This article first appeared in The Edge Financial Daily on March 10, 2020

KLCCP Stapled Group 
(March 9, RM8.12) 
Maintain buy with a higher target price of RM8.68: Having considered a reconfigured former Parkson area as a key driver for KLCCP Stapled Group, we finally got around to visiting the Suria KLCC space, being opened in two phases. We remain upbeat on its value-unlocking prospects, which should mitigate the real estate investment trust’s lukewarm hospitality segment moving forward, particularly due to a potential scaling of the space’s net lettable area (NLA). 

Our visit to the newly opened space on Feb 20 proved favourable. We are highly impressed by the reconfigured area’s new and glossy look. We believe the Covid-19 scare plays a part in seemingly lacklustre crowds, but reckon footfalls shall start gaining momentum when all shops are fully operational in June. 

Meanwhile, impressive lunch crowds — courtesy of the surrounding office buildings — should sustain sales. With an annual footfall of 48 metres currently, we are not overly concerned about Suria KLCC’s shopper traffic for now, especially as turnover rent only makes up 2% of the mall’s rental contribution.

The Phase 1 of the reconfiguration — 80% of the space — was initially scheduled for completion in December 2019, but delays were caused by pending approvals from the Fire and Rescue Department of Malaysia. 

Currently, the only portion that had yet to be completed — the remaining half of the Signatures food court on level 2 — is scheduled to open by the first half of 2020. From our observations, around a third of the retail stores had yet to open, with half of the food and beverage offerings on level 2 due to only open by the second quarter of 2020. 

Parkson only contributed to about 3% of Suria KLCC’s total gross income despite occupying about 12% of the mall’s total NLA. The revamped space’s first phase comprises 120,000 sq ft worth of NLA. 

From our observations — given the ample space making up the common areas — a further scaling of NLA in future is plausible, if the management wishes to. For now, no additional NLA is imputed into our forecasts, but we assume an additional 5% in rental rates, pending the management’s further guidance.

Our earnings forecasts for KLCCP are adjusted by about 1% to better reflect the incremental rental from the reconfigured space. Downside risks include prolonged weakening of local consumer sentiments and a persistent Covid-19 scare, likely to exert pressure on rental rates. — RHB Research Institute, March 9