• Keep NEUTRAL, with new DDM-derived MYR7.96 TP from MYR7.59, 6% upside. KLCCP Stapled recorded strong 1Q results, particularly led by the retail and hotel segments, as the latter continues to be profitable for the third consecutive quarter. Despite the increased competition, the retail segment recorded both higher footfall and tenant sales YoY, but further upside may be limited with occupancy and rental rates already at high levels.

• Results in line. 1Q24 core profit of MYR188m (+16% QoQ, +4% YoY) was in line at 23% of our full-year forecast. On a YoY basis, 1Q24 revenue of MYR409m increased 7% (-8% QoQ) as Suria KLCC’s occupancy level improved to 98% from 96% with higher base rents, and Mandarin Oriental’s revenue increased 27% YoY (-11% QoQ) with a record high revenue per available room (RevPar). Interest expense increased 3% YoY, but the average cost of debt is expected to decline from 4.6% in 1Q24 following the sukuk refinancing in April. The group recorded a DPU of 9 sen (1Q23: 8.5 sen).

• Retail remains strong. Despite concerns on increased competition after the opening of The Exchange TRX, Suria KLCC remained stable with 4% higher footfall and 8% higher tenant sales YoY. Occupancy rate remains healthy at 98%, and the group has been actively refreshing its offerings with eight new tenants, including two first-to-market tenants in Malaysia – Flaaah with ONO and Isetan’s Kampai. Moving forward, management is guiding flattish to low-single digit rental reversion.

• Record high RevPar at MYR598. The hotel segment remains profitable with a PBT of MYR1.8m, boosted by the visa-free implementation for tourists from China. This has resulted in the composition of guests from the country to almost double to 13% from 7% pre-pandemic. Management thinks that the occupancy levels could continue to be stable at 58%, but RevPar may ease from the record highs in the seasonally slower quarters.

• Other highlights. The office segment remained stable with flat revenue growth, while the management services segment saw a 7% revenue increase YoY from a rise in maintenance activities and new car parking bays.

• Earnings revision. We increase our earnings estimate by 2% after lowering our cost of debt assumptions, and we lift our TP after reducing our risk-free rate assumption in anticipation of a lower interest rate environment ahead. Our TP includes a 4% ESG premium. Key upside/downside risks include changes in consumer sentiment, and higher/lower rental reversions.

Source: RHB Research - 24 May 2024