Journey to Wealth
KLCC Property Holdings - Stronger FY12
Period FY12
Actual vs. Expectations FY12 core earnings of RM377m exceeded expectations by 9% each of street and our estimates. The better than expected result is largely due to higher than expected PETRONAS Twin Tower (PTT) lease renewal rates.
Dividends Proposed 4th interim single-tier DPS of 4.5sen, bringing FY12 NDPS to 16.5sen (+65% YoY; 2.7% yield); this was 6% higher than our 15.6sen.
Key Results Highlights YoY, FY12 core earnings grew 27% YoY on the back of M3P-Office maiden income. Retail (Suria & M3P-Retail) pretax profit rose 32% to RM296m on more positive rental reversions, occupancy rate and better cost control given the 3.3ppt enhancement in EBITDA margins to 77.0%.
QoQ, 4Q12 pretax profit rose 6% after stripping out last quarter's fair value gains of RM1.4b. PTT long-term lease (15-years) renewals were done in Oct-12 and we believe initial term rent could be set at a higher rate compared to last term's RM9.11psf pm; this was slightly different to our earlier guidance where initial term rent was meant to be set at RM9.11psf pm.
Outlook The group is undergoing its stapled-REIT security restructuring, which should be completed in midCY13. We also expect Suria to be REIT-ed (refer to 20/2/13 report for details) and that assumption has been reflected in our TP.
Change to Forecasts Increase FY13E net profit by 3% as we conservatively assume that PTT initial term rates could be closer to RM9.40psf pm. We hope to get further clarity on the matter.
Rating Maintain MARKET PERFORM
Valuation We think that M-REITs are approaching its peak of the yield compression cycle given thin riskfree-rate spreads while KLCC "REIT-able" office assets will be injected at peak 5.5% cap rates.
Raising TP to RM6.56 (from RM6.40) based on unchanged FY13E target net yield of 5.0% and higher KLCC Stapled REIT FY13E DPS of 32.8sen (90% payout), while assuming Suria KLCC will be "REIT-ed" and funded via equity (refer overleaf).
Risks Risks; 1) proposed exercised is aborted, 2) Suria is not REIT-ed, 3) MO occupancy declines, 4) reversal of yield compression cycle.
Source: Kenanga
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