• Maintain NEUTRAL, new MYR7.08 TP from MYR6.90, 2% upside and c.5% yield. KLCCP Stapled’s results met expectations as the retail and hotel segment recorded a strong performance, thanks to the economic reopening and arrival of tourists. Moving forward, management hopes the hotel segment can continue to report higher occupancy as tourists gradually return, but retail occupancy might remain flattish as tenants evaluate their options amid the incoming retail supply.

• Results in line. 2Q22 core net profit of MYR179.5 (+2% QoQ, +21% YoY) brought 1H22 earnings to MYR355.3m (+18% YoY), which is at 53-54% of our and consensus’ full-year estimates. On a YoY basis, 2Q22 revenue increased 25% as the retail segment saw lower rental assistance and higher advertising income while the hotel segment was backed by a higher average occupancy and average room rates. The management services segment posted higher 1H22 revenue of MYR98.7m (+20% YoY) from additional car park bays secured, coupled with higher car counts at the malls, but PBT fell 5% YoY on one-off additional opex. A DPU of 8 sen was declared for the quarter, bringing 1H22 DPU to 16 sen (+14% YoY).

• Elevated retail performance. Tenant sales in the quarter surpassed pre- pandemic levels at 116% while footfall remained low at just 70%. We think the strong sales can be attributed to revenge spending following the reopening of the economy, an increase in number of tourists, as well as the Eid festivities. The occupancy rate for Suria KLCC remained robust at 92% (2Q21; 94%), but improvements might be mitigated by the increasing supply of retail space as potential tenants take time to evaluate their options. While we are positive on the strong retail performance in 1H22, the recovery may be impeded by the inflationary environment that may lower consumers’ purchasing power.

• Increasing hotel occupancy rate. Mandarin Oriental Kuala Lumpur recorded an improved pre-tax loss of MYR4.4m from MYR9.2m in 1Q22. Thanks to the opening of international borders, the occupancy rate improved to 43% (1Q22; 21%) while weekend occupancy rose to 55%. The increasing occupancy resulted in higher F&B covers and average room rates (2Q22: MYR681 vs 2Q21: MYR590). As the number of tourists is expected to increase, management is hopeful the segment can return to the black by 4Q22.

• Maintain NEUTRAL. Post results, we adjust our FY22 earnings by 4%. Our TP incorporates a 2% ESG premium based on our in-house methodology. We continue to like KLCCP for its stable office segment, which is backed by quality assets and long-term triple net leases. However, we remain cautious on the near-term prospects, as the dependency on tourists is a stumbling block to a full recovery, especially amid the inflationary outlook.

Source: RHB Research - 10 Aug 2022