KLCCSS’s 9MFY21 core PATAMI of RM425.5m (-10.2% YoY) was within ours and consensus expectations. Declared dividend of 7 sen per share (KLCC REIT: 6.16 sen). YTD, top line fell (-11.9% YoY) mainly due to hotel segment (-45.5%; cancellation of rooms and events), and retail segment (-22.6%; tenant assistance packages as well as lower advertising income). We maintain our forecast, reiterate BUY with unchanged TP of RM7.68 based on FY22 DPU on targeted yield 4.5%. We like KLCCSS given its resilient office segment, prime location retail (aid in recovery from Covid-19) and being a Shariah compliant REIT.

Within expectations. 3QFY21 core PATAMI of RM135.4m (-6.0% QoQ, -13.6% YoY) brought 9MFY21’s sum to RM425.5m (-10.2% YoY). The results came in within both ours and consensus’ expectations at 71% and 72% respectively.

Dividend. Declared 3rd interim dividend of 7.0 sen per share (KLCC REIT: 6.16 sen, KLCC Property: 0.84 sen) going on ex on the 22nd Nov 2021 (3Q20: 7.50 sen).

QoQ. Revenue fell (-7.1%) to RM260.3m in all segments which was led by weaker hotel segment contribution (-31.0%) due to better performance in previous quarter thanks to Ramadhan promotions (Apr) and retail (-20.3%) segment on rental assistance provided to support affected tenants. Core PATAMI declined (-6.0%) in line with top line reduction.

YoY. Top line was lower (-16.7% YoY) in all segments. This was primarily due to weaker contribution from (i) hotel segment (-49.5%) due to the travel restrictions, (ii) retail segment (-36.0%) due to higher rental assistance being provided, as well as (iii) management services (-7.9%) with lower car park income. Finance cost declined (-5.6%) on lower interest rates. In turn, core PATAMI was lower (-13.6%).

YTD. Revenue of RM822.9m saw a decline (-11.9%) mainly driven by weaker performance in (i) hotel segment (-45.5%) on cancellations of room bookings and events due to travel restrictions, (ii) retail segment (-22.6%) due to ongoing tenant assistance provided as well as lower promotion and advertising income. The lower finance cost (-5.2%) slightly cushioned the decline in core PATAMI (-10.2%).

Occupancy and gearing. Retail occupancy fell to 93% (9MFY20: 97%) while hotel occupancy dropped to 11.7% (9MFY20: 21%). Office occupancy remained at 100%. Gearing level increased slightly to 18.4% (from 18.1% 2QFY21).

Outlook. We expect a stronger 4Q to be driven from the transition of NRP Phases, paired with festivities seasons. We are hopeful, as we understand since Phase 2 started (Sep), retail footfall has recovered to c.30%-40% of pre-pandemic levels, and with the allowable interstate travel, hotel occupancy has seen tremendous improvement (could reach above 50% on weekends).

Forecast. Maintain as the Results Were in Line.

Maintain BUY, TP: RM7.68. Maintain BUY with unchanged TP of RM7.68. 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 - 9 Nov 2021