Journey to Wealth
KLCC Property - Finally REIT-ing'but not everything
Period 3Q12 / 9M12
Actual vs. Expectations 9M12 core net profit of RM280m was slightly above street but broadly in-line with our expectations, making up 82% of street and 80% of our forecasts.
Dividends Interim dividend of 4.0sen (tax exempt), implying 9M12 NDPS of 12.0sen (0% YoY) or within estimated FY12E NDPS of 16.0sen (2.9% yield).
Key Results Highlights YoY, 9M12 core earnings grew 35% on the back of maiden M3P Office and full M3P Retail contributions, supported by stable EBITDA margins of 76% (+1ppt).
QoQ, 3Q12 core earnings of RM95m rose 3%. Albeit a slight reduction in revenue (-2% due to lower MO contributions), Suria's PBT margin improved by 4ppt to 75.2% whilst management services PBT improved by 18% to RM9.3m. 3Q12 reported net profit imputes RM1.4b fair value gains, largely driven by Suria and M3P.
Outlook KLCC has proposed to; 1) REIT 3 office assets, namely Petronas Twin Towers, Menara ExxonMobil and Menara 3 PETRONAS (63% of portfolio); 2) formation of a 'stapled group' which features KLCC REIT and KLCC. Rationale is to unlock the value of KLCC while minimizing holding company discounts and liquidity splits of related entities.
We view the exercise positively, although we were hoping for all assets to be REIT-ed. In a nutshell, it is still KLCC with better asset realization, tax structure and dividend payouts (refer overleaf for story/details).
Change to Forecasts No changes to FY12-13E core earnings as we have already imputed for M3P contributions and imputed for PTT's long-term lease renewals.
Rating Maintain OUTPERFORM
Valuation Lowering TP to RM5.90 (from RM6.87), based on KLCC Stapled structure, 90% payout, implying FY13E NDPS of 35.4sen and FY13E target net yield of 6.0%. Rationale for higher target yields vs. M-REIT 4.5%-5.0% is due to KLCC Stapled being a 'quasi' REIT and will unlikely be able to enjoy premium to NAV valuations until it has REIT-ed all its assets. At our TP, the stock will be an 18% discount to KLCC's current FD SoP RNAV of RM7.20.
Risks Risks lies if the proposed exercised is aborted and MO occupancy declining.
Source: Kenanga
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