RHB Research has maintained its buy call on KLCC Property Holdings Bhd (KLCCP) with a lower target price (TP) of RM8.43 from RM8.55 due to the Covid-19 pandemic which has impacted and will continue to impact its hotel business and occupancy rate for a couple of quarters more.
“We came away from the post-results release conference call with KLCCP Stapled still confident in its office segment but reiterate our concerns for the hospitality segment which is likely to be in losses for a large portion of the year.
“On a slightly positive note, the steady reopening of Suria KLCC post-movement control order (MCO) may prop up earnings, especially with the new space, but we are wary of reversion rates going forward,” said the research house in a note on May 8.
For 1QFY20, KLCCP reported a 3.85% decline in net profit to RM176.88 mil from RM183.96 mil a year earlier. Quarterly revenue was up by a marginal 0.32% to RM354.59 mil from RM353.45 mil.
About 60% of its leases are expected to open by next week as compared to the circa 12% that were operating during the MCO.
While cost-containment measures such as the temporary closure of certain floors and reviews of contracts with external contractors have been in place at the Mandarin Oriental to uphold margins, the research house opined that the occupancy rates will struggle for the rest of the year as fears on travel and being in crowded areas for events may linger post-MCO.
“We lower our occupancy and room rate assumptions for Mandarin Oriental even further, expecting a couple of loss-making quarters for the year.
“Management agrees that the hotel is at risk of being in the red for a portion of the year. Regardless, we think that the office segment should be able to mitigate the poor performance of the hotel segment, albeit at a flattish growth rate moving forward,” it said.
The research house also assumed flattish reversions and slightly lower than full occupancy for retail and has cut its earnings forecast for FY20 to FY22 by 1% to 3% from 8% previously.
At 10.50am the counter was trading at RM7.83, unchanged from yesterday’s close, giving the company a market capitalisation of RM14.14 bil. -- May 8, 2020