Period

1Q15

Actual vs. Expectations

3M15 realized distributable income (RDI) of RM160m came in within expectations, making up 22.6% of consensus and 23.3% of our full-year estimates.

Dividends

1Q15 GDPS of 8.34 sen (3.02 sen single tier dividend plus 5.32 sen subject to 10% withholding tax), implying a net DPS of 7.81 sen which makes up 23% of our FY15E NDPS of 33.9 sen (4.8% yield).

Key Results Highlights

QoQ, topline declined by 6% to RM327 mainly due to: (i) hotel segment (-32%) from weak demand from ongoing renovations, while plunging oil prices affected the O&G sector which is a main business driver, (ii) management services segment (-13%), and (iii) office segment (-1%) due to the closure of City Point, Kompleks Dayabumi. Improving EBITDA margins by 3.4ppt to 78.3%, and higher interest income (+15%) was not sufficient to negate the declining topline. As a result, RDI declined by 9% to RM160m.

Ytd-YoY, topline was down by 4% primarily due to: (i) hotel segment (-36%) due to similar reasons mentioned above, (ii) office segment (-1%) due to the closure of City Point, Kompleks Dayabumi, and (iii) retail segment (-2%) was down slightly from a one-off back charging of percentage rent by Suria KLCC in 1Q14. PBT margins thinned slightly by 0.8ppt to 70.6% on higher operating cost, causing RDI to fall by 3% to RM160m.

Outlook

The group has recently renewed its shareholders’ approval during the AGM on 16-Apr-2015 for up to 10% placement, which should raise funds of between RM1.1b-RM1.2b. It was mentioned in the media that it will be used for potential asset acquisitions within KL’s Golden Triangle (GT). Potential assets are: (i) the remaining stake in Suria KLCC not owned (only 60% owned), (ii) assets under the parent, (KLCC Convention Centre, Traders Hotel and Impiana Hotel), and (iii) third party assets within the GT.

Going forward, management indicates that they are still on the look-out for potential assets, but so far nothing concrete has materialised as yet. We reckon the stock will re-rate once there are more newsflow on target acquisitions.

Change to Forecasts

We make no changes to earnings.

Rating

Maintain MARKET PERFORM

Valuation

Maintain TP of RM7.06 based on an unchanged target gross/net yield of 5.10%/4.80% on average FY15E GDPS/NDPS of 33.9 sen/34.9 sen on a +1.20ppt to our 10-year MGS target of 3.9%. We see limited upside at this juncture considering that its current FY15E net yield of 4.8% is already slightly lower than sizeable MREIT peers’ average of 5.0%, while most positives have already been priced in.

Risks to Our Call

(i) Bond yield expansions, (ii) Flattish to negative rental reversions, (iii) Weak occupancy rates

Source: Kenanga Research - 6 May 2015