KENANGA: KLCC Property Holdings - Gearing up to lower interest cost

KLCC Property Holdings - Gearing up to lower interest cost (Company Update)



Price: RM2.86

Target Price: RM4.37

Recommendation: BUY



· RM420m new credit facilities... KLCC Property Holdings (KLCCP), via its 75% owned subsidiary Asas Klasik Sdn Bhd (AKSB) or the owner of Mandarin Oriental (MO), entered into an agreement to get up to RM420m credit facilities from Public Bank. This is in line with management's earlier guidance to refinance up to RM1b of existing loans in the next 3 years.

· ...to facilitate on-going KLCC developments. The additional gearing will be used to facilitate the working capital requirements of Lot C and the underground tunnel linking Lot C to Lot D1 in the KLCC Development area. Typically, KLCCP's projects are financed on a 3:2 debt-equity ratio.

· Increased gearing but lower future interest expense! FY08E and FY09E gearing of 32.5% respectively, has increased to 34.9% and 35.6%, respectively. However, via re-financing management expects up to 47% savings in future finance cost due to lower interest rates, which is not surprising given the strong credit rating and fundamentals of KLCCP. Recall that KLCCP re-financed some RM400m loans relating to Suria KLCC at lower interest rates.

· Maintaining FY08E net profit of RM660m and tweaking FY09E net profit lower by 2% to RM242m, respectively, to account for higher gearing and lowered effective interest rates.

· Unchanged target price of RM4.37. Fantastic buying opportunity given the recent sell-down in KLCCP, 53% premium to its last trading price while FY08E and FY09E PER are undemanding at 4x and 10x, respectively. Maintain BUY.





KENANGA INVESTMENT BANK BERHAD (15678-H)

Research Department