We came away from  KLCCSG’s briefing with better clarity  on its  future prospects.  Maintain  NEUTRAL  and  MYR7.06  TP  (2.3%  upside).Management  still aims to achieve  revenue  growth of 5-8% for FY15  on the back of  expected stable growth  for  its office assets, although retail and hospitality segments could see some setbacks. Development plansare on track and could boost longer-term earnings.

Concerns  addressed.  Management  addressed  concerns  on  KLCC Stapled  Group’s  (KLCCSG)  2015  outlook  during  its  briefing. Management is optimistic about achieving revenue growth of about 5-8% for 2015, on the back of stable growth  for  its office properties  which are on long-term leases,  as well as the kick-in of Menara 3 Petronas’ higher rental rate.  As such,  it  is confident of  paying out a higher dividend from FY14’s 33.6 sen. On the development side, it expects to continue on with its current plans. Kompleks Dayabumi’s Phase 3 major redevelopment isstill on track for completion in 2018-2019.  KLCCSG has also disclosed that  the  ongoing  development  of  Lot  185  (situated  near  the  KLCC mosque) by its parent is well underway, and will consist of 500,000  sqf retail space, an office block and a hotel block. This could potentially be injected  into  KLCCSG  upon  completion,  although  it  is  unlikely  to materialise soon.

Slightly  cautious  on  retail  and  hospitality  segments.  Management expects  to see slower growth for  Suria KLCC  over the short term postthe goods and services tax (GST), although it is confident that sales will bounce  back  once  consumers  adapt  to  the  GST.  About  30%  of  NLA (excluding  anchors)  is  due  to  be  renewed  in  2015,  and  KLCCSG  will likely take this opportunity to do some tenancy remixing  to maintain the mall’s  sustainability.  That  said,  rental  reversions  over  a  3-year  period remain  healthy at 12%, with occupancy stabilising  at 98%.  The outlook remains  challenging  for  the  hospitality  segment,  given  lower  visitor arrivals  and with new hotels coming up over the next one to two years. As such, management is guiding for MYR100m capex for FY15, and thebulk  of  this  will  be  used  for  upgrading  meeting  rooms  and  facilities  in Mandarin Oriental to maintain its competitiveness.

Maintain  NEUTRAL.  We  make  no  changes  to  our  earnings  forecasts. Our  SOP-based  TP  is  maintained  at  MYR7.06.  We  reiterate  our  view that KLCCSG  will  likely  continue to record decent growth from both its property investment and development segments.

Source: RHB