INVESTMENT HIGHLIGHTS

• FY17 earnings met expectations

• Higher sequential earnings driven by all divisions

• Flattish full year earnings

• Maintain NEUTRAL with unchanged TP of RM7.60

FY17 earnings met expectations. KLCCP Stapled Group (KLCCP) core net income of RM702.4m met expectations, making up 100% of our and consensus full year forecast. Note that we have excluded fair value adjustment to investment property (RM157.5m) in our core net income calculation. Distribution per unit (DPU) of 10.35sen was announced for the quarter, bringing FY17 DPU to 36.15sen.

Higher sequential earnings driven by all divisions. KLCCP recorded core net profit of RM188.1m in 4QFY17, increasing by 5.8%qoq. The higher sequential earnings were driven by higher contribution from all divisions. Profit before tax (PBT) of retail division grew 1.8%qoq which could be attributed to higher footfall in 4Q and higher rental rates. Meanwhile, PBT of hotel division climbed 85.8%qoq due to seasonally higher hospitality demand in 4Q and enhancement to Mandarin Oriental.

Flattish full year earnings. On yearly basis, 4QFY17 core net income grew by 4.4%yoy, bringing cumulative earnings to RM720.4m (+0.2%yoy). The flattish full year earnings were mainly due to higher contribution from office and hotel divisions which offset by lower contribution from retail division. PBT of office division increased by 0.97%yoy due to saving in finance costs. Similarly, hotel division posted PBT of RM5.2m in FY17 against pre-tax loss of RM3.2m in FY16 due to improved occupancy rate. Meanwhile, PBT of retail division was weaker by 0.4%yoy due to one off back rental recognition in FY16. Excluding the said back rental, PBT of retail division would have improved by 1.5%yoy, underpinned by positive rental reversion.

Maintain NEUTRAL with unchanged TP of RM7.60. We maintain our earnings forecast for FY18 and introduce our earnings forecast for FY19. We maintain 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 tepid earnings outlook. Dividend yield is estimated at 4.5%

Source: MIDF Research - 25 Jan 2018