Period  4Q13 / FY13

Actual vs. Expectations FY13 realized distributable income (RDI) of RM552m came in within expectations, at 95% of consensus estimate and 104% of ours.

Dividends  4Q13 DPS of 8.71 sen (3.87 sen single tier and 4.84 sen subjected to REIT withholding tax), or net DPS of 8.23 sen, is equivalent to 94.6%* payout of distributable income. FY13 NDPS of 27.7 sen (5.0% yield) is also within our expectation.

Key Results Highlights QoQ, RDI grew 5% to RM165m largely due to (i) better retail contribution and (ii) Menara Maxis (associate) which we believe has renewed its longterm lease. This helped offset the -2.0ppt operating margin compression to 73.5% due to higher expenses. Reported net profit grew 110% to RM373m due to RM271m fair value adjustments mainly from Suria KLCC, PTT and Dayabumi.

 YoY, 4Q13 revenue was flat as 4Q12 recognized a one-off recognition of RM10.5m in Suria KLCC relating to percentage rent for previous periods. However, 4Q13 PBT (ex-fair value) slid 6% due to a 4.5ppt compression in EBIT margins due to higher expenses. FY13 RDI was up 55% because of: (i) full effect of PTT long-term lease renewals, (ii) M3PRetail full-year contributions, and (iii) KLCCSS structure became effective in 2Q13, resulting in lower tax structure and MI.

Outlook  Market expectations of the REIT-ing of Suria KLCC have been subdued as MREIT valuations have eased given bond-yield reversals. We look forward to the upcoming analyst briefing this Friday for further updates, including Lot D1 developments and updates on Dayabumi AEIs.

Change to Forecasts Post house-keeping, there is a slight 2% increase in our FY14E RDI estimates. Note that we have previously factored in Menara Maxis lease renewals.

Rating Maintain UNDER PERFORM

Valuation  Slightly higher TP of RM5.43 (from RM5.41) based on unchanged FY14E net target yield of 5.8% (gross: 6.4%) and the result of the slight adjustments to our estimates. The call is inline with our sector call where stocks with thinner yield spreads to the 10-year MGS are more susceptible to bond yield reversals. We favour MREITs which can offer richer yields while KLCCSS offers the thinnest yield under our coverage.

Risks  Upsides to valuations and earnings include REIT-ing of Suria KLCC and stronger than expected MO performance. Downsides risks include weaker MO contributions and further MGS yield expansions.

Source: Kenanga