KLCCP Stapled Group Bhd’s outlook promising for the upcoming quarters, with businesses now surpassing pre-pandemic levels, according to Kenanga Research.
“Year-on-year (YoY), its retail footfall climbed by 30%, suggesting that consumer spending remains strong,” it said in its Results Note today (Feb 8).
The research house said it expected KLCCP’s forward earnings will continue to be supported by the office division’s high occupancy rate, retail division’s 10 new tenants, the hotel operation’s occupancy ratio picking up the management services’ improved
performance.
“The office division achieved 100% occupancy rate at end-Dec 2023, given its long-term, locked-in leases with high-quality tenants while the hotel operation’s occupancy ratio picking up from 55% in 4QFY23 from 52% in 3QFY23.
“Additionally, management services’ improved performance in 4Q with 7% rise in transient and 16% increase in car park customers.
“Concurrently, the group has expressed interest in exploring global assets to add to its portfolio but prioritizing the enhancement of local operations, while also considering venturing into the healthcare sector.”
Kenanga said KLCCP’s FY23 results met its expectations but surprised with higher-than-expected distributions.
“Its FY23 core net profit of RM709.4 million met our forecast but missed the consensus estimate by 6%.
“That said, it declared a final distribution per unit (DPU) of 14.4 sen, with full-year FY23 numbers at 40.5 sen at 92% payout which beat our expectation of 36.3 sen for FY23.
“In FY23, it experienced growth in its core businesses, particularly, management services and the hotel segment,” it said.
Therefore, the research house maintained its FY24F earnings forecasts, OUTPERFORM call and raised its target price (TP) by 3% to RM8 from RM7.73, as it rolled over its valuation base year to FY25F with a DPU of 44 sen.
“This is against an unchanged target yield of 5.5%, derived from a 1.5% yield spread above our 10-year Malaysian Government Securities (MGS) assumption of 4.0%).
“Our distribution is based on a 95% payout, in line with historical averages. Meanwhile, we introduce our FY25F numbers,” it added.
YoY, its FY23 revenue of RM1.62 billion grew by 11% largely due to its hotel operations with higher occupancy of 66% from international
guests, that were mainly from China, Singapore, and UK, as well as management services as car park income increased from the higher footfall within its portfolio.
On the flipside, operating margins eased to 63%, lower by 2.7ppts as utilities and maintenance costs picked up across all segments.
“We like KLCC for its prime asset portfolio anchored by its office towers in the KLCC area and Suria KLCC mall. Its target markets could be less affected by inflationary headwinds, proven by the increase in moving annual turnover (MAT) reported by the group.
“Additionally, the above-mentioned acquisition could support stronger distribution returns for yield seekers, up to 6%. There is no adjustment to our TP based on ESG given a 3-star rating as appraised by us,” the research house said.’
The risks to Kenanga’s call include bond yield expansion, lower-than-expected rental reversions, and lower-than-expected occupancy rates.
