• Maintain NEUTRAL and MYR6.90 TP, 2% upside with c.5% FY22 yield. KLCCP Stapled’s results are within estimates, with all segments reporting an improved YoY performance on the back of the broader economic recovery. The opening of international borders on 1 Apr was an important boost for the struggling hotel segment, although we think the recovery will likely be gradual. Suria KLCC should also benefit from an increase in tourists, with footfall still at around 50% of pre-pandemic levels.

• Results in line. 1Q22 net profit of MYR175.8m (-11.3% QoQ, +16.2% YoY) are within expectations, at 27-26% of our and consensus full-year estimates. On a YoY basis, 1Q22 revenue increased 13.9% to MYR321.7m, with all segments reporting stronger numbers due to Malaysia’s economic recovery. The retail segment benefited from higher rental rates from new leases as well as the tapering of rental assistance, while its hotel segment’s loss narrowed thanks to the relaxation of COVID-19 restrictions. A DPU of 8 sen was declared for the quarter (1Q22 DPU: 7 sen).

• Encouraging performance for retail. The segment’s improved performance was driven by higher rental rates from new leases, as well as reduced rental assistance given in the quarter. Management guided that reversions were in the positive low single-digits, but rental assistance is likely to remain in the next quarter – with some tenants still recovering from the pandemic, albeit at a lower quantum (FY21 rental assistance: MYR127m). Suria KLCC’s occupancy rate remained robust despite dropping slightly to 92%, from 93% in 4Q21. The opening of international borders should boost footfall, which was still at around 50% of pre-pandemic levels – this shopping mall is traditionally dependent on tourist spending.

• Hotel unit is slowly improving. The hotel segment reported an improved pre-tax loss of MYR12.8m (vs -MYR16.1m in 1Q21), driven by domestic travel on the resumption of economic activities. The occupancy rate remained low at only 21%, but we expect this to gradually pick up, as foreigners accounted for c.70% of the hotel’s guest profile pre-pandemic. The Malaysian Association of Hotels (MAH) expects the industry average occupancy rate for hotels to hover at 30-40% in the short term.

• Office segment to remain resilient. Revenue and PBT increased 0.2% and 1% YoY, with sustained occupancies and lower financing cost. We continue to like KLCCSS’ office segment for its asset strength and long- term lease structures, which bring healthy cash flow to the group.

• We make no changes to our earnings forecasts. Our TP incorporates a 2% ESG premium, as the group’s 3.1 ESG score is above the country median.

Source: RHB Research - 25 May 2022