KLCC Property - Result within expectations

KLCC Property’s net profit for 1QFY10 came in at RM60.4m, slightly up 4.3% yoy, mainly contributed by higher rental income from offices, a retail mall and car park management. Results are in line with our and consensus estimates. Rental rates at Menara ExxonMobil were revised from RM5.20psf currently to market rates of RM7psf. KLCC Property’s revenue stood at RM217.1m, slightly up by 1.4% yoy and 2.6% qoq.


Strong office rentals likely to compensate for slowdown in retail mall and hotel operations. We believe a potential slowdown at the Suria KLCC retail mall and Mandarin Oriental Hotel in FY10 due to a sluggish economy is compensated for by the strong rental reversion from the office segment. KLCC Property has locked in rental income under long-term leases with bluechip tenants for Petronas Twin Tower (Petronas), Menara Maxis (Tanjong), Menara ExxonMobil (ExxonMobil) and Dayabumi (MISC) where default risks are minimal. Moreover, the next rental revision for Petronas Twin Tower, due in Oct 09, is expected to increase rental by 9% to RM9psf. Long-term office rentals are likely to contribute about 51% of FY10 EBIT.

We maintain our target price at RM3.40 based on a 35% discount to our RNAV of RM5.37/share (which implies 0.6x target FY10F P/B against the historical average of 0.8x).