➢ KIPREIT is embarking on an acquisition and asset rejuvenation journey, having  acquired three industrial assets recently and undertaking a RM18m asset  enhancement initiative (AEI) for the KIPMall Bangi

➢ While we are positive on the long-term prospects of these acquisitions / AEIs,  they may dilute KIPREIT’s short-term EPU / DPU due to dilution from the  placements of new units to help fund these initiatives

➢ We reaffirm our HOLD rating on KIPREIT with an unchanged PT of RM0.93. At  a 7.4% FY23E yield, KIPREIT is trading close to its 5-year average yield of 7.7%  and looks fair to us

Creating a Fresh Look for KIPMall Bangi

KIPREIT is undertaking major rejuvenation works to reinvigorate the look and feel of the  23-year old KIPMall Bangi. Management has allocated RM18.1m for the rejuvenation  works, which had started in phases since 4QCY21 and is expected to be completed by  1QCY23. During our recent visit to KIPMall Bangi, we observed that management is  focused on reshaping the interior design, enhancing existing facilities (ie. toilets, lifts,  praying room) and upgrading the facade. KIPREIT is also revamping the mall’s layout (ie.  adding F&B outlets on the ground floor) and has added several locally renowned brands  to the tenant mix. We expect the rejuvenation works to enhance KIPMall Bangi’s future  occupancy rate and rental.

New industrial assets and higher rental from shopping malls should support  FY23E realized net profit but EPU / DPU may dip due to dilution from new units We forecast KIP REIT to deliver higher realised net profit of RM39m in FY23E (+8.2%  yoy), driven by the contributions from three newly acquired industrial assets and higher  earnings from the shopping malls due to improved occupancy rates and higher average  rentals (versus FY22A that was partly affected by MCO). Nonetheless, KIPREIT’s FY23E  realised EPU and DPU may slip by 3% and 1% due to dilution from the placement of new  units (to fund the acquisitions and asset rejuvenation).

Maintain HOLD Rating and DDM-derived Target Price of RM0.93

We reaffirm our HOLD rating on KIPREIT with an unchanged DDM-derived 12-month TP of RM0.93 (we had recently trimmed our earnings forecasts by 3% in our 2023 Market  Outlook note). While we like KIPREIT for its retail assets with differentiated market  positioning and management’s initiative to deliver a sustainable DPU to unitholders, we  are cautious on the outlook for micro tenants over recession worries and possible EPU  dilution from the future acquisition of industrial properties. At a 7.4% FY23E distribution  yield, KIPREIT is trading close to its 5-year average yield of 7.7% and looks fair to us.

Source: Affin Hwang Research - 3 Jan 2023