Solid enough to weather the financial storm
The words "solid" and "dependable" are often used to describe the mundane KLCC Property Holdings Bhd. However, given the current market turmoil, these two qualities have turned the property owner into a credible defensive stock.
Backed by a strong portfolio of buildings in prime locations with long lease agreements and reputable tenants, it is easy to see why analysts favour KLCC.
"KLCC's earnings from its property investment segment are locked in with lease agreements and predictable upward rent revisions for buildings such as the Petronas Twin Towers," says Citigroup.
While most are expecting growth to moderate in the near term as the global credit crunch tempers consumer spending, KLCC — with its significant exposure to the retail office segment — is expected to weather the storm better than most.
There could also be a few earnings surprises for the stock, going forward, which dropped 28% from the beginning of 2008. The stock was trading at RM2.74 on Dec 30, 2008.
KLCC has consistently declared gross dividends of 8 to 10 sen a share, giving it a yield of 2.9% to 3.6% — far greater returns than keeping your money in a fixed deposit account.
According to analysts, future earnings growth will come from the development of its last two lots of land, potentially higher rates from the renewal of lease agreements and capital value growth.
The development of the two lots, scheduled to start in 1H2009, is expected to add two million sq ft to KLCC's existing net lettable area of five million sq ft by 2014. The presence of Petronas as a major shareholder certainly adds to the stock's glitter, say analysts.
"Its (Petronas') strong patronage has allowed KLCC to benefit from cheaper sources of financing. In addition, Petronas, which owns KL Convention Centre, could take the lead role by injecting assets into KLCC in the future," says RHB Research, which values the company's stock at RM3.09.
Fundamentally, the company is strong with a low net gearing of 0.4 times and stable net operating cash flow of above RM400 million. With a total asset value of RM9.5 billion and the pedigree of its major shareholder, KLCC looks more than equipped to ride out the crisis.
