Review

• KIP REIT’s 1HFY25 core net profit of RM23.0mn (+9% YoY) was in line with expectations, representing 44% of our full-year forecasts. We expect stronger 2H results, as 1H earnings included only two weeks of contribution from DPulze Shopping Centre (DPulze) and 1.5 months from TF Value Mart Gerik (TF Value), while 2H will reflect a full two quarters of impact from both assets.

• 2QFY25 DPU stood at 1.66sen/unit, bringing 1HFY25 DPU to 3.18sen/unit (+3% YoY). Based on the last closing price, this translates to a 7.3% annualised dividend yield.

• KIP REIT’s 1HFY25 revenue rose 26% YoY to RM56.7mn, driven by 26% growth in the retail segment, which accounted for 94.0% of total revenue. This performance was mainly attributed to higher occupancy rates across retail properties and income contributions from the newly acquired DPulze and TF Value. The industrial segment also performed well, with revenue increasing by 25% YoY, further boosting overall results.

• Despite the strong revenue growth, 1HFY25 core net profit grew only 9% to RM23.0mn, impacted by a 32% YoY increase in operating expenses, as well as higher management fees (+81% YoY) and borrowing costs (+39% YoY). The rise in borrowing costs was mainly due to loan drawdowns to finance the new acquisitions.

• QoQ, KIP REIT's 2QFY25 core net profit increased 18% to RM12.5mn, primarily due to the maiden contribution from newly acquired assets.

Impact

• Maintain earnings forecasts.

Outlook

• Management remains optimistic about KIP REIT’s prospects, supported by the solid performance of its existing property portfolio, ongoing leasing efforts, and operational enhancements. The team is committed to disciplined capital management and aims to deliver sustainable returns to unitholders. With a focus on acquiring accretive assets and exploring growth opportunities in both the retail and industrial sectors, management believes the REIT is well-positioned to achieve long-term value and capitalise on emerging opportunities.

• We are positive about KIP REIT's strategic initiatives, which reflect a strong commitment to stakeholder value and steady progress toward its portfolio expansion target of RM2.0bn over the next three years, up from RM1.4bn currently. Potential earnings upside from new asset additions further strengthens our confidence in its growth prospects.

Valuation

• We maintain our Buy recommendation on KIP REIT with an unchanged TP of RM1.15, based on an unchanged target yield of 6.25%.

Source: TA Research - 22 Jan 2025