KLCCP’s 2Q performance not sustainable going into 3Q


KLCCP Stapled Group’s performance in the second quarter of the year (2Q21) improved year-on-year (YoY) by 4.8% in revenue and 3.1% for core net profit on the easing of standard operating procedures under the Movement Control Order 3.0, but it will not be sustainable going into the second half of the year (2H21) due to the Full MCO (FMCO) and Enhanced MCO (EMCO) in June and July.

CGS-CIMB Securities Sdn Bhd analyst Sharizan Rosely noted that the group’s retail segment in Suria KLCC saw a marked improvement in retail sales at 32% YoY and the hotel segment benefitted from a high occupancy rate of 26% in April.

“Overall, at 44% to 45% of our and consensus’ full-year forecast, 1H21 core net profit was below expectations as we anticipate a quarter-on-quarter weaker 3Q21, while 4Q21 is weighed by uncertainties of a full recovery under the National Recovery Plan (NRP) and sustained rental assistance,” he stated in a research note yesterday.

KLCCP’ 1H21 revenue fell 9.5% YoY while core net profit declined 7.6% YoY, leading to a 1H21 distribution per unit (DPU) of 14 sen, down 11.4% YoY, and made up for 41% of CGS-CIMB financial year 2021’s (FY21) target of 34 sen.

Sharizan said the easing of NRP Phase 1’s retail restrictions is good news for now.

“During the post-results conference call, the group noted that the Aug 16’s announcement of 11 categories of businesses allowed to reopen under Phase 1 is good news and should mitigate the risks of a higher degree of rental assistance, as 34% of the overall tenants in Suria KLCC, which has 100 tenants, will be operational.

“For Mandarin Oriental Kuala Lumpur in its hotel segment, 2H21 will remain a challenging period as a recovery will only be domestic-driven, and average occupancy rates have fallen to 12% since FMCO and EMCO from the peak of 26% in April and 14% in 1H21,” he said.

Mandarin Oriental reported a lower pre-tax loss of RM18.2 million in 2Q21 which decreased 11% YoY, but a higher pre-tax loss of RM34.3 million, having increased 17.2% YoY in 1H21.

“We have no major concerns with the office assets due to its 100% occupancy rate, backed by a 15-year extension of the triple net lease (TNL).

“The YoY drop in 1H21 office revenue and pre-tax profit was largely due to Malaysian Financial Reporting Standards Areas 9 and 16 adjustments to account for the TNL extension,” he said.

Sharizan retained a ‘Hold’ call on KLCCP but with a lower target price of RM6.90.

“We cut FY21 forecast earnings per share to DPU by 7.9% due to FMCO and EMCO disruptions in 3Q21 while making no changes to FY22-23 forecast.

“Upside risks include earlier full reopening of the retail sector under the NRP, while downside risks include larger losses for Mandarin Oriental and negative reversions for the expiring leases in the financial year,” he said.