Review

• KIP REIT’s 1QFY23 core net profit of RM8.8mn (+5.0% YoY, -7.4% QoQ) came in within expectations, accounting for 21% of our full-year forecasts.

• 1QFY23 DPU declined 7% YoY and 31% QoQ to 1.5 sen/unit, as units in circulation increased 8% after completing two tranches of private placement during the quarter under review. Nevertheless, it exceeded our expectations, accounting for 23% of our full-year FY23 DPU projection of 6.2sen.

• KIP REIT’s 1QFY23 realised net profit increased 5% YoY, underpinned by a 13% growth in revenue. The increase in revenue was mainly attributable to lower base revenue in 1QFY22 due to reduced promotional area income due to government-imposed operation restrictions (during FMCO).

• Despite a 1% increase in revenue, KIP REIT realised net profit fell 7% QoQ, largely due to higher finance costs and higher non-property expenses incurred in the quarter under review.

Impact

• Maintain earnings forecasts.

Outlook

• The manager keeps a positive outlook for the remainder of FY23, backed by the growth of the retail segment and the existing community portfolio, which mostly offers necessities. Additionally, KIP REIT is expected to generate additional revenue upon completing the proposed acquisition of industrial assets in Klang in 4QFY23.

• Besides, the manager will continue to manage the existing portfolio and adopt prudent capital management to provide unitholders with a sustainable DPU. That said, the manager will keep evaluating growth opportunities in its existing and new asset classes, including retail, commercial, and industrial assets.

Valuation

• We maintain our Hold recommendation on KIP REIT with an unchanged TP of RM0.98, based on a target yield of 6.75% to our CY23 DPU projection of 6.6sen/unit.

Source: TA Research - 27 Oct 2022