KEY INVESTMENT HIGHLIGHTS

• ESG-themed site visit
• Renewable energy to lower carbon footprint
• LED lights and EV chargers installed
• Removal of Single-Use Plastics
• Earnings forecast maintained
• Maintain NEUTRAL with a revised TP of RM7.80

ESG-themed site visit. We recently joined KLCCP Stapled Group (KLCCP) 's ESG-themed site visit to learn about ESG features of KLCCP Parking, Petronas Twin Towers & Skybridge, Mandarin Oriental KL, KLCC Park and Kuala Lumpur Convention Centre. KLCCP completed its first 5- year Sustainability Roadmap (2019-2023) and established a refreshed Sustainability Plan 2030. We came away from the visit feeling positive on the ESG roadmap of KLCCP Stapled Group.

Renewable energy to lower carbon footprint. KLCCP focuses on energy management strategy to promote responsible consumption and lower carbon footprint. The company is focusing on increasing solar energy generation. In 2023, more than 440,000 kWh of renewable energy was generated from solar PV panels installed at Suria KLCC's rooftop, up from 415,000 kWh of renewable energy generated in 2022. That brought overall energy consumption of KLCCP to decrease by -13% compared to base year in 2015. Meanwhile, KLCCP acquired green building certification for PETRONAS Twin Towers and Manara 3 Petronas. PETRONAS Twin Towers achieved Gold GBI rating while Menara 3 Petronas achieved GBI Silver rating.

LED lights and EV chargers installed. As part of KLCCP energy management strategy, over 1,100 conventional lighting system were replaced with LED lights on the external façade of PETRONAS Twin Towers. It saves electricity power consumption by minimum 50% and reduces average annual maintenance cost of RM2.8m. Note that the new LED lights have colour changing features. Besides, 90% of Mandarin Oriental KL areas that need to be lit are installed with LED lights.

Meanwhile, heat pump system for hot water was introduced in Mandarin Oriental KL guest rooms to reduce natural gas consumption. On another hand, 49 Premium Parking bays with 20 EV chargers at Suria KLCC were launched in 2021 to reduce carbon footprints.

Removal of Single-Use Plastics. Mandarin Oriental, KL adopted 100% elimination of Single-Use plastic (SUP) in hotel operations since 2021.

Plastic food containers are replaced with new food packaging. In addition, the hotel uses glass jar for jams while toiletries provided in guest rooms are made by sustainable materials. Besides, glasses and jugs are procured for meeting rooms and guest rooms. We understand that Mandarin Oriental KL spent RM5.66m in FY23 for Responsible Procurement.

Maintain NEUTRAL with a revised TP of RM7.80. We maintain our earnings forecast for FY24/25/26F. We revise our TP for KLCCP to RM7.80 from RM7.50 as we adjust our terminal growth rate in our Dividend Discount Model. We expect the ESG efforts of KLCCP to bring cost savings in the long run. Meanwhile, earnings outlook for retail division of KLCCP remains positive as we expect positive rental reversion to underpin by higher tourist arrival and encouraging shopper footfall.

Besides, hotel division will also benefit from higher tourist arrival which will lead to higher occupancy rate and higher Average Room Rate. Nevertheless, we maintain our NEUTRAL call on KLCCP as upside is limited. Meanwhile, dividend yield is estimated at 4.8%.

Source: MIDF Research - 7 Nov 2024