• Keep NEUTRAL and DDM-derived MYR8.20 TP, 3% upside. KLCCP Stapled’s 9M24 results were in line, with its earnings driven by the retail and hospitality segments. Suria KLCC is practically full, with a 99% occupancy rate, but upside may be limited with management maintaining a low-single digit rental reversion guidance. Growth for the hotel segment may be capped as well, from the higher base. With gearing at only 32%, we think further acquisitions would be a positive to drive its inorganic growth.

• Results in line. 3Q24 core profit of MYR206.5m (+28% QoQ, +11% YoY) was in line with our and Street’s estimates, at 72% of our full-year forecasts. QoQ earnings grew from a seasonally slower quarter, while on a YoY basis, revenue rose 7% with higher occupancy rates from the hotel and retail segments. Earnings growth was also supported by a lower charge-out in minority interests (-95% YoY) after the acquisition of the remaining stake in Suria KLCC. The average cost of debt fell to 4.2% (FY23: 4.6%) after a MYR455m sukuk refinancing in April. Management is confident the better rate can be maintained after it refinances another MYR627m of sukuk maturing on 31 Dec 2024. 9M24 DPU reached 27.4 sen (9M23: 26.10 sen).

• Retail and office underpin earnings. Suria KLCC’s occupancy rate remains strong at 99% (Sep 2023: 96%), with footfall improving by 5% YTD. Moving annual turnover (MAT) tenant sales, on the other hand, fell 3% from a high base, attributed to lower spending at its fashion tenants. KLCCSS continues to refresh its offerings with new tenants such as Dockers, APT Signature, and Mr Bean. Despite the high occupancy rate, management maintained its low- single-digit rental reversion guidance for the segment. Turnover rent only made up 2% of its revenue YTD, which suggests limited room to grow over the medium term. The office segment, backed by its long-term triple net lease, recorded a marginal 0.2% and 0.4% revenue and PBT growth YTD.

• Strong improvement for Mandarin Oriental. After recording an LBT of MYR1.4m in the seasonally slower 2Q24, the hotel segment saw a strong MYR6m PBT in 3Q24. Revenue per available room (RevPar) grew 28% YoY to MYR606 with an increase in bookings for higher yielding rooms, while occupancy rate improved to 58% in 9M24 compared to 52% in 9M23.

• Earnings revision. We lower our FY24F earnings by 3% after adjusting our cost assumptions. Our TP includes a 4% ESG premium. Key upside/downside risks include changes in consumer sentiment, higher/lower rental reversions, as well as new acquisitions.

Source: RHB Securities Research - 26 Nov 2024