Analysts expect KLCCP earnings to perform better in coming quarters

KLCCP projects the overall performance of the group for the year to remain stable, underpinned by long-term office tenancy agreements


KLCCP Stapled Group’s earnings for the coming quarters are expected to be better, driven by organic growth on single-digit reversions and better contribution from its hotel and retail segment, as well as stable occupancy performance for its office segment, analysts noted.

This comes after KLCCP, which comprises KLCC Property Holdings Bhd and KLCC Real Estate Investment Trust (KLCC REIT), proposed a distribution per stapled security of 8.8 sen — 6.23 sen for KLCC REIT and 2.57 sen for KLCC Property — to be paid on Oct 4, 2019.

This brought the distribution per stapled security to 17.6 sen for the first half of 2019, representing a 1.1% rise year-on-year, the group said in an exchange filing on Tuesday.

For the second quarter (2Q) of this year, KLCCP reported a marginal increase in net profit of 0.68% to RM180.37 million from RM179.14 million in the same period a year ago, reflected by higher marketing and promotional expenses in the retail segment during the festive season, while its hotel observed lower occupancy (2Q: 58%, 1Q: 64%) and slower demand on the food and beverage front.

Revenue for the quarter bumped slightly by 1.76% to RM351.09 million compared to RM345 million in the same quarter a year ago due to impact by the reduction in leased area from the reconfiguration exercise at its mall.

For the cumulative six months, KLCCP posted a 1.25% increase in net profit to RM364.33 million from RM359.81 million in the same period a year ago, while revenue for the period rose 2.09% to RM704.53 million compared to RM690.11 million last year.

KLCCP expects the overall performance of the group for the year to remain stable, underpinned by long-term office tenancy agreements.

The group added that Suria KLCC’s new anchor-to-specialty retail concept reconfiguration of space is expected to enhance yields and customer experience, contributing positively to earnings from December 2019 onwards.

In a note yesterday, Hong Leong Investment Bank Research — which upgraded its call to ‘Buy’ from ‘Hold’ previously, and with a higher target price (TP) of RM8.51 from RM8.34 — said it does expect improved contribution from the hotel segment with its fully refurbished rooms and retail segment from the mall’s reconfiguration exercise as the first phase completion is expected by the end of financial year 2019 (FY19).

RHB Investment Bank Bhd upgraded its call to ‘Buy’ from ‘Neutral’ and with a higher TP of RM8.57 from RM8.30, noting that KLCCP’s earnings will improve next year on the back of Parkson’s space transformation in Suria KLCC, with the new smaller tenants there to lift the average rental rate in Suria KLCC.

“We believe the transformation of Parkson’s space in Suria KLCC will be the main catalyst for the REIT’s future earnings,” it said.

Meanwhile, Kenanga Research maintained its stance of ‘Market Perform’, but increased the TP to RM7.75 from RM7.65 post rolling forward its valuations to FY20E.

“The applied spread is the lowest among mortgage REITs (MREITs) under our coverage, which is a reflection of KLCC’s premium asset quality profile providing strong earnings stability and the fact that KLCC is one of the few Shariah-compliant MREITs.

“We are comfortable with our ‘Market Perform’ call due to limited upsides going forward as estimated net yield,” the research firm said.

On the outlook, Kenanga Research noted the group had previously renewed its shareholders’ approval for a 10% placement in April 2019, which is valid for one year.

“Phase 3 of Menara Dayabumi is still in the tendering process as the management focuses on securing an anchor tenant before proceeding with the development.

“Phase 3 is expected to comprise a 60-storey tower of mixed development — consisting of retail, office and hotel spaces — and will likely be completed in FY21-22.

“Lot 185 and Lot M are still under development and unlikely to be injected during the greenfield phase, while completion of construction is in 2022,” the research house said.

Affin Hwang Investment Bank Bhd — which maintained its ‘Buy’ call with an unchanged TP of RM8.55 — said it continues to like KLCC REIT for its defensive rental income, backed by triple net leases, high asset occupancy and sustainable yields in times of an economic downturn.

“We anticipate higher investor demand for defensive assets, taking a cue from the compression in Malaysian Government Securities yields. At a 5.1% 2020E yield, the valuation looks attractive considering its defensive earnings and steady distribution per unit growth,” the research firm said.

The stapled security closed unchanged at RM7.87, giving it a market capitalisation of RM14.21 billion.


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