Above expectations; U/G to BUY
4Q21 results and 4th interim gross DPU of 12.6sen (FY21: 33.6sen) were above our expectations. FY21 earnings was encouraged by stronger retail revenue and stable office rental income but offset by weaker performance at Mandarin Oriental. We adjust lower our FY22/23E forecasts by 3%/1%, but nudge up our DDM-TP by 21 sen to MYR7.14. We expect FY22E earnings will continue to be supported by stable office segment and recovery of retail and hotel segments. We U/G to BUY on recent share price weakness.
4Q21 lifted by mall and hotel
4Q21 core net profit was MYR191.6m (+24% YoY, +41% QoQ). FY21 core earnings was MYR617.1m (-1.8% YoY), accounting for 105%/103% of our and consensus’ full-year forecasts. YoY, 4Q21 core earnings was supported by the resilient segments of: (i) office, as all office towers were 100%- tenanted, and (ii) retail, where Suria KLCC provided lower rental assistance, coupled with higher advertising income attributed by better footfall and retailers’ turnover. These segments’ core pretax profit grew 3% and 34% YoY respectively. Mandarin Oriental’s pre-tax loss narrowed 36% YoY from higher occupancy of 29% (4Q20: 15%) and better performance in F&B revenue. YTD FY21 average room rate increased 10% YoY to MYR638.
Minor earnings tweak
We reduce our FY22/23E forecasts by 3%/1% after adjusting for full-year FY21 results and one-off Cukai Makmur (i.e. higher tax rate for Suria KLCC). Subsequently, we roll forward our DDM valuation base year to FY22 – resulting in a revised TP of MYR7.14 (+21sen).
Recovery momentum
We believe FY22 earnings would continue to be supported by the resilient office towers which are on long-term and triple net leases; as well as lower rental assistance to Suria KLCC’s tenants from increasing footfall. Meanwhile, Mandarin Oriental is anticipated to recover at a slower pace, focussing on local market.