INVESTMENT HIGHLIGHTS

• Creating a more exciting shopping experience in Suria KLCC

• Rental revision for office segment in FY20F

• Targets for the hotel segment to break even this by FY19F

• Maintain NEUTRAL with an unchanged TP of RM7.78

Creating a more exciting shopping experience in Suria KLCC. Following the departure of an anchor tenant, average base rent has increased by 15% from RM32.10 psf to RM36.90 psf as of end June. Management shared that the reconfiguration of the ~150,000 sq ft retail space is on track and that the first phase is scheduled for completion by year-end. They also estimated that the average base rent may hover around the current level of circa RM37.00 psf following the completion of the reconfiguration works. However, they also note that the effective NLA following the reconfiguration may be half of the original space to make way for common areas. Management is looking at attracting 80 to 100 tenants for the space. 2Q19 occupancy rate stood at 99% compared with 98% in 1Q19.

Rental revision for office segment in FY20F. Management is in active discussion with its key tenant at Menara Dayabumi for the rental revision in Jan 2020. The AEI at the Menara Dayabumi entrance is expected to improve visibility and access with targeted completion in November. At Menara Exxon Mobil, Exxon Mobil Exploration and Production Malaysia Inc’s rental revision is expected in Feb 2020 while Petronas’ is slated for April 2020. Meanwhile, Menara 3 Petronas rental revision is scheduled for Dec 2020. The offices are fully occupied now.

Targets for the hotel segment to break even this by FY19F. Pre-tax loss for the hotel segment has narrowed and management aims to achieve breakeven level by this year through more aggressive digital marketing strategies in order to further capture market share. Pre-tax loss for the segment in 2Q19 has narrowed to -RM0.8m from - RM4.1m a year ago. Although average room rate has dipped to RM646 from RM733 a year ago, occupancy rate has improved to 60% from 50% in the previous preceding period. Meanwhile, RevPar grew 6%yoy.

Maintain NEUTRAL with an unchanged TP of RM7.78. We maintain our FY19F/FY20F earnings forecast for now. Our TP of RM7.78 is based on Dividend Discount Model with required rate of required return of 7.8%. We maintain our Neutral call on KLCCP due to lack of near-term catalysts. Dividend yield is estimated at 4.1%.

Source: MIDF Research - 22 Aug 2019