• KLCCP Stapled Group (KLCC) reported a lower FY20 core net profit of RM634.6m (-13.3% yoy) mainly due to operating losses from the hotel segment and rental assistance to retail tenants
   
• The results were within our expectations but below the street’s
   
• Maintain BUY with an unchanged target price of RM7.88. At a 5.6% 2022E yield, valuation looks attractive

FY20 Core Net Profit Fell by 13.3% to RM634.6m

KLCC’s net profit fell by 45.3% to RM432.2m mainly due to lower EBIT contributions from all segments (Fig 2). The earnings decline can be attributed to (i) the rental assistance extended to retail tenants, (ii) lower advertising and car park income, (iii) lower hotel occupancy and corporate/event bookings, and (iv) impairment of investment property under construction (IPUC) in 4Q20. Excluding extraordinary items, KLCC’s core net profit fell by 13.3% to RM634.6m. Tracking the lower earnings, KLCC’s FY20 DPS came in lower at 30 sen (-21.1% yoy). Overall, the results were below the street’s but within our expectations – making up 95% of the street’s and 101% of our full-year expectations.

A Marginal 2.5% Increase in Core Net Profit in 4Q20 From Lower Tax

KLCC’s 4Q20 core net profit increased by a marginal 2.5% qoq to RM160.6m from lower tax expense and as we stripped out an RM81.4m impairment of IPUC from the on-going development of Kompleks Dayabumi Phase 3 and fair-value loss on properties of RM142.5m recognised this quarter. Meanwhile, the quarter saw the reimplementation of CMCO which dampened revenue contribution by 2.5% qoq. The retail segment posted a 7.3% revenue decline qoq as the recovery in December, post the lift in interstate travel and end-year sales failed to offset weakness from the 2-month long lower office crowd.

Accomplishment Highlights in 2020

Despite the challenging year, KLCC saw some accomplishments from all asset segments. The office segment saw the extension of the triple net lease agreement for Petronas Twin Towers and Menara 3 Petronas for a further 15 years, while the retail segment saw the completion of the overall anchor-to-specialty space configuration with a total of 72 tenants secured for the space, of which 40 are the first stand-alone stores in Malaysia and exclusive to Suria KLCC. Its carpark has also transitioned to be fully cashless. While the hotel segment remains weak, Mandarin Oriental has ramped up creative and tailored staycation packages to attract more visits.

Source: Affin Hwang Research - 29 Jan 2021