INVESTMENT HIGHLIGHTS

• 1HFY18 earnings within expectations

• Flattish sequential earnings

• Stable earnings in 1HFY18

• Maintain NEUTRAL with unchanged TP of RM7.59

1HFY18 earnings within expectations. KLCCP Stapled Group (KLCCP) 1HFY18 core net income of RM359.8m came in within expectations, making up 49% of our and consensus full year forecasts. Distribution per unit (DPU) of 8.7sen was announced for the quarter, bringing total DPU to 17.4sen in 1HFY18.

Flattish sequential earnings. On sequential basis, core net income of RM179.1m was flattish at -0.8%qoq. Profit before tax (PBT) of office and retail division was also sequentially flattish. Meanwhile, hotel division recoded pre-tax loss of RM4.1m in 2QFY18 against PBT of RM2.4m in 1QFY18 due to lower occupancy of Mandarin Oriental and loss of banqueting events post general election.

Stable earnings in 1HFY18. On yearly basis, 1HFY18 earnings inched up 1.4%yoy, attributed to higher contribution from office and retail divisions. PBT of office division climbed by 0.7%yoy, driven mainly by full occupancy rate of Menara Exxonmobil. Similarly, PBT of retail division increased by 1.5%yoy due to higher rental rates. Meanwhile, hotel division was in the red by recorded pre-tax loss of RM1.7m in 1HFY18 due to weaker contribution in 2QFY18 as well as higher depreciation and interest costs on fully refurbished rooms.

Maintain NEUTRAL with unchanged TP of RM7.59. We maintain our earnings forecasts for FY18/FY19. 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. Earnings of retail division will also be supported by the marginally higher rental rates of Suria KLCC. 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 neutral earnings outlook. Dividend yield is estimated at 4.6%.

Source: MIDF Research - 16 Aug 2018