FY21 RDI of RM638m came above both our expectation (at 108%) and consensus (at 107%) as 4QFY21 was stronger than expected. FY21 NDPS of 31.10 sen (at 107%) is also above. Maintain FY22E CNP of RM657m and introduce FY23E CNP of RM676m. FY22-23 should be better given the reopening of the economy while KLCC is stably backed by its resilient office assets. Maintain OUTPERFORM but on a lower TP of RM6.90 (from RM7.35) on an unchanged FY22E GDPS/NDPS but on a higher 10-year MGS target of 3.90% (from 3.60%).

FY21 realised distributable income (RDI) of RM638m came in above our expectation (at 108%) and consensus (at 107%). The deviation from our estimate was because 4QFY21 earnings were stronger than expected with less rental holidays. 4QFY21 NDPS of 11.92 sen (5.77 sen single-tier dividend plus 6.15 sen subject to 10% withholding tax) brought FY21 NDPS to 31.10 sen, which is also slightly above our FY21E NDPS of 29.0 sen (at 107%) in line with the stronger earnings.

Results’ highlight. QoQ, top-line was up by 34%, in line with the reopening of the economy which was in full swing in the 4Q. As a result, RDI was up by 41% on the back of tax gains of RM14m. All in, RDI was down by 6%, while net gearing remained low at 0.11x. YoY, top-line was down by 5% due mainly to the retail (-12%) and hotel (-12%) segments. However, lower operating cost (-20%) and lower financing cost (-5%) allowed RDI to increase by 16%.

Outlook. The office segment which is KLCC’s main earnings driver remains stable backed by long-term locked-in tenancies of >15 years. Retail and hospitality segments outlook are looking upbeat with the reopening of malls and return of shopper traffic and as such we are expecting flattish-to-mildly positive reversions going forward. Similarly, the hotel segment is expected to see improvements this year.

Maintain FY22E CNP of RM657m and introduce FY23E CNP of RM676m. Improvement in FY22E earnings will mostly be on better-than- expected revenue contribution from the retail segment on less rental rebates in light of strong 4QFY21 earnings. Additionally, hospitality segment’s occupancy is expected to improve to 45% in FY22 and 60% in FY23 (from 16% in FY21). FY22-23E NDPS of 32.4-33.3 sen imply 5.1- 5.2% net yield.

Maintain OUTPERFORM but on a lower TP of RM6.90 (from RM7.35). Our TP is based on an unchanged FY22E GDPS/NDPS of 34.6 sen/32.4 sen on +1.1ppt yield spread to a higher 10-year MGS target of 3.90% (from 3.60%). Our applied spread is on the lower-end of MREITs under our coverage at +1.1ppt (+1.0ppt to +4.5ppt) as KLCC is backed by stable office segment, triple-net-lease (TNL) structure and Shariah-compliant status while the reopening of the economy would suggest improving earnings for the retail and hospitality segments.

Risks to our call include: (i) bond yield expansion, (ii) lower-than- expected rental reversions, and (iii) weaker-than-expected occupancy rates.

Source: Kenanga Research - 31 Jan 2022