KEY INVESTMENT HIGHLIGHTS

• 1HFY20 earnings within expectations
• Earnings dragged by retail and hotel segments
• Earnings forecast maintained
• Expect recovery in retail division in 2HFY20
• Maintain NEUTRAL with an unchanged of RM7.57

1HFY20 earnings within expectations. KLCCP Stapled Group (KLCCP) 1HFY20 core net income of RM317.3m came in within expectations, making up 46% of both our and consensus full year estimates. Distribution per unit (DPU) of 7.5sen was announced for 2QFY20, bringing cumulative DPU to 15.8sen in 1HFY20.

Earnings dragged by retail and hotel segments. On sequential basis, 2QFY20 core net income plunged by 20.6%qoq to RM140.5m due to full quarter’s impact from Movement Control Order (MCO) which was implemented on 18th March 2020. Retail division recorded lower profit before tax (PBT) of RM47.5m (-53.9%qoq) due to provision of rental assistance to the tenants during MCO. Similarly, pre-tax loss of hotel division widened to RM24.4m in 2QFY20 from RM8.8m in 1QFY20 due to global travel restrictions which has resulted in low occupancy rate of hotel. Nevertheless, PBT of office division was stable at RM121.1m (+0.03%qoq), underpinned by triple net lease agreements and longterm leases of its office buildings. The adverse impact from MCO on retail and hotel division had led cumulative earnings in 1HFY20 lower at RM317.3m (-12.9%yoy).

Earnings forecast maintained. We make no changes to our earnings forecast for FY20/FY21. Looking forward, we expect earnings to recover in 2HFY20, mainly led by recovery in retail division. We expect retail division to recover moderately in 2HFY20 as business of tenants should improve in 2HFY20 on the back of higher shopper traffic. Meanwhile, outlook for hotel division remains challenging as Covid-19 pandemic has impacted tourism industry in Malaysia while large public events are discouraged.

Maintain NEUTRAL with an unchanged of RM7.57. We make no change to our TP of RM7.57, based on Dividend Discount Model. We maintain our Neutral call on KLCCP as we see earnings outlook for FY20 will continue to be dragged by hotel division. Meanwhile, dividend yield is estimated at 4.4%

Source: MIDF Research - 6 Aug 2020