KLCCP Stapled outlook supported by stable clientel

The performance of Suria KLCC and hotel operations are expected to gradually improve this year 


MERCURY Securities Sdn Bhd recommends a ‘Buy’ on KLCCP Stapled Group with a target price (TP) of RM7.06 as the performance of Suria KLCC and hotel operations are expected to gradually improve this year when the country moves towards normalcy. 

Mercury’s analyst Justin Teo noted that the recovery should drive KLCCP’s earnings and distributions higher over the medium term. 

“In the financial year of 2019 (FY19), KLCCP’s operating profit from its retail investment properties and hotel operations stood at RM418.3 million and RM16.7 

million respectively compared to RM272.2 million operating profit and RM51.9 operating loss respectively in FY21,” Justin said in a note on the property group yesterday. 

To note, KLCCP’s properties are centred in the prestigious Kuala Lumpur City Centre (KLCC) and include the iconic Petronas Twin Towers and an ownership interest in Suria KLCC, one of the premier shopping destinations in Malaysia. 

The group’s properties are occupied by tenants with high creditworthiness such as Petroliam Nasional Bhd. 

“High-quality tenants significantly reduce the risk of defaults in rental payments, resulting in more stable cashflows,” he added. 

According to the analyst, KLCCP is potentially adding new properties to its portfolio to further boost net profit and distributions. 

“The Kompleks Dayabumi Phase 3 redevelopment (which has been deferred) and the vacant land of Lot D1 represent prime land for future development opportunities,” he noted. 

The group has low net gearing of 10.9% as at end of FY21, thus, it has the financial strength to add to its real estate portfolio should it find suitable acquisition or development opportunities. 

The analyst, however, said the negative impact of the Covid-19 pandemic on KLCCP’s earnings could last for a significant period of time. 

The TP of RM7.06 was derived from Mercury Securities’ forecast FY22 distributions of 34.6 sen per stapled security and its three-year historical average (FY19-FY21) gross distribution yield of 4.9%. 

“This represents a potential upside of 9.5% over the current price,” he added.