KLCCSG’s  2QFY14  core  net  profit  of  MYR150.9m  came  in  line  with expectations.  Its  1HFY14  net  profit  grew  21.9%  y-o-y,  boosted  by incremental revenue from rental reviews, lower expenses and  a decline in  effective  tax  rate  after  the  setting-up  of  KLCCSG.  We  make  no changes  to  our  forecasts,  pending  a  briefing  later  this  week.  Maintain NEUTRAL and an SOP-based FV of MYR6.96.  
 
In  line.  KLCC  Stapled  Group’s  (KLCCSG)  2QFY14  core  net  profit  of MYR150.9m (-18.0% q-o-q, -19.2% y-o-y) brought 1HFY14 net profit to MYR334.9m (+21.9% y-o-y). This came in line at about 52% and 50% of our and consensus estimates, respectively. 1H revenue grew 7.1% y-o-y,  driven  by  incremental  revenue  from  the  retail  and  management services segments. Management services revenue grew 29.2% y-o-y in 1HFY14, mainly due to first-time contribution for managing the properties held under KLCC REIT, which was listed in May 2013. Although interest expense grew by 39.4% y-o-y in 1HFY14, 1H net profit growth was still healthy  at  21.9%  y-o-y,  as  the  increase  in  interest  expense  was mitigated  by  substantial  tax  savings  and  lower  minority  interests  as  a 
result  of  the  REIT’s  structure.  An  8.05  sen  dividend  per  stapled  share was declared for the quarter.  

Triple net leases (TNLs)  should ensure stable growth ahead. Going forward,  we  expect  revenues  from  most  segments  to  remain  stable. These  include  KLCCSG’s  office  assets,  such  as  the  Petronas  Twin Towers  and  Menara  Dayabumi,  which  are  on  TNLs  and  as  such, most property  expenses  are  borne  by  the  tenants.  Meanwhile,  management expects  costs  to  remain  manageable.  The  hotel  segment,  however, should continue to face a challenging environment.  

Earnings forecasts. We  are leaving our forecasts unchanged for now, pending a briefing later this week.

Maintain  NEUTRAL.  We  reiterate  our  view  that  KLCCSG  should continue to record decent growth from both its property investment and development segments. However, we believe that the stock is now fairly valued.  We  maintain  our  NEUTRAL  call  on  KLCCSG  and  our  SOP-based FV of MYR6.96.

 The  effective  tax  rate  has  dropped significantly  since  the  inception  of  the Stapled  Group  in  May  2013,  as  income 
under KLCC REIT is not taxable

Financial Exhibits

Financial Exhibits

SWOT Analysis

Company Profile

KLCC Stapled Group (KLCCSS) consists of KLCC Property Holdings (KLCCP) and KLCC REIT. KLCCP’s primary focus is on property development and investment, while KLCC REIT is an Islamic REIT that owns the iconic Petronas Twin Towers, among others. 

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Source: RHB