• Keep NEUTRAL, new DDM-derived MYR7.30 TP from MYR7.08, 4% upside and c.5% yield. KLCCP Stapled ended the year on a strong note, with results that exceeded expectations. Retail sales remained above pre- pandemic levels on the back of the strong retail momentum, while the hotel segment only recorded a slight pre-tax loss as occupancy rates improved. KLCCSS should remain stable in FY23, with management expecting positive rental reversions as the retail environment continues to improve.

• Results in line. 4Q22 core profit of MYR202.1m (+5.8% QoQ, +1.9% YoY) brought FY22 earnings to MYR748.3m (+17.2% YoY). This exceeded expectations at 110% and 108% of our and consensus full-year estimates. On a YoY basis, FY22 revenue increased 24.6% with improvements from all segments, particularly the hotel division which recorded a solid 215% surge in turnover. Borrowing costs ticked up to MYR105.8m (+0.6%) due to 83% of the group’s loans being on fixed interest rates. A DPU of 14 sen was declared for the quarter, bringing full- year DPU to 38 sen – which is on par with pre-pandemic 2019 numbers (FY21: 33.60 sen).

• Healthy retail sales momentum. Tenant sales for Suria KLCC in the quarter improved 19.7% YoY, surpassing pre-pandemic levels by 24%, despite footfalls being at only 82% of pre-COVID-19 levels. This was mainly contributed by fashion, F&B and leisure tenants. The occupancy rate remained stable at 92% (FY21: 93%), but this will improve as the newly configured F&B area (NLA: 12,000 sqf) at the fourth floor of Suria KLCC is targeted to be opened in 2Q23, replacing the previous food court which closed in Sep 2021. Rental reversion remained flattish in FY22, but should turn positive in FY23 on the strong retail momentum in the past year.

• Average hotel occupancy rate was at 65-70% in December. Mandarin Oriental Kuala Lumpur hotel continues to rebound strongly due to the pick- up in tourism, corporate and meetings, incentives, conferences and exhibitions or MICE events. The hotel segment recorded an improved LBT of MYR23.5m (FY21: -MYR65.9m) as the full-year average occupancy rate improved to 44%, from 16% in FY21. This segment is expected to break even in FY23, supported by higher occupancy rates as the number of international tourists continue to pick up.

• We adjust FY23-24F net profit by 4-6% and introduce our FY25 earnings estimate of 794m. Our TP incorporates a 2% ESG premium based on our in-house methodology. Key upside risks include better-than-expected rental reversion, occupancy rates and tourism recovery. The converse of these circumstances would present downside risks.

Source: RHB Research - 2 Feb 2023