2Q15 results came in line with estimates. Maintain NEUTRAL with SOPbased TP of MYR7.06 (3% downside). We believe KLCCSG’s earnings will likely remain stable, supported by positive rental reversion from Suria KLCC and a stable office segment. Despite the soft consumer sentiment and partial closure of its assets due to refurbishments, we think KLCCSG will be able to meet our FY15’s 35.2 sen DPU forecast.

In line. KLCC Stapled Group’s (KLCCSG) recorded a 2Q15 core net profit of MYR179.9m (+19.2% YoY, +0.8% QoQ). This brings 1H15 core profit to MYR358.4m, in line at 52%/53% of our/consensus full-year estimates. 2Q15 revenue fell a marginal 1.1% YoY due to the partial closure of Mandarin Oriental’s (MO) common area for refurbishments (-22% YoY) and weaker demand. Meanwhile, revenue for its office segment remained relatively stable (-0.5% YoY) despite the closure of City Point in Kompleks Dayabumi (KD) from ongoing refurbishments. The retail segment saw a 5.2% YoY revenue growth, driven by the kickin of higher rental rates for Suria KLCC during the quarter. Additionally, core profit was boosted by lower interest expense due to lesser shortterm borrowing YoY and higher profit contribution from associate companies. An 8.34-sen dividend per stapled share was declared for the quarter, bringing interim DPS to 47% of our full-year forecast of 35.2 sen. Gearing also remained healthy at 15.1% as of 2Q15.

Latest development. We think in the medium term, contributions from Suria KLCC should remain stable due to its positioning as a tourist destination. Furthermore, the mall has been able to book higher rental rates despite the current soft market conditions. Meanwhile, growth in its office segment should remain stable throughout the year, supported by its long-term triple net leases. We also view that its hotel division may continue to face a slowdown in earnings growth as a result of continuallyweak market demand and the partial closure of MO’s common area due to ongoing refurbishments. That said, as its hotel operations only contribute about 10% of total revenue, we believe the growth in office and retail segments could offset the underperformance of MO.

Maintain NEUTRAL. We keep our earnings forecasts, NEUTRAL call and SOP-based TP of MYR7.06 for now. Despite the persistently soft office market and management’s expectation of a low single -digit rental reversion for Suria KLCC this year, we believe earnings will likely remain stable and secured, as its assets are: i) mostly premium, ii) strategically located in the tourist area, and iii) on long-term leases.