Flat figures for KLCCP Stapled Group as office sector underperforms
KUCHING: KLCC Property Stapled Group’s core net income for its financial year 2016 (FY16) of RM719 million was considered flattish by analysts on the back of a toughening office outlook.
MIDF Amanah Investment Bank Bhd (MIDF Research) said core net income for FY16 was flattish, declining by a marginal 0.8 per cent year on year (y-o-y) to RM719 million.
The marginal decline in full year earnings was largely due to overall flat performance of all division.
Profit before tax (PBT) of retail division loses by a marginal 0.01 per cent.
“Meanwhile, PBT of office division held remains flat by losing a marginal 0.17 per cent,” it said in a report. “
On the other hand, hotel division reported pre-tax loss of RM3.24 million due to weak hospitality demand coupled with renovation works of the presidential suite in Mandarin Oriental.
“Nevertheless, hotel division returned to the black in 4QFY16 by registering PBT of RM2.95 million from pre-tax loss of RM1.49 million which we believe could be due to seasonally higher hospitality demand during year end.”
Hong Leong Investment Bank Bhd (HLIB Research) observed that KLCCP Stapled Group’s bottom-line was slightly down due to marginal drop in retail caused by higher operating expenditure (opex) following tenant remixing and loss making hotel segment attributable to oneoff write-off cost and refurbishment works.
This is partially offset by higher contribution from management services segment thanks to additional services provided.
“In FY17, its office segment is expected to have a slight dip in rental income due to loss of income during the transition period of 40 per cent space vacanted by ExxonMobil, partially offset by the incremental income from extra space and rental reversion at Menara DayaBumi,” it said in a separate note.
Its retail segment is expected to be largely stable despite drop in occupancy rate and partial loss of income due to tenant remixing, but the rental reversion of circa five per cent achieved during FY16 is sufficient to offset the gap.
“Hotel segment will be challenging in view of the difficult market conditions and ongoing renovation works. However, FY17 may see an improvement given the low base effect of loss making FY16, which was hugely impacted by the oneoff furniture impairment and absence of MICE event.”
Affin Hwang Investment Bank Bhd (AffinHwang Capital) said differentiation strategies remain a key driver for KLCCP Stapled Group to stay afloat going forward.
“ITs weaker hotel segment has been impacted by contraction in the oil and gas sector, refurbishment works as well as competition from new supply. Management has launched aggressive promotions to drive occupancy and reduce the dependence on the oil and gas sector, while expected completion of Mandarin Oriental’s final refurbishment phase in 2017 should help to drive earnings in 2018.
Otherwise, earnings should remain relatively stable for both the office (triple net leases – next rental reversion in Dec17 for Menara 3 and Oct18 for Petronas Twin Towers) and the stable occupancy of the retail portfolio in 2017.
AffinHwang Capital maintained its hold call for the REIT at a target price of RM8.
MIDF Research also maintained its earnings forecast for FY17 for KLCCP Stapled Group, maintaining neutral with revised target price of RM7.60 per share.