3Q15 results came in line with our/consensus estimates. Maintain NEUTRAL with SOP-based TP of MYR7.06 (1% upside). We believe KLCCSG’s earnings will likely remain stable, supported by positive rental reversion from Suria KLCC and a stable office segment. We also view the pipeline of developments within the Suria KLCC vicinity positively as we think it will ensure a robust growth going forward.

In line. KLCC Stapled Group (KLCCSG) recorded a 3Q15 core net profit of MYR150m (-12.4% YoY, -16.4% QoQ). This brings 9M15 core profit to MYR508.4m, in line at 74%/75% of our/consensus full-year estimates. 3Q15 revenue increased marginally by 1.3% YoY due to the stable revenue from its office segment (despite the closure of City Point in Kompleks Dayabumi (KD) from ongoing refurbishments) as well as from Suria KLCC’s higher rental rates, effective from 3Q15. There was also a notable improvement from Mandarin Oriental (MO)(+30% QoQ, +4.2% YoY) following the completion of its renovations and increased F&B activities. Additionally, an 8.15-sen dividend per stapled share was declared, bringing interim DPS to 71% of our full-year forecast of 35.2 sen. Gearing also remained healthy at 21% as of 3Q15.

Latest developments. Management shared during our recent meeting that its parent, KLCC Holdings (KLCCH), has been notified that its current multi-level carpark is likely to be demolished to make way for the MRT Line 2 station. That said, KLCCH is still awaiting the station alignments to be finalised before proceeding with the demolishment. A 2-storey retail podium is also in the plans for the said station. Additionally, the REIT also mentioned that KLCCH has an ongoing JV with Sapura Resources Bhd (SPB MK, NR) to build a 50-storey office building with 2-storey retail floors next to KL Convention Centre. These developments are expected to be completed by year 2020. We also note that there will be an additional 2,400 carpark bays to be added near its Suria KLCC mosque. This new carpark will be connected with its existing underground carpark bays and is expected to be completed by 2018. We expect these ongoing developments by KLCCH to benefit KLCCSG in the future due to the inorganic growth opportunities.

Maintain NEUTRAL. We keep our forecasts and SOP-based TP of MYR7.06 (1% upside) 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.

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 Research - 12 Nov 2015