• Keep NEUTRAL, new DDM-derived MYR7.37 TP from MYR7.27, 6% upside and c.6% FY24F yield. KLCCP Stapled’s 9M23 results were in line with strong earnings growth due to its recovering hotel segment. Office and retail occupancy remains stable, but – while retail footfall has grown significantly YoY – management guided that rental reversions were mostly flattish. While Mandarin Oriental (MO) and Suria KLCC are well positioned to benefit from the improving tourism industry, we are cautious on the longer-term prospects due to increasing competition.

• Results in line. 3Q23 net profit of MYR185m (+2.3% QoQ, +4.7% YoY) brought the 9M23 total to MYR590.1m (+8% YoY) – this was broadly in line with expectations at 76-78% of our and Street’s estimates. 9M23 revenue grew 12.5% YoY. This was mostly led by 49% higher revenue for the hotel segment while the retail segment revenue grew 6% thanks to its higher occupancy rate. Interest expense only increased slightly as 83% of the group’s borrowings are on a fixed rate. MYR1bn (44%) of KLCCP Stapled’s borrowings are due for refinancing in FY24 – management is confident that the average cost of debt could be lower than the current 4.6%.

• A third interim DPU of 8.8 sen was declared for the quarter, bringing the 9M23 DPU to 26.1 sen (9M22: 24 sen).

• MO hotel turned profitable for the first time since 4Q19 with a PBT of MYR1.7m in 3Q23 (3Q22: -MYR2.4m). Revenue per available room (RevPar) increased to MYR470 in 9M23 (9M22: MYR290) and occupancy rates for the quarter was higher at 58% (3Q22: 55%). This is as the number of meetings, incentives, conferences & exhibitions meetings, incentives, conferences & exhibitions or MICE activities continue to remain high, as well as an increase in foreign tourists, which in 9M23 made up 64% of MO’s total guests (9M22: 50%).

• Other highlights. The group’s earnings continued to be backed by its fullyoccupied office segment, which recorded a 2% growth in PBT. The retail segment has benefited from the recovering tourism industry, as illustrated by the 39% higher footfall YoY. However, with Suria KLCC’s already high average rental rate, management guided that rental reversions were flattish YTD. KLCC Stapled has secured three first-to-market tenants to the mall in 3Q23 – ie Bacha Coffee, Lojel, and Hoka – which we think is key to maintaining its competitiveness amid increasing competition as new malls enter the market.

• We increase our FY23F-25F earnings by 3% after adjusting our cost of debt and hotel RevPar assumptions. Our TP incorporates a 4% ESG premium based on a 3.2 ESG score. Upside and downside risks include faster-/slower-than-expected tourism industry recovery and higher-/lowerthan-expected rental reversion and/or occupancy rates.

Source: RHB Securities Research - 29 Nov 2023