Stapling a better outlook to 2HFY22
- 1HFY22 results were in line; core net profit grew 12% yoy.
- Retail segment recovery remained robust; MO could break even in 4QFY22.
- Retain Hold rating with higher TP (FY22-23F dividend yield of 4.7-5.3%).
1HFY22 results in line; core net profit grew 12% yoy
KLCCP’s 1HFY22 core net profit was in line with estimates, making up 49-51% of our and Bloomberg consensus full-year forecasts, anchored by continued improvement in operating conditions. This was on the back of: 1) full economic reopening since 4QCY21, 2) minimal rental assistance in 1QFY22 and 2QFY22, 3) increase in domestic tourism activities and international tourists and corporates for Mandarin Oriental Hotel (MO), and 4) resilient office assets, with triple net leases. 2QFY22 revenue grew 25% yoy (+8.9% qoq) on the back of vibrant (festivity-driven) retail activity and sequentially lower (qoq) rental assistance as well as a strong recovery in hotel revenue. Nevertheless, 2QFY22 core net profit grew at a slower pace than revenue, at +13.4% yoy (+1.2% qoq), due to additional operating expenses incurred for the facilities management division. Overall, 1HFY22 revenue climbed 19.5% yoy, supported by robust retail sales growth (1H22 retail sales at 104% of pre-pandemic levels). 1HFY22 core net profit advanced 12% yoy on lower interest cost (83% of debt on fixed cost) and higher interest income. 2QFY22 DPS of 8 sen brings 1HFY22 DPS to 16 sen, in line with our full-year forecast of 32 sen.
MO could break even in 4QFY22F
During the results conference call, the group indicated that hotel/hospitality activities have improved strongly for Mandarin Oriental (MO), driven by domestic and international tourism and corporate activities/events. Foreign tourists increased 82% yoy in 1HFY22, mainly from Singapore, UK, USA and Australia; occupancy rate stood at 32% (1H22: 18%). With these drivers gaining momentum in 2HFY22F, the group expects MO to potentially break even in 4QFY22F. 1HFY22 hotel revenue surged 195% yoy (2QFY22: +276% yoy) while pretax loss narrowed 39% yoy to RM21m (2QFY22: -55% yoy). For Suria KLCC, while we expect retail sales growth to taper off in 2HFY22F on OPR hikes and inflationary risks, tenant sales levels remain higher vs. pre-pandemic, partially compensating for the still lagging footfall 30-40% below pre-covid levels). Currently, c.60% of Suria KLCC’s footfall comes from domestic retail traffic; pre-pandemic, 70-75% of footfall came from tourists. With a 54% tenancy renewal rate in 1HFY22, the group projects lower-single-digit positive rental reversion in FY22F.
Retain Hold with higher TP; FY22-24F dividend yields of 4.7-5.3%
Potential acquisition/injection of new assets remains on the table but no details or timeline were revealed. Our Hold call is intact (FY22-24F dividend yield: 4.7-5.3%) given: 1) losses for MO, low tourist footfall and still minimal rental assistance likely in 2HFY22F. We raise DDM-based TP to RM7.24 on a lower COE of 6.6% (6.8% previously) as we impute a lower adjusted beta. Upside risk: turnaround in MO. Downside risk: negative rental reversions.
