KLCC: Stable 9M25 Performance Supported by Key Segments, Neutral Outlook Persists

A leading financial entity has reported its 9M25 core earnings were in line with expectations, driven by the resilient performance of its office and retail segments. Despite a slight dip in overall revenue, the group maintained stable margins and a manageable gearing level, prompting its investment bank to reiterate a “Neutral” rating with a target price of MYR8.52.

Performance Review

For the first nine months of 2025, core earnings reached MYR611.1 million, marking a 4.3% year-on-year increase and meeting 72% of both the investment bank’s and consensus full-year estimates. Revenue, however, experienced a marginal decline of 0.4% year-on-year, totaling MYR1,246.9 million. A third-quarter 2025 dividend per share (DPS) of 9.5 sen was declared, bringing the year-to-date dividends to 27.9 sen.

The office segment demonstrated strong resilience with 100% occupancy and long-term lease structures, contributing to flat revenue performance. The retail segment experienced a slight year-on-year revenue decline due to tenant transitions, though its base rent structure and strong tenant mix provided a solid foundation. The hotel segment, which saw an 8.5% year-on-year revenue drop in 9M25 largely due to a grand ballroom renovation in the first half of the year, showed a significant rebound quarter-on-quarter with an 18.2% increase. Management services also improved by 7.4% quarter-on-quarter. Overall, core profit before tax (PBT) rose 4.7% quarter-on-quarter, with core net profit climbing 4.3% quarter-on-quarter. Margins remained stable, with the EBIT margin at approximately 64%. The group’s financing is fully on fixed rates (100% as of Sep 2025), ensuring stable interest expenses, and gearing stands at a manageable 32%.

Challenges and Outlook

Despite the stable performance, the investment bank highlights several challenges that limit upside potential. The entity’s fixed rental structure restricts its ability to fully capitalize on the anticipated tourism recovery. Additionally, a high proportion of fixed-rate debt reduces its capacity to benefit from recent policy rate cuts. The office portfolio, while fully occupied with a weighted average lease to expiry (WALE) of 10.4 years, offers income visibility but little room for significant growth. Retail is expected to see low single-digit annual rental reversions.

Looking ahead, earnings are projected to remain stable, primarily driven by the robust office and retail segments. The hotel segment is anticipated to continue its recovery, boosted by Meetings, Incentives, Conferences & Exhibitions (MICE) activities and the upcoming Visit Malaysia Year 2026. Management has indicated no near-term asset injection plans unless supported by stable income, reflecting a disciplined capital deployment strategy. While fundamentals remain solid with a stable yield, the report concludes that near-term catalysts are limited. The investment bank maintains its earnings forecasts and a Dividend Discount Model (DDM)-derived target price of MYR8.52, which includes a 4% ESG premium. This target price implies a FY26F yield of approximately 5%, positioned about 200 basis points above the 10-year Malaysian Government Securities yield.