Tough times ahead for KLCCP

By SHAZNI ONG

KLCCP Stapled Group’s earnings are likely hampered by losses from its low occupancy rates in the hotel segment and rental assistance to its tenants and retailers, following the impact of Covid-19.

RHB Research Institute Sdn Bhd’s analyst Loong Kok Wen said in a note last Friday, reiterated concerns for its hospitality segment which is likely to be in losses for a large portion of the year.

“On a slightly positive note, the steady reopening of Suria KLCC post-Movement Control Order (MCO) may prop up earnings, especially with the new space, but we are wary of reversion rates going forward,” he said.

Last Tuesday, the group saw its first-quarter (1Q) earnings slid 3.9% to RM176.88 million from RM183.96 million last year following a plunge in hotel revenue amid Covid-19- induced travel and movement restrictions.

The group, comprising KLCC Property Holdings Bhd and KLCC Real Estate Investment Trust, reported flattish revenue of RM354.59 million during the quarter against RM353.45 million a year ago.

“We think occupancy rates will struggle for the rest of the year as fears of travel and being in crowded areas for events may linger post-MCO.

“Management agrees that the hotel (segment) is at risk of being in the red for a portion of the year. Regardless, we think the office segment should be able to mitigate the poor performance of the hotel segment, albeit at a flattish growth rate moving forward,” Loong said.

As for the retail segment, Loong explained that the rental assistance granted to the tenants of Suria KLCC is on a case-by-case basis and comprises both rebates and deferments, depending on the need of the retailers.

“Approximately 60% of leases are expected to open by next week compared to the circa 12% that were operating during the MCO,” she added.

Loong noted that the completion for Phase 2 of the reconfigured space has been shifted to the end of the 3Q, from the initial 2Q.

“Tenants whose leases are up for renewal this year had not expressed intentions to leave the premises, but it is worth noting that reversions this year may fall flat as circa 70% of the one-third have yet to renew.

“While management acknowledges the government’s call to provide rebates to small and medium enterprise (SME) tenants, the general approach has been to uphold obligations under the lease agreements and only grant such assistance to qualifying tenants.

“We note that circa 20% of the tenants at Suria are deemed as SMEs with most of them as food and beverage players,” she said.

On dividend payout, Loong said KLCCP management seemed committed to maintaining the >90% dividend payout given their sufficient working capital.

Accordingly, RHB Research has maintained a ‘Buy’ call with a lower dividend discount model-derived target price (TP) of RM8.43 from RM8.55 previously on KLCCP.

“We lower our occupancy and room rate assumptions for Mandarin Oriental Hotel even further, expecting a couple of loss-making quarters for the year,” she said.

Hong Leong Investment Bank Bhd’s analyst Nazira Abdullah said the firm remains cautious on KLCCP’s near-term outlook as its earnings may be hampered by losses from its hotel segment and rental assistance to its tenants and retailers.

The firm has maintained its ‘Hold’ call with an unchanged TP of RM8.05 based on the financial year ending 2021 forward dividend per share on a targeted yield of 4.3%, derived from a two-year historical average yield spread of KLCCP and 10-year Malaysian Government Securities.

KLCCP’s shares closed 0.38% or three sen lower to RM7.80 last Friday, valuing the group at RM14.08 billion.