business segments; with hotel segment showing great increment thanks to the completion of room renovations. However, this was offset by increased operating expenses. We retain our forecast and maintain HOLD call with unchanged TP of RM8.06 based on targeted yield of 4.9%.

Within expectations. FY18 revenue of RM1,405.9m (+2.9% YoY) translated into core PATAMI of RM707.7m (-1.8% YoY). The results were in line with both ours and consensus expectations, accounting for 99.5% and 97.3%, respectively.

Dividend. Declared 4th interim dividend of 10.9 sen per share (KLCC REIT: 6.27 sen, KLCC Property: 4.63 sen) going ex on the 11th February 2019. This brings FY18 DPS to 37.0 sen (FY17: 36.2 sen).

QoQ/YoY. Revenue for 4Q18 of RM366.3m (+4.8% QoQ; +4.1% YoY) translated to core PATAMI of RM166.5m (-8.3% QoQ; -11.4% YoY). The boost in revenue was supported by growth in all segments with the retail segment taking the lead. Retail segment showed significant increase driven by higher occupancy rates and higher rental rates. Nevertheless, bottom line fell due to increase in operating expenses.

FY18. Revenue of RM1,405.9m showed an increase of 2.9%, however it was followed by a decrease of 1.8% in core PATAMI at RM707.7m. Essentially, the increment in revenue was backed by growth in all segments: (i) office segment increased 0.9% reflecting the 100% occupancy achieved in Menara ExxonMobil; (ii) retail segment improved by 3% thanks to higher rental rates from new and renewed leases as well as better occupancy; (iii) stronger hotel segment by 3.1% arising from higher occupancy (FY18: 55%; FY17: 51%) driven by its newly completed refurbished guestrooms and the return of full room inventory (629 rooms); and (iv) management services increased by 7.4% supported by additional revenue from special projects under facilities management services for the Workplace for Tomorrow project for Petronas, one-off facility management works of car park in Mesra Mall, Kertih, Terengganu and full year contribution of car park income from Option Lots at KLCC Precinct. However, the overall increment was offset by higher operating expenses mainly due to higher depreciation on the hotel’s fully refurbished rooms.

Outlook. Management anticipates stable performance primarily anchored by the long term office tenancy agreements. Going forward, we expect improved contribution from the hotel segment thanks to the recently completed refurbished rooms.

Forecast. Maintain as the Results Were in Line.

Maintain HOLD, TP: RM8.06. We maintain our HOLD call with unchanged TP of RM8.06 based on targeted yield of 4.9% which is derived from 2 years historical average yield spread of KLCCSS and 10 year MGS.

Source: Hong Leong Investment Bank Research - 25 Jan 2019