KLCCSG’s  FY14  results  came  in  within  estimates.  Maintain  NEUTRAL with  a  revised  SOP-based  TP  of  MYR7.06  (3.8%  upside).  Despite  its office assets’ high exposure to the oil and gas sector, we expect growth to still be manageable in 2015 as most of its  office assets are on triple net leases.  We are cautious on the prospects for Suria KLCC, given the expected slowdown in consumer sentiment.

In  line.  KLCC  Stapled  Group’s  (KLCCSG)  4Q14  core  net  profit  of MYR175.4m  (+6.3%  YoY,  +2.4%  QoQ)  brought  FY14  core  profit  to MYR639.1m  (+15.3%  YoY),  in  line   with  our  and  consensus  estimates. FY14 revenue grew  5.5%  YoY  due to  better performances from almost all segments, although revenue for the office segment was flat YoY.  Net profit  growth  continued  to  be  buoyed  by  substantial  tax  savings  as  a result  of  the  REIT’s  structure  and  better  performance  from  its management services segment. An  8.75  sen dividend per stapled share was declared for the quarter, bringing total FY14 dividend to 33.7 sen.

Near-term growth likely to still be manageable.  Although  the tenants for  KLCCSG’s  office assets  are mainly related to the oil and  gas sector, we believe  these assets will be insulated from  any vacancy risk  due to the  lease  terms  for  the  assets.  Petronas  is  the  master  lessee  for Petronas Twin Towers and Menara 3  Petronas,  and the triple net  leases(TNL)  for these  assets  will  only  expire  in  2027  and  2026, respectively.Menara ExxonMobil  is also under a TNL  (with ExxonMobil as the master lessee) and the lease will only expire in 2017. That said, given the recent oil  price  slump,  we  are  unsure  if  Phase  3  of  Kompleks  Dayabumi’s refurbishment,  which  was  previously  targeted  to  start  in  2015,  will  be delayed.  We  are  cautious  on  the  growth  prospects  for  its  60%-owned Suria  KLCC  in  2015,  as  we  believe  there  could  be  some  knee-jerk reaction  to  retail  sales  once  the  goods  and  services  tax  (GST)  is implemented in April.

Earnings  forecasts.  We  make  no  major  changes  to  our  FY15-16 forecasts  pending  a  briefing  tomorrow.  We  have  introduced  our  FY17 figures.

Maintain  NEUTRAL.  Our  SOP-based  TP  is  now  higher  at  MYR7.06(from  MYR6.96)  after  rolling  over  to  2015  and  tweaking  some  key valuation  parameters.  We  reiterate  our  view  that  KLCCSG  shouldcontinue to record decent growth from both its property investment and development segments going forward. 

Source: RHB