• 1HFY17 earnings in line

• Marginally higher earnings on sequential basis

• Slightly lower cumulative earnings

• Mixed earnings outlook

• Maintain NEUTRAL with unchanged TP of RM7.60

1HFY17 earnings in line. KLCCP Stapled Group (KLCCP) 1HFY17 core net income (PATAMI) of RM354.7m came in within our and consensus expectation, accounting for 49% and 48% of our and consensus full year estimates respectively. Distribution per unit (DPU) of 8.6sen was announced for the quarter, bringing 1HFY17 DPU to 17.2sen.

Marginally higher earnings on sequential basis. KLCCP core net income for 2QFY17 improved 0.7%qoq to RM178m, mainly due to higher contribution from office division. Profit before tax (PBT) of office division climbed 2.1%qoq as KLCCP secured new lease for the vacant spaces in Menara Exxonmobil effective 1st April 2017. Recall that 40% of net lettable area in Menara Exxonmobil was left vacant in January 2017.

Slightly lower cumulative earnings. 1HFY17 core net income of KLCCP stood at RM354.7m, declining by 1.6%yoy. The marginal drop in earnings was due to lower earnings from retail division while earnings from office division was flattish. PBT of retail division declined by 1%yoy as last year earnings was boosted by one off back rental recognition from a tenant amounting RM3.5m. Meanwhile, hotel division was in the red due to high depreciation and interest costs. On the other hand, PBT of office division was marginally higher at +0.5%yoy, mainly due to additional net lettable area in Menara Dayabumi.

Mixed earnings outlook. We expect earnings of office division to remain firm in 2HFY17 due to its long-term lease structure with tenants. On retail division, earnings are estimated to stable due to the prime location of Suria KLCC. However, outlook for hotel division remains challenging due to overall weak hospitality demand. Overall, we see earnings outlook for KLCCP to be neutral.

Maintain NEUTRAL with unchanged TP of RM7.60. We maintain our earnings forecast for FY17/18. Also intact is our target price of RM7.60, based on DDM with required rate of required return of 7.8%. We are keeping our Neutral recommendation on KLCCP due to its neutral earnings outlook. Dividend yield is estimated at 4.5%.

Source: MIDF Research - 16 Aug 2017