KLCCSS’s 1QFY21 core PATAMI of RM146.1m (-19.8% QoQ, -17.4% YoY) was within ours and consensus expectations. Declared dividend of 7 sen per share (KLCC REIT: 6.01 sen). Top line fell driven by MCO2.0 which mainly affected hotel (suspension of events) and retail segments (tenant assistance packages). We leave our FY21-22 forecasts unchanged, updated FY20 audited accounts and introduced FY23 estimates. Maintain BUY with unchanged TP of RM7.82 based on FY22 DPU on targeted yield 4.5%. We like KLCCSS given its resilient office segment, prime location retail and Shariah compliant REIT.

Within expectations. 1QFY21 core PATAMI of RM146.1m (-19.8% QoQ, -17.4% YoY) was within both ours and consensus expectations, at 23%-22%, respectively.

Dividend. Declared 1st interim dividend of 7.00 sen per share (KLCC REIT: 6.01 sen, KLCC Property: 0.99 sen) going on ex on 20 May 2021 (1QFY20: 8.30 sen).

QoQ. Revenue fell (-7.3%) to RM282.4m, due to weaker showing at retail (-8.3%) and hotel (-5.8%) segments as well as lower management services (-22.4%). Retail and hotel services were affected mainly due to MCO2.0 (13 Jan – 4 Mar 2021) which led by tighter restrictions on operations as well as cancellation of room bookings and suspension of events. However, some restriction uplifts in early Mar led to gradual pick up in both segments. Management services performances was lower due fewer one-off facility maintenance projects performed and lower car park income. Office segment remained stable (+1.5%), backed by their long-term triple net lease agreements. Core PAT declined (-6.7%) in line with top line reduction. Nonetheless, core PATAMI dipped by 19.8% to RM146.1m coming off from favourable MI movement back in 4Q20.

YoY. Top-line dipped (-20.4%) mainly due to hotel (-67.8%) and retail (-32.5%) segments. Hotel segment was severely affected due to suspension of events in addition to the country’s border being closed for international tourists. Retail segment was impacted primarily due to tenant assistance packages coupled with lower digital advertising income. This led to the fall in core PAT (-22.4%) and core PATAMI (-17.4%).

Occupancy and gearing. Retail occupancy fell to 94% (1QFY20: 98%) while hotel occupancy dropped to 16% (1QFY20: 44%). Office occupancy remained at 100%. Gearing level marginally increased to 18.2% (FY20: 18.0%).

Outlook. Management anticipates FY21 to continue to be challenging despite national Covid-19 vaccination rollout. We expect office segment to remain stable backed by its long-term triple net leases. We foresee the hotel segment to remain challenging as borders are still closed, but hopeful for domestic tourists’ contribution from improvement in occupancy and F&B revenue seen after Chinese New Year contributed by “staycation” promotions and gradual opening of facilities. We are also optimistic on improvement in the retail segment as footfall recovered to 60% of pre-Covid-19 level post Chinese New Year which led to higher tenant sales in Mar. However we will not discount the possibility of potential continuation of tenant assistance.

Forecast. We leave our FY21-22 forecasts unchanged, updated our model for FY20 audited accounts and introduce FY23 forecasts.

Maintain BUY, TP: RM7.82. Maintain BUY with unchanged TP of RM7.82. Our TP is based on FY22 DPU on targeted yield of 4.5%, derived from 2 years historical average yield spread of KLCCSS and 10 year MGS. We like KLCCCS given its resilient office segment, prime location retail and Shariah compliant scarcity amongst REITs.

Source: Hong Leong Investment Bank Research - 5 May 2021