KLCI : 1,815.34
Price Target : 12-Month RM 8.55
Still benefiting from stapling
FY13 profit within our estimate but above consensus’
29sen DPS implies 5% distribution yield
Stable office asset earnings and robust retail revenues going forward; triple net lease minimises cost pressure
Maintain BUY with RM8.55 TP
FY13 in line. 4Q13 net profit (excl. RM271m revaluation gains) jumped 75% y-o-y (-2% q-o-q) to RM174m due to lower tax expenses from asset transfers to KLCC REIT post-stapling. Revenue was flat y-o-y (+3% q-o-q) as the Petronas Twin Towers triple net lease was renewed in 4Q12.
Retail revenues fell 1% yo- y (+3% q-o-q) as 4Q12 included RM11m in turnover rent for previous periods; excluding this, it would have grown 9% y-o-y. Hotel revenue grew 9% q-o-q on seasonal improvements but was flat y-o-y. However, higher operating costs in office and hotel segments reduced EBIT by 6% y-o-y. FY13 profit is 100% and 108% of our and consensus estimates, respectively.
Resilient fundamentals. Petronas Twin Towers, Petronas Towers 3 and Menara ExxonMobil will provide stable cash flows for KLCC Stapled Security, while rental reversions at Suria KLCC will drive near-term earnings growth. Despite cost pressures on consumer purchasing power, demand for retail space will remain resilient given Suria’s super prime asset location in a tourism belt, which will underpin retail sales through the Visit Malaysia 2014 campaign. Long-term growth for KLCC will be underpinned by redevelopment of City Point and Lot D1; it is sourcing for tenants even before construction starts. We are retaining our forecasts pending the analyst briefing on 24 Jan 2014.
Maintain BUY. We have not factored in higher assessment taxes and electricity tariffs but preliminary estimates indicate 2%/5% downside to FY14F/15F earnings. However, this may be passed on through rental reversions on expiring leases and potentially higher service and promotional charges. Only Suria KLCC, Mandarin Oriental and Kompleks Dayabumi will be exposed to higher costs as the rest of its assets are triple net leased. A rerating catalyst for the stock would be the injection of Suria KLCC into KLCC REIT, but this is a medium-to-long term play. The stock also offers 6% forward distribution yield for exposure to a prime asset portfolio and stable earnings.
Publish date: 22/01/14