➢ KIP REIT’s 6MFY24 realised net profit improved by 15% yoy to RM19.4m on the back of improved occupancy rate from its retail assets and contribution from industrial properties acquired in Jul-22

➢ Sequentially, KIPREIT’s 2QFY24 realised net profit improved by a robust 21.1% qoq on the back of improved revenue across both retail and industrial segments. However, its 2QFY24 operating expenses were higher by 22.6% qoq on higher utility cost

➢ Maintain HOLD with an unchanged DDM-derived target price of RM0.90. While we like KIPREIT for its assets with differentiated market positioning and the management’s approach, we are cautious about the outlook for micro tenants over recessionary risks

6MFY24 Realised Net Profit Grew by 15% Yoy – Within Our Expectations

KIPREIT reported a decent set of results – 6MFY24 realised net profit grew by 14.9% yoy to RM19.4m on the back of (i) improved occupancy rate from its retail assets, (ii) additional contribution from newly acquired industrial properties and (iii) lower REIT expenses by 21.4% yoy to RM4.9m. However, its 6MFY24 NPI margin was weaker by 0.4ppts as its improved revenue of RM42m (+6.1% yoy) was unable to offset its higher operating expenses of RM10.8m (+7.9% yoy) arising from an increase in utilities and sewerage costs. Overall, the results were within our but below consensus expectations – KIPREIT’s 6MFY24 realised net profit accounted for 48% and 42% of the street and our full-year earnings forecasts, respectively.

Sequentially, 2QFY24 Realised Net Profit Improved by 11% Qoq

Sequentially, KIPREIT’s 2QFY24 realised net profit improved on a robust 21.1% qoq on the back of improved revenue across both retail and industrial segments. However, its 2QFY24 operating expenses were higher by 22.6% qoq, primarily led by higher utility cost (+31% qoq). Overall, 2QFY24 DPU was flattish qoq at 1.55sen.

Maintain HOLD With An Unchanged DDM-derived Price Target of RM0.90

We maintain our earnings forecasts, HOLD rating and DDM-derived 12-month price target of RM0.90. While we like KIPREIT for its assets with differentiated market positioning and the management’s expansion aspirations, we are cautious on the outlook for micro tenants over recessionary risks. Downside risks are weaker-than-expected economic growth, earnings disappointment, and steeper-than-expected hike in OPR and global bond yields. Upside risks: stronger-than-expected quarterly earnings, unexpected cut in OPR and sharp decline in global bond yields.

Source: Affin Hwang Research - 30 Dec 2024