Kenanga Research & Investment

KLCCP Stapled Group - Mall, Hotel Buoyed by Return of Tourists

kiasutrader
Publish date: Fri, 24 May 2024, 12:34 PM

KLCC’s 1QFY24 results met our expectations. Its core net profit rose 4% YoY driven by positive rental reversions at its mall and higher occupancy at its hotel. Its mall and hotel will continue to be buoyed by the return of tourists to Malaysia. We keep our forecasts relatively unchanged and maintain our TP of RM8.00 and OUTPERFORM call.

Its 1QFY24 net profit met expectations at 23% of both our full-year forecast and the full-year consensus estimate. It declared a dividend of 9 sen per unit, on track to meet our full-year forecast of 45.4 sen.

YoY, its 1QFY24 revenue rose 7% mainly driven by: (i) positive rental reversions at Suria Mall, and (ii) better performance from Mandarin Oriental with a higher occupancy rate of 58% (1QFY23: 50%). However, its core net profit grew by slower rate of 4% mainly due to higher operating expenses.

QoQ, its top line declined 8% from a high base in the preceding quarter (due to lumpy maintenance fees it typically charges its tenants in 4Q).

However, its core net profit rose by 16%, thanks to lower expenses and lower MI, we believe, as it completed the buyout of certain minority shareholders of Suria Mall at some point during the quarter.

Outlook. KLCC has been able to consistently achieve high occupancy alongside positive rental reversions for its retail segment. As an iconic mall with a diverse range of offerings, the group is confident that the impacts to KLCC from the entry of new malls will be minimal. Given a weak MYR and the relaxation on visa application, tourist arrivals to Malaysia will remain robust. Also, both its Suria mall and Mandarin Oriental will benefit from higher tourist spending.

Forecasts. Largely unchanged.

Valuations. We maintain our TP to RM8.00 based on an unchanged target yield of 5.5% (derived from a 1.5% yield spread above our 10-year MGS assumption of 4.0%). Our distribution is based on a 95% payout, in line with historical averages.

Investment case. We like KLCC for its prime asset portfolio anchored by its office towers in the KLCC area and Suria KLCC mall. Its target markets could be less affected by inflationary headwinds, proven by the increase in MAT reported by the group. There is no adjustment to our TP based on ESG given a 3-star rating as appraised by us (see Page 4). Maintain OUTPERFORM.

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

Source: Kenanga Research - 24 May 2024

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