KUALA LUMPUR (May 30): Analysts have upgraded their target prices (TPs) for KLCCP Stapled Group Bhd — which comprises KLCC Property Holdings Bhd (KLCCP) and KLCC Real Estate Investment Trust (KLCC REIT) — on its upbeat prospects as it is well positioned to benefit from the improving tourism sector while being supported by its stable office segment.

RHB Investment Bank Bhd upgraded its previous “neutral” call to a new “buy” call, with a revised TP of RM7.79 from RM7.30.

The research house’s analysts Wan Mohd Ammar Affan and Loong Kok Wen used a new dividend-derived-model (DDM) to derive their TP with circa 6% FY2023 forecast yield, “[including] a higher 4% premium (versus 3% previously), as we have increased our ESG (environmental, social and governance) score for [KLCC Stapled Group] to 3.2,” they said.

“KLCCP Stapled kicked off FY2023 on strong footing, with an improved year-on-year (y-o-y) performance across all segments, particularly in the retail and hotel segments,” said the analysts in a note on Tuesday (May 30), adding that Suria KLCC’s occupancy rate increased to 96% from 92% in 2022 as four new tenants signed leases to occupy space in the shopping mall.

Alongside improved occupancy rate, KLCCP’s tenant sales are remaining strong, at 17% above pre-pandemic levels, predominantly driven by fashion and food and beverage tenants. However, the analysts noted that footfall remains at 85% of pre-pandemic levels.

“With the mall’s higher occupancy level, we believe it is better positioned to benefit from the gradually improving tourism sector,” Mohd Ammar and Loong added.

In addition to the retail sector, KLCCP’s hotel sector is expected to break even in FY2023, noting that first quarters typically are slower quarters for hotels.

The group’s Mandarin Oriental Kuala Lumpur reported a slight RM2.3 million pre-tax loss with an average occupancy rate of 50%. With revenue per available room continuing to track higher — RM462 in 1QFY2023, compared with RM337 in 4QFY2022 — due to pent-up demand for high-yielding rooms, management believes the rate will be sustained moving forward.

The analysts consider KLCCP’s financial results to be broadly in line with expectations, after it reported a core net profit of RM195 million for 1QFY2023, representing a 3.5% loss quarter-on-quarter (q-o-q), and a 10.9% increase y-o-y.

The group’s revenue increased by 18.3% y-o-y as all segments posted stronger numbers in tandem with the continued pickup in economic activities.

“Interest expenses only increased slightly following the interest rate hikes (up 1% q-o-q and 6.7% y-o-y) as 83% of the group’s borrowings are on fixed rates, and its net gearing remains low at 18.3%,” they added.

The research house raised the group’s FY2023-2025 forecasted net profit by 2%-3% after factoring in Suria KLCC’s higher occupancy rate.

Meanwhile, Hong Leong Investment Bank maintained its “hold” call, but revised its TP to RM6.68 from a previous RM6.64 based on FY2024 distribution-per-unit (DPU) on a targeted yield of 5.7%, derived from a five-year historical average yield spread between KLCC REIT and 10-year Malaysian Government Securities (MGS).

“Although we expect KLCC to record steady improvement in its retail and hotel [segments] going forward, their contributions are relatively small vis-à-vis its office portfolio, which is lacking fresh positive catalysts given the challenging office market,” HLIB analyst Brian Chin said.

Upon imputing FY2022 annual report updates, HLIB trimmed its forecasts by 3% for FY2023 and by 2% for FY2024.

Lastly, “[with] total expected returns of 8.4% (comprising share price upside of 3.2% and FY2023 forecast dividend yield of 5.2%), we are maintaining our ‘market perform’ call,” Kenanga Research analyst Goh Yin Foo said.

Kenanga Research also boosted its TP to RM7.18 from RM6.60 previously, after rolling over its valuation window to FY2024.

“This is based on an unchanged target yield of 5.5% (which is derived from a 1% yield spread above our 10-year MGS yield assumption of 4.5%) on FY2024 forecast dividend-per-share, reflecting KLCC’s prime asset portfolio (as anchored by its office towers in the KLCC area and Suria KLCC mall),” Goh added.

Kenanga Research also expects that the prevailing backdrop of an elevated inflationary environment and uncertain economic prospects may dampen travelling activity and consumer spending power.

Thus, “[post] results, our net profit forecasts remain at RM726 million for FY2023 and RM751 million for FY2024. Correspondingly, our DPS (dividend per share) projections stay at 36.3 sen this year and 39.5 sen next year, implying yields of 5.2% and 5.7%, respectively,” Goh said.

As of writing, KLCCP Stapled shares gained four sen or 0.57% to RM7, giving it a market capitalisation of RM12.64 billion.

Source: KLCCP Stapled Group’s prospects looking positive; to benefit from improving tourism sector, say analysts (theedgemalaysia.com)