FY10 within expectations
- FY10 recurring net profit (RNP) of RM237m came within expectations, accounting for 98% of street’s FY10E RNP of RM242m and 100% of our RM237m. Topline of RM881m was spot-on with our estimates. KLCC Property Holdings (KLCCP) proposed a final DPS of 6.0sen (tax exempt under single tier tax), bringing full -year DPS to 11.0sen (3.3% yield) vs. our estimated 10.9sen.
- YoY, FY10 RNP stepped-up 3%. Growth was slightly muted albeit higher rentals from ExxonMobil, Dayabumi and Suria because of lower fair value gains from associates (Menara Maxis); this resulted in FY10 share of associa tes being 55% YoY lower to RM16m. Notably, finance costs declined 10% YoY to RM142m based on lower effective interest rates of 7.1% (FY09: 7.5%) and less borrowings.
- QoQ, 4Q10 pretax profit ballooned 593% to RM900m on the back of RM758m (+49%) revaluation gains. Petronas Twin Towers (PTT) and Suria KLCC (Suria) made -up bulk of the gains or 53% and 46%, respectively. Mandarin Oriental’s 4Q10 revenue contribution slid 7% QoQ to RM36m due to 3Q10 high -base effect from festive seasons. Nonetheless, 4Q10 EBITDA grew marginally by 2% to RM172m as all segments report growth in pretax profits.
- Tweaking FY11-12E net profit higher by 2%-1% to RM256m - RM263m to reflect adjustments arising from updating FY10 figures. We have yet to impute for Lot C retail (completion in 3QFY11) or Lot C offices (completion in 4QFY12) until further details are provided.
- Maintain HOLD with unchanged fair value of RM3.44, based on SOP RNAV. We expect share price to remain capped in the short to medium term due to dilution issues arising from uncertain RCULS conversion timeline. But there is minimal downside risk as rental rates and quasi recurring income from MO and Suria KLCC should strengthen inline with economic recovery. Rerating of earnings likely post FY11 from Lot C contributions and long -term lease renewals from PTT and Maxis. At current share price, the stock is fairly valued at 1) 16x FY31Mar11E FD PER vs. 16x historical average 2) 0.8x FD PBV vs. with 0.8 x historical average.
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