KLCCP’s 1QFY13 net profit of MYR88.0m came broadly in line with estimates. Y-o-y net profit growth was flattish due to lower contribution from its hotel operations and higher tax expenses. Earnings from the KLCCP Stapled Group will be seen from 2QFY13 onwards as the stapling exercise was completed on 9 May. Our SOP-based fair value has been raised to MYR7.65 (from MYR6.56). Maintain NEUTRAL.

- Broadly in line. AlthoughKLCCP’s 1QFY13 core net profit of MYR88.0m (-0.8% y-o-y; -3.8% q-o-q) came broadly in line with estimates. We believe that earnings should come in stronger from 2Q13 onwards as KLCCP start to reap some of the tax benefits from its stapling exercise. KLCCP also announced a first interim dividend of 4.5 sen for FY13.

- Flattish y-o-y growth. Revenue was up 12.5% y-o-y, mainly attributed to the stronger revenue contribution from the property investment segment. Office rental revenue increased 21.2% y-o-y, driven by to the renewal of the triple net lease for Petronas Twin Towers. The retail segment also fared well due to strong rental reversions and improved occupancy. Revenue from hotel operations was on a decline due to the overall softer market and ballroom renovations. Management expects the hotel segment to remain challenging going forward. This decline, coupled with higher tax expenses in 1QFY13, led to the flattish y-o-y net profit growth.

- Stapled Group’s impact from 2QFY13. The stapling of KLCCP and KLCC REIT was recently concluded on 9 May. We expect KLCC REIT’s earnings growth over the short term to be driven organically. However, we do note that KLCC REIT has the balance sheet strength to acquire more assets. Based on the proforma balance sheet, KLCC REIT’s gearing is currently only at 0.18x, giving the REIT a debt headroom of close to MYR2.8bn for acquisitions before hitting SC’s 0.5x gearing cap.

- Maintain NEUTRAL. Earnings forecasts are unchanged. Our fair value for KLCCP is now raised to MYR7.65 (from MYR6.56) as we revised our assumptions on Lot D1’s market value in our SOP valuations. We maintain NEUTRAL on KLCCP, as the market has priced in all the positive news from the “stapling” exercise.

Source: RHB