KLCC Property - Outperforming expectations again

KLCC Property - Outperforming expectations again (Results Note)
Price: RM3.26
Target Price: RM4.37
Recommendation: BUY


· 9M08 net profit of RM177m was above expectations and accounted for 86% and 82% of our and street FY08E net profit forecast. KLCC Property (KLCCP) sterling results are attributed to increased rental of office rental building, especially for Petronas Twin Towers (PTT) which had its triple-net rental revision of 27% this financial year.

· YoY, 9M08 pretax profit grew 22%, on the back of increased revenue from Suria KLCC (Suria) due to higher rental rates while maintaining high occupancies. Another contributing factor is lower interest expense by 8% due to total borrowings decreasing by 7% to RM2.1b.

· 3Q08 net profit fell 28% YoY to RM52m. This was largely due to lower average room rates and occupancy for Mandarin Oriental for 3Q08. Also contributing to the decline is lower pretax profit from its management services which dropped 12% to RM4.6m.

· Upward revision of 220% in FY08E net profit forecast to RM660m to account for c.RM427m revaluation gains from KLCCP investment properties (FRS 140). Our revision also includes a 13% increase in FY08E recurring net profit to RM233m relating to Suria KLCC higher rental rates.

· Unchanged target price of RM4.37, based on our conservative sum of parts RNAV (assuming 50% dilution of RCULS), which is a 34% upside to its trading price. FY08E and FY09E PER is fair at 5x and 13x, respectively. Maintain BUY recommendation.



KENANGA INVESTMENT BANK BERHAD (15678-H)

Research Department