KLCCP office segment still stable

KLCCP Stapled Group’s earnings for the third quarter of 2021 could come under pressure as the retail and hospitality sectors continue to face headwinds from the ongoing Covid-19 pandemic.

KUALA LUMPUR: KLCCP Stapled Group’s earnings for the third quarter of 2021 could come under pressure as the retail and hospitality sectors continue to face headwinds from the ongoing Covid-19 pandemic.

Kenanga Research said in a report yesterday that the group’s main revenue driver, the office segment, however, remains extremely stable on long-term leases of more than 15 years.

“Retail and hospitality are expected to remain challenging in the near term, given the worsening impact of the pandemic with rental assistance still on the table. As such, we brace for weaker third-quarter earnings.

“On the bright side, the group is actively securing most of the tenants for the retail space (Suria KLCC will see 30% of leases up for expiry in 2021) and we are expecting flattish to mildly negative reversions.”

KLCC Property Holdings Bhd and KLCC REIT, collectively known as KLCCP Stapled Group, is Malaysia’s largest self-managed stapled security.

MIDF Research also expects the group’s earnings to be affected in the near term.

“We revise our earnings forecast for 2021 and 2022 to negative 12.9% and negative 3.3%, respectively, as we expect earnings from the retail division to be weaker in the second half of 2021, due to the lockdown.

“We also expect earnings to continue being dragged by the hotel division due to closure of the country’s borders.”

CGS-CIMB, meanwhile, said the easing of the National Recovery Plan’s (NRP) phase one retail restrictions is good news, for now.

“During a post-results conference call with KLCCP, the group noted that the Aug 16 announcement of 11 categories of businesses being allowed to reopen under NRP phase one is good news and should mitigate the risks of a higher degree of rental assistance, as 34% of the overall tenants in Suria KLCC will be operational.”

For the group’s hotel division, CGS-CIMB said the second half of this year will remain a challenging period, as recovery will only be domestic-driven and average occupancy rates have fallen to 12% since the implementation of the full movement control order in June.

KLCCP’s net profit in the second quarter ended June 30, 2021 rose to RM144.01mil from RM140.46mil in the previous corresponding period.

The higher earnings were due to the better performance in the management services segment, mainly from additional services in facilities management.

Revenue in the second quarter increased to RM280.17mil from RM267.25mil a year earlier.

For the six-month period ended June 30, KLCCP’s net profit dropped to RM290.14mil from RM317.34mil in the previous corresponding period, while revenue was lower at RM562.54mil from RM621.84mil a year earlier.

CGS-CIMB said KLCCP’s first half earnings came in below expectations.

“Overall, first half 2021 core net profit was below expectations as we anticipate a quarter-on-quarter weaker third quarter performance, while the final quarter will be weighed by uncertainties of a full recovery under the NRP and sustained rental assistance.”

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