KLCCP to retain stable growth ahead — Analysts

KUCHING: KLCC Property Holdings Bhd and KLCC Real Estate Investment Trust’s ( KLCC REIT) stapled group’s ( KLCCP) growth prospects are expected to remain stable, analysts observed, driven by rental revisions and retail earnings.

In a report, the research arm at MIDF Amanah Investment Bank Bhd ( MIDF Research) said: “We expect earnings of office division to remain stable as next rental reversion of Petronas Twin Towers which is on fixed step-up basis will take place in October 2018.

“Earnings of retail division will also be supported by the marginally higher rental rates of Suria KLCC.”

The research arm of Affin Hwang Investment Bank Bhd (Affin Hwang) pointed out that KLCC’s flagship retail asset, Suria KLCC, is enjoying a high occupancy rate of 97 per cent.

It added: “Looking ahead, management expects Suria KLCC’s rental reversion to hover between one to two per cent.

“Elsewhere, its offices are enjoying 100 per cent occupancy, backed by triple net leases and long-term lease with ExxonMobil.

“Overall, KLCC’s assets are mature and we expect muted earnings growth of between one to three per cent for 2018 to 2020.”

Aside from that, Kenanga Investment Bank Bhd’s research team (Kenanga Research) noted that the group had previously renewed its shareholders’ approval for a 10 per cent placement in April 2018.

“Phase 3 of Menara Dayabumi in still in the tendering process as management focuses on securing an anchor tenant before proceeding with the development. Phase 3 is expected to comprise of a 60-storey tower of mixed development, consisting retail, office and hotel portion and will likely be completed in the financial year 2021 to 2022 (FY21 to FY22).

“Lot 185 and Lot M is still under development and is unlikely to be injected during the greenfield phase, while completion of construction is in 2022,” it added.

Meanwhile, MIDF Research noted that for the first half of 2018 (1H18), KLCCP’s earnings inched up 1.4 per cent y- o-y, attributed to higher contribution from office and retail divisions.

“Profit before tax ( PBT) of office division climbed by 0.7 per cent y- o-y, driven mainly by full occupancy rate of Menara Exxonmobil. Similarly, PBT of retail division increased by 1.5 per cent y- o-y due to higher rental rates.

“Meanwhile, hotel division was in the red by recorded pre-tax loss of RM1.7 million in 1HFY18 due to weaker contribution in 2QFY18 as well as higher depreciation and interest costs on fully refurbished rooms,” it explained.

All in, MIDF Research maintained its ‘neutral’ ratings due to its neutral earnings outlook.

Kenanga Research pegged an ‘underperform’ call on the stock which is premised on its lacklustre outlook for the sector as it remained conservative on valuations. Affin Hwang believed that the positives are largely priced in and therefore, it rated a ‘maintain’ call on the stock.