Review

• KIP REIT’s FY24 realised net profit of RM45.0mn (+14.0% YoY) was within expectations, accounting for 97% of our full-year forecasts.

• 4QFY24 DPU stood at 1.97sen/unit, bringing FY24 DPU to 6.67sen/unit (+7.5% YoY). This works out to a dividend yield of 7.4% based on the last closing price.

• YoY, KIP REIT’s FY24 realised net profit increased by 14.0%, alongside a 22.0% rise in revenue. The stellar performance was primarily due to improved occupancy rates in the retail segment and income contribution from the newly acquired KIPMall Kota Warisan.

• QoQ, KIP REIT’s 4QFY24 income available for distribution grew 29.0% to RM13.5mn, on the back of 33.0% growth in revenue. The sequential improvement was mainly driven by higher retail occupancy rates.

Impact

• We have marginally raised our FY25 and FY26 earnings forecasts by 0.5% and 0.6%, respectively, to reflect the actual FY24 results and some housekeeping adjustments. Additionally, we introduce our FY27 DPU estimate of 8.1sen/unit, representing a modest increase of 3.0%. The contributions from DPulze Shopping Centre and the impact of the private placement are not yet included in our earnings model, pending the completion of these exercises.

Conference call highlights

• KIP REIT’s portfolio occupancy improved by 1.2%-pts YoY to 94.1%, driven by higher occupancy across all retail assets except for KIPMall Senawang, which saw a tenant departure. Management, however, expects KIPMall Senawang's occupancy rate to exceed 90% with the introduction of a new supermarket, ST Rosyam, which will occupy double the space of the previous tenant. ST Rosyam is set to commence operations in September 2024.

• To recap, KIP REIT has proposed acquiring DPulze Shopping Centre for RM320mn. Additionally, the trust plans to undertake a placement of up to 180mn new units to raise up to RM146.7mn to partially finance the acquisition. We are optimistic about this acquisition as it aligns with KIP REIT's target to scale up operations and increase total assets under management to RM2.0bn within the next three years. Management has indicated that both proposals are on track for completion by 1QCY25 (or 3QFY25).

• Management is optimistic about KIP REIT’s prospects, citing the strong performance of the existing property portfolio and continuous efforts to improve leasing and operational initiatives. Furthermore, the management is dedicated to prudent capital management, aiming to deliver sustainable returns to unitholders, and actively exploring growth opportunities in both retail and industrial assets.

Valuation

• The improved results strengthen our belief that KIPMalls will thrive despite declining consumer purchasing power due to rising inflation. As consumers seek quality products at affordable prices, community-centric retail malls like KIPMalls are becoming compelling alternatives to traditional hypermarkets and neighbourhood retail centres, especially in smaller towns and suburban areas.

• We maintain our Buy recommendation on KIP REIT with a revised TP of RM1.15 (previously RM1.14), based on an unchanged target yield of 6.75%.

Source: TA Research - 26 Jul 2024