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Weaker retail and hotel earnings in 3QFY21

Maintain HOLD

3QFY21 results and gross DPU of 7sen (9MFY21: 21sen) came in slightly below our estimates, due to weaker-than-expected retail and hotel earnings. 9MFY21 earnings were at 69% of our and consensus’ FY21 estimates. We lower our FY21-22E earnings by 3-6% and lower our DDM-TP by 2sen to MYR6.93 (Ke: 7.6%). Maintain HOLD. Notwithstanding earnings stability from their office segment, earnings for KLCCP continue to be affected by retail and hotel. We prefer Axis (AXRB MK, SP: MYR1.90, BUY,
TP: MYR2.20).

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Weaker retail and hotel earnings

3QFY21 net profit was MYR135.4m (-14% YoY, -6% QoQ), bringing 9MFY21 earnings to MYR425.5m (-10% YoY). 3QFY21 earnings were partly dragged by: (i) Suria KLCC, due to higher provision of rental assistance, and (ii) Mandarin Oriental, due to lower occupancy and F&B revenue. Notably, Suria KLCC and Mandarin Oriental’s 9M20 occupancies were 93% and 12% respectively (-4ppt and -9ppt YoY).

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Adjust earnings lower

We lower our FY21/22E earnings by 6%/3% after reducing our earnings estimates for Suria KLCC and Mandarin Oriental, in view of slower recovery from the pandemic. Meanwhile, we understand that due to the stapled structure (KLCC REIT and KLCC Property), its Property entities will be subjected to Prosperity Tax, hence expect to impact its 60%-Suria KLCC. We estimate this would lower our FY22E net profit by -2.6%.

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Recovery in sight

As the economy reopens, we expect Suria KLCC and Mandarin Oriental to show earnings recovery from 4Q onwards. Tenant sales at Suria KLCC have been seeing gradual recovery from 10 Sept onwards, with positive rental reversions (low single-digit). Meanwhile, room occupancy at Mandarin Oriental has also been improving since Oct, achieving 60%-70% during weekends and 25% during weekdays.