Journey to Wealth
KLCC Property Holdings - OUTPERFORM - 05 June 2012
News Yesterday, KLCC Property Holdings (KLCCP) share price hit its 52 week high of RM4.02 before settling at RM3.93 (25% Ytd returns) or above our previous TP of RM3.50.
Comments Recent sharp share price run-up could be potential REIT-ing of assets or clarity of RCULS conversion.
Recall that we have highlighted the increasing likelihood of full RCULS conversion given new Menara 3 PETRONAS (M3P) contributions and PETRONAS Twin Tower (PTT) long-term lease renewals (Oct-12) and initially target to upgrade the stock towards 2H12 to meet the full earnings accretion impact in FY13 (refer to 2/4/12 report).
While we have not heard any news in the market or officially, we are inclined to think a combination of such corporate actions is likely and even concurrently.
Nonetheless, we still believe the parent will convert the RCULS before or in conjunction with the REIT-ing exercise because the parent would like to enjoy the maximum payoff from spinning off its assets.
Assuming only Suria KLCC will be REIT-ed and KLCCP only wants to retain a controlling stake of 53% in the REIT, we expect KLCCP to enjoy cash repayments of RM283m, which is equivalent to 22sen per fully diluted share if the parent fully dishes out the cash received. The cash repayments could be as high as 96sen per fully diluted share if all investment properties are REIT-ed. (Refer overleaf for details and assumptions).
Outlook Upcoming earnings catalyst is Menara Maxis (associate holdings) long-term lease renewals which is coming up in May-2013; we have yet to factor for renewed long-term lease rates.
Forecast No changes to FY12-13E estimates (already imputed for M3P contributions and renewed PTT leases).
Rating Upgrade to OUTPERFORM (MARKET PERFORM previously)
KLCCP has undergone de-rating over the last few years and is now looking to re-rate up to its previous glory if full RCULS conversion and REIT-ing takes place concurrently.
Valuation Higher TP of RM4.60 based on 23%* discount to updated FD SoP RNAV of RM6.00 (previously MARKET PERFORM and TP of RM3.50 based on 33%* discount to FD SoP RNAV of RM5.23).
Risks Risk to our call lies with; 1) our scenario or variations of it not panning out this year; 2) oversupply of office space in KLCC area which will pressure valuations downwards; 3) decline in MO occupancy rates.
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