Investment Highlights

• 9MFY17 earnings in line

• Flattish earnings on sequential basis

• Muted cumulative earnings

• Maintain NEUTRAL with unchanged TP of RM7.60

9MFY17 earnings in line. KLCCP Stapled Group (KLCCP) core net income (PATAMI) of RM532.4m came in within expectations, making up 74% and 72% of our and consensus full year forecasts. Distribution per unit (DPU) of 8.60sen was announced for the quarter, bringing 9MFY17 DPU to 25.80sen.

Flattish earnings on sequential basis. KLCCP recorded core net income of RM177.7m in 3QFY17, declining by a marginal 0.1%qoq. The flattish earnings were mainly due to better performance of hotel division which offset the marginally weaker earnings from office and retail division. Hotel operation recorded profit before tax (PBT) of RM2.4m in 3QFY17 against pre-tax loss of RM1.7m in 2QFY17, mainly supported by the SEA Games event which led to higher hotel occupancy rate of 52% against occupancy rate of 47% in the previous quarter.

Muted cumulative earnings. On yearly basis, 3QFY17 core net income dropped marginally by 0.3%yoy, bringing cumulative earnings to RM532.4m (-1.2%yoy). The marginally lower earnings were due to slightly weaker contribution from retail division. PBT of retail division fell 0.14%yoy as last year earnings was boosted by one off back rental recognition from a tenant. Excluding the said back rental, PBT of retail division would have improved by 1%yoy, underpinning by positive rental reversion. Meanwhile, PBT of office division increased by 0.52%yoy due to saving in finance costs. On the other hand, hotel division returned to the black in 9MFY17 by recording PBT of RM864k against pre-tax loss of RM6.2m in 9MFY16 due to better occupancy rate in 3QFY17 and higher demand for the newly refurbished Suites and Club rooms coupled with improved contribution from F&B covers.

Maintain NEUTRAL with unchanged TP of RM7.60. We maintain our earnings forecasts 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 flattish earnings outlook. Dividend yield is estimated at 4.5%.

Source: MIDF Research - 14 Nov 2017