Period

2Q15/1H15

Actual vs. Expectations

1H15 realized distributable income (RDI) of RM321m came in within expectations, making up 46% of both consensus and our full-year estimates.

Dividends

2Q15 GDPS of 8.34 sen (3.02 sen single tier dividend plus 5.32 sen subject to 10% withholding tax), implies a net DPS of 15.6 sen which makes up 46% of our FY15E NDPS of 33.9 sen (4.7% yield).

Key Results Highlights

QoQ, topline was flattish, increasing by only 1% to RM329m mainly due to slight increase in hotel revenue (+9.6%). PBT margin was also stable at 70.7% (only 0.1ppt increase), leaving RDI marginally up (+1%).

Ytd-YoY, topline was down by 3% primarily due to: (i) hotel segment (-29%) due to renovations, and overall weaker market conditions, and (ii) office segment (-1%) due to the closure of City Point, Kompleks Dayabumi. PBT margins improved by 4.3ppt to 70.7% on lower interest expense (-30%) and tax (-2%), allowing RDI to increase by 2% to RM321m.

Outlook

The group has 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. Going forward, management indicates that they are still on the look-out for potential assets, but so far nothing concrete has materialised. 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 Golden Triangle.

Change to Forecasts

We make no changes to FY15E -16E earnings.

Rating

UNDER REVIEW

Valuation

Our TP is UNDER REVIEW pending today’s briefing. Our previous call was MP and TP of RM7.06, which was based on an unchanged target gross/net yield of 5.10%/4.90% on average FY15E GDPS/NDPS of 36.0 sen/33.9 sen on a +1.2ppt to our 10-year MGS target of 3.9%.

Since its FY15E net yield of 4.7% is already slightly lower than sizeable MREIT peers’ average of 5.3%, we think upsides are limited i.e. downside bias to our recommendation. However, if management provides clarity on their acquisition pipeline, there may be further upsides to our TP. Notably, share price has rallied swiftly of late by 3.6% over the last 2 weeks, which may signal potential asset acquisitions on the horizon.

Risks to Our Call

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

Source: Kenanga Research - 10 Aug 2015