Period     1Q13 

Actual vs. Expectations   1Q13 core earnings of RM88m were within our expectations being 23% of our estimates. Against consensus, 1Q13 only made up 18% of estimates as we believe that a sizeable portion of consensus is using the Stapled-REIT structure (effective 9-May; reflective from 2Q13 onwards), while we have yet to do so.

Dividends    DPS of 4.5 sen (single-tier tax exempt) which makes up 27% of our FY13E NDPS (before Stapled-REIT structure). 

Key Results Highlights     YoY, PBT was up by 6% to RM207m. Revenue did increase 13% as; 1) office rental increased by 21% mainly due to Petronas Twin Tower (PTT) long-term lease renewal; 2) Suria sees improved occupancy and rental rates, as well as, a one-off receipt relating to mall renovations. This was more than sufficient to compensate the 13% decline in Mandarin Oriental (MO) revenue and - 6.1ppt compression in the segment’s PBT margins to 8.6%; MO is undergoing renovations of its ballroom, which affected non-room income while occupancy rate declined post the festive seasons in 4Q12. 

  QoQ, revenue slid by 6% largely due to MO declining by 20%, while the remaining segments were flattish. Group EBITDA margins normalized to 75% as last quarter saw exceptionally strong margins of 80% due to 4Q12’s one-off income of RM31m; stripping it off, 1Q13 rose 14%. 

Outlook    There is a possibility of Suria KLCC being REITed. Also, we expect Maxis long-term lease renewals to take place this year; this has not been reflected in our assumptions yet. 

Change to Forecasts    No changes to earnings estimate. We will introduce the financials which reflect KLCC Stapled REIT structure in our next note.  

Rating  Maintain MARKET PERFORM

We believe yield compression environment is limited at this juncture, hence we prefer to recommend MARKET PERFORM.

Valuation     No changes to TP of RM7.00 based on target FY14E net yield of 4.9%. Note that our valuation assumes REIT-ing of Suria KLCC. 

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