- Keep NEUTRAL and MYR7.08 TP, 4% upside and c.5% yield. KLCCP Stapled reported results that were in line with expectations, as the retail and hotel segments continue to report sequentially better performances due to the economic recovery. While the performance YTD has been encouraging, the macroeconomic headwinds from a rising interest rate and inflationary environment may inhibit the recovery pace moving forward.
- Results in line. 3Q22 core profit of MYR176.6m (+6.9% QoQ, +30.4% YoY) brought 9M22 earnings to MYR503.2m (+18.3% YoY), which is at 74% of our and consensus’ full-year estimates. On a YoY basis, 9M22 revenue increased 27.1% thanks to the strong tourism recovery, increase in tenant sales and footfall, and contributions from the additional car park bays secured in 1Q22. The office segment remained steady, underpinned by KLCCP’s long-term lease structures – it recorded a 0.1% revenue increase QoQ, although PBT decreased slightly by 1.5% due to one-off expenses for Kompleks Dayabumi. A DPU of 8 sen was declared for the quarter, bringing 9M22 DPU to 24 sen (9M21: 21 sen).
- Moderating retail sales. YTD-September tenant sales remained above pre-pandemic levels at 106% despite footfall remaining low at just 65%. The strong retail momentum led to a 6.7% higher QoQ revenue despite the already high base in 2Q22, which was attributed to revenge spending and the Aidil Fitri festivities. The occupancy rate for Suria KLCC remained stable at 92% (3Q21: 93%), with rental reversions remaining flattish in the year. Despite the strong performance, management guided that tenant sales have moderated since August as consumers turn more cautious amid the inflationary environment. While we think the performance in 4Q should remain strong, the momentum may slow down next year if the inflationary environment persists.
- The hotel segment is recovering well, with the occupancy rate improving to 55.3% (2Q22: 43%), led by returning international visitors and Meetings, Incentives, Conferences, & Exhibition or MICE events. The segment recorded a LBT of just MYR2.4m (2Q22: -MYR8.3m), and weekday occupancy peaked at 60% in September, driven by the improvement in business and group bookings. We think the hotel segment can break even in 4Q22, as the number of tourists continues to increase. The Tourism, Arts, & Culture Ministry has revised upwards its target of attracting 9.2m tourists this year after almost surpassing its initial 4.5m target in August.
- Maintain NEUTRAL. We keep our earnings forecasts unchanged. Our TP incorporates a 2% ESG premium based on our in-house methodology. While we like KLCCP for its stable office segment, we remain cautious on the outlook for the retail wing, as the inflationary environment and supply glut in this segment may inhibit the retail recovery moving forward.
Source: RHB Research - 11 Nov 2022
