Softer earnings outlook
KLCCP’s net property income (NPI) growth is likely to be subdued as new asset injections are unlikely any time soon. However, 2014 willsee its net profit boosted by lower tax rates as its stapled structure takes full effect.
Our DDM-based target price is reduced to RM6.10 (from RM6.90 previously) as we increase our cost of equity assumption to 8% from 7.3% previously. Due to the change in our rating structure KLCCP is now a Hold (from Neutral previously). For exposure to Malaysian property, we prefer the country‘s property developers instead.
Full-year as a REIT
KLCCP's REIT structure only came into effect around mid-2Q13, thus its earnings in 2013 still reflect the higher tax rates. In 2014, KLCCP will have a full-year of being a stapled structure thus we expect its tax rates to be lower next year owing to the REIT portion of the stapled securities. About 90% of the group's earnings would be derived from the REIT, which is tax exempt. We thus expect tax rates for FY14 to be significantly lower than the statutory tax rate at around 11-12%.
New asset injections hard to come by
Although KLCCP's balance sheet remains healthy with a net gearing of less than 10% (thus allowing it to pursue more acquisitions in the future), we believe that new asset injections would be hard to come by. This is due to the current status quo between buyer and seller resulting in a lack of acquisitions.
Developments later than sooner
External acquisitions aside, KLCCP's property development projects would only be complete within 2-3 years at the least. Its Menara Dayabumi for example, has not yet reached a final investment decision (FID) which is expected by end-2013. The subsequent groundwork for the project is only expected to start in 2Q14. On Lot D1, the development remains in planning stage and is expected to begin construction by end-2014. As such, it seems earnings boost from internal acquisitions would not come by any time soon.
Publish date: 10/12/13