INVESTMENT HIGHLIGHTS

• 1QFY18 earnings within expectations

• Lower sequential earnings

• Marginally higher earnings yoy in 1QFY18

• Maintain NEUTRAL with unchanged TP of RM7.59

1QFY18 earnings within expectations. KLCCP Stapled Group (KLCCP) core net income of RM180.7m came in within expectations, making up 25% and 24% of our and consensus full year forecast. Distribution per unit (DPU) of 8.7sen was announced for the quarter.

Lower sequential earnings. On sequential basis, core net income of RM180.7m dropped 3.9%qoq, mainly due to seasonally weaker contribution from hotel division. Profit before tax (PBT) of hotel division declined 45.7%qoq as previous quarter earnings were boosted by year end holiday seasons. Meanwhile, performances of office division and retail division were stable whereby earnings of the two divisions were largely unchanged on sequential basis.

Marginally higher earnings yoy in 1QFY18. On yearly basis, 1QFY18 earnings climbed 2.2%yoy, due to improved contribution from three core divisions. PBT of office division increased 2.2%yoy, mainly due to full occupancy rate of Menara Exxonmobil and lower financing cost. Looking ahead, we expect earnings of office division to remain stable as next rental reversion of Petronas Twin Towers which is on fixed step-up basis will take place in Oct 2018. Meanwhile, retail division saw marginal growth of 1.6%yoy in PBT due to higher rental rates. Likewise, hotel division posted PBT of RM2.4m in 1QFY18 against PBT of RM0.2m in 1QFY17, driven by higher demand for the newly renovated guestrooms and higher F&B revenues.

Maintain NEUTRAL with unchanged TP of RM7.59. We maintain our earnings forecast for FY18/19. We also maintain target price of RM7.59, based on DDM with required rate of required return of 7.8%. We maintain our Neutral call on KLCCP due to its marginal earnings growth outlook. Dividend yield is estimated at 4.5%

Source: MIDF Research - 17 May 2018