• Maintain NEUTRAL and MYR8.20 TP, 3% upside. KLCCP Stapled’s investor relations team hosted a sustainability themed site visit yesterday to showcase its various sustainability efforts across the KLCC precinct. The group also shared its new sustainability plan for 2030 after the completion of its previous 5-year roadmap last year. We came away encouraged by its focus on sustainability, and note that KLCCSS has the joint highest ESG score among Malaysian REITs under our coverage (M-REITs).

• Clear framework. The group’s sustainability framework is aligned with the United Nation’s 2030 agenda, with a focus on four key pillars of People, Planet, Peace, and Prosperity. The group emphasised on the collaborative approach adopted internally, where the Sustainability Steering Committee comprises of division heads and operating heads to deliberate on each decision. The targets include a 10% reduction in Scope 1 and Scope 2 emissions, a 55% waste diversion rate for Mandarin Oriental (MO), and full supply chain screening.

• Lighting up efficiently. One major initiative that was completed in 2022 was the replacement of the Petronas Twin Towers’ external lights from metalhalide to LEDs. Other than being energy guzzlers, the previous lights needed to be replaced every 6-9 months, costing MYR2.8m pa in maintenance, and had no colour changing features (required external colour filters which melted due to the metal-halide’s heat). More recently, the group replaced the lights for Tower 3 in Aug 2024.

• Renewable energy. Suria KLCC’s solar panels (installed in 2012) have a capacity of 685 kWh – equivalent to 30% of Suria KLCC’s power requirements – which help to lower CO2 gas emissions by c.360 tonnes pa. For aesthetic reasons, the solar panels do not fully cover the rooftop, and form a pattern inspired by local design elements instead. While other properties within the group may not be suitable for solar panels, the group is open to upgrading to higher-yielding panels in the future.

• Waste reduction. One target that the group failed to meet in its previous 5- year roadmap was reducing waste in MO, as it saw a 5.5% increase in 2023 due to higher occupancy. Looking ahead, this should be supported by an increased food digester capacity from 200kg/day to 500kg/day in MO (average food waste produced: 300-400kg/day). MO has also fully removed the use of single-use plastics since 2021, replacing bottles and toiletries with sustainable alternatives.

• ESG. Our TP includes a 4% ESG premium as KLCCSS’ ESG score of 3.2 is above the country median.

Source: RHB Securities Research - 5 Nov 2024