INVESTMENT HIGHLIGHTS

• 1QFY19 earnings in line

• Lower sequential earnings

• Marginally higher earnings on yearly basis

• Suria KLCC undertakes reconfiguration exercise

• Maintain NEUTRAL with a revised TP of RM7.78

1QFY19 earnings in line. KLCCP Stapled Group (KLCCP) 1QFY19 core net income of RM184m came in within expectations, making up 24% and 25% of our and consensus full year forecasts respectively. Distribution per unit (DPU) of 8.80sen was announced for the quarter.

Lower sequential earnings. On sequential basis, 1QFY19 core net income was marginally lower at RM184m (-0.8%qoq), mainly due to lower contribution from retail division. Profit before tax (PBT) of retail division eased 2.9%qoq due to lower advertising income. Meanwhile, hotel division was in the red in 1QFY19, recording pre-tax loss of RM392k comparing to PBT of RM295k in the previous quarter as 4QFY18 earnings were boosted by year-end holidays and festive season. Meanwhile, PBT of office division was flattish at +0.27%qoq.

Marginally higher earnings on yearly basis. On yearly basis, 1QFY19 earnings of KLCCP was marginally higher at RM184m (+1.8%yoy), contributed mainly by higher earnings from office and retail divisions. PBT of office division increased by 0.9%yoy, driven by full occupancy at all office buildings and lower expenses. Similarly, PBT of retail division climbed by by 4.65%yoy due to higher rental rates and improved occupancy rate.

Suria KLCC undertakes reconfiguration exercise. Management expects performance of the retail division to be slightly impacted in the coming quarters as Suria KLCC is undertaking reconfiguration exercise to boost consumer experience and growth for Suria KLCC. Some 124k sq. ft. of NLA will be subdivided to sizes of less than 10k sq. ft. which will attract more than 50 new specialty store tenants. Management targets to complete first phase of transformation (80% NLA) in December 2019 with full completion expected by mid-2020.

Source: MIDF Research - 8 May 2019