Review

• Excluding the one-off expenses incidental to acquiring the three industrial properties of RM1.8mn, KIP REIT's 9MFY23 realised a net profit of  RM29.2mn (+10.1% YoY) was within expectations, accounting for 70% of our full-year forecast.

• 3QFY23 DPU stood at 1.55sen/unit, bringing 9MFY23 DPU to 4.45sen/unit  (-5.3% YoY). The drop in 9MFY23 DPU was attributable to a 13% rise in outstanding units after three tranches of private placements were completed during the period under review. Nevertheless, it was within our forecasts, accounting for 72% of our full-year FY23 DPU projection of  6.2sen.

• KIP REIT’s 9MFY23 realised net profit increased by 10.1% YoY, alongside a 12.6% rise in revenue. The improved performance was primarily attributable to 1) a low base in FY22 due to FMCO and 2) lease income from the three newly acquired industrial properties in Klang (acquisition concluded on 14 December 2022). However, higher property expenses such as utilities, reimbursement costs, and building maintenance caused the  9MFY23 NPI margin to contract by 3.3% points to 74.8%.

• QoQ, KIP REIT’s 3QFY23, realised net profit grew 6% to RM10.5mn on the back of 8% growth in net property income. A full quarter's contribution from the three newly acquired industrial properties drove the improvement in sequential results.

Impact

• Maintain earnings forecasts.

Outlook

• Management is optimistic about the REIT’s 4QFY23 performance,  supported by the growth of the retail segment and the REIT's existing community portfolio, which primarily caters to essential needs.

• KIP REIT is proactively exploring opportunities for acquisitions in both the retail and industrial sectors. The management is optimistic about the  REIT's ability to expand its industrial asset base and secure long-term tenancies with stable returns, as it believes the industrial sector will continue to exhibit robust performance.

Valuation

• We maintain our Buy recommendation on KIP REIT with an unchanged TP of RM1.05, based on the CY24 target yield of 6.75%.

Source: TA Research - 20 Apr 2023