KIP Real Estate Investment Trust - Results in Line; Setapak Central to Lift Earnings
Tue, 20-Oct-2026 07:05 am
by Wong Kai Heng • Apex Research

Counter

KIPREIT (5280)

Target Price (RM)

1.05

Recommendation

Buy

• 1QFY27 CNP rose 7.8% YoY to RM19.3m, which we deem to be in line with expectations, as Setapak Central Mall is expected to contribute more meaningfully in the coming quarters.

• Future earnings growth will be driven by Setapak Central Mall and ongoing AEIs, while rising living costs and potential OPR hikes pose downside risks.

• FY27F/FY28F CNP forecasts were raised by 6.7%/8.0% to RM92.9m/RM103.6m, respectively, while FY27F DPU remains unchanged at 7.1 sen.

• Maintain BUY with a revised TP of RM1.05 (previously RM0.92), following an adjustment to our target distribution yield from 7.75% to 6.75%, while keeping our FY27F DPU forecast unchanged at 7.1 sen.

 

Results within expectations. After adjusting for the RM2.0m fair value loss on investment properties and a minor impairment on receivables, 1QFY27 core net profit (CNP) came in at RM19.3m (+7.8% YoY, +5.5% QoQ). This accounted for 22.1% of our full-year forecast and 21.8% of consensus estimates. We deem the results within expectations, as Setapak Central Mall (c.RM30m NPI p.a.) is expected to make a stronger earnings contribution in the coming quarters, while the enlarged unit base and part of the acquisition funding cost have already been reflected in the quarter.

QoQ. 1QFY27 revenue edged up 1.1% QoQ to RM48.8m, but NPI eased 1.3% to RM35.0m as property operating expenses rose 7.8% to RM13.8m, led by higher reimbursement costs (+15.7%), other operating expenses (+23.5%), utilities (+3.4%) and marketing expenses (RM0.4m vs 4QFY26: RM0.2m). CNP nevertheless rose 5.5% QoQ, as 4QFY26 CNP was weighed down by the recognition of a RM4.4m deferred tax liability; excluding this, CNP would have declined 15.0% QoQ. Beyond the softer NPI, the decline reflects a 25.9% increase in the manager's management fee to RM6.1m on the larger asset base, the absence of the RM0.3m write-back in other trust expenses booked in 4QFY26, and a 6.0% increase in borrowing costs to RM8.7m following the drawdown of RM234.0m in new MTNs (MTN6 of RM215.0m and MTN5-T4 of RM19.0m) to partfund Setapak Central Mall.

YoY. 1QFY27 CNP rose 7.8% YoY to RM19.3m, underpinned by a 19.6% increase in gross revenue to RM48.8m (1QFY26: RM40.8m) and 17.6% NPI growth to RM35.0m (1QFY26: RM29.7m). Retail revenue grew 17.5% to RM45.5m, led by the Northern (+33.9%) and Central (+15.3%) regions, alongside a full-quarter contribution from KIP Kuantan in the East Coast (RM1.1m vs RM0.1m) and an improved Southern region (+7.5%). However, CNP growth trailed NPI growth on a 33.6% YoY increase in the manager's management fee to RM6.1m and a 34.2% rise in borrowing costs to RM8.7m.

Setapak Central Mall and capital management. The RM435.0m acquisition of Setapak Central Mall was completed on 30 Sep 2026, lifting the portfolio to 20 assets (14 retail malls and 6 industrial properties) and investment properties to RM2.19bn (4QFY26: RM1.75bn). The purchase was funded by the placement of 200.0m new units at RM0.815 each, raising RM163.0m (below the RM176.8m originally targeted from up to 220.0m units), and RM234.0m of new MTNs. As a result, gearing rose to 42.6% (4QFY26: 39.1%), above the 40% to 41% pro forma level guided earlier, while the weighted average cost of borrowings edged up to 4.50% p.a. (4QFY26: 4.47%) and the fixed-rate portion of debt rose to 42% (from 32%). NAV per unit after income distribution declined 5.9% QoQ to RM1.0824, as the placement was priced at a c.29% discount to NAV.

Outlook. KIP REIT’s earnings outlook remains constructive, underpinned by the potential contribution from Setapak Central Mall, with management guiding for approximately RM50m in annual revenue and RM30m in NPI. Organic growth should be supported by the continued earnings ramp-up at KIPMall Tampoi following its AEI. Looking ahead, management will focus on enhancing its existing assets through AEIs at KIPMall Masai, KIPMall Kota Warisan and AEON Mall Kinta City. Management indicated that in the absence of new acquisitions, future growth will be driven primarily by the execution of ongoing initiatives, with the key focus on replicating the stronger returns achieved from past AEIs. Nevertheless, rising living costs may prompt consumers to adopt more cautious spending patterns, potentially weighing on tenants’ sales performance and limiting rental growth. In addition, a potential 25bps OPR hike in 1H2027, as anticipated by our economists, could increase borrowing costs and weigh on distributable income.

Earnings Revision. We raise our FY27F/FY28F CNP forecasts by 6.7%/8.0% to RM92.9m/RM103.6m, respectively, mainly reflecting the earnings contribution from Setapak Central Mall and the revised funding structure. We also introduce our FY29F CNP forecast at RM108.4m. We maintain our FY27F DPU forecast at 7.1 sen, as higher distributable income is offset by the enlarged unit base, while raising FY28F DPU to 7.9 sen (previously 7.6 sen).

Valuation & Recommendation. We maintain our BUY call on KIPREIT with a revised TP of RM1.05 (previously RM0.92), following a valuation review that lowered our target distribution yield from 7.75% to 6.75%. Our FY27F DPU forecast remains unchanged at 7.1 sen. At RM0.87, KIPREIT offers an FY27F distribution yield of 8.2% and trades at 0.80x P/NAV, implying a total return of 29.4%. Fundamentally, KIPREIT continues to benefit from its differentiated community-centric asset profile and a larger, more diversified portfolio following the Setapak Central Mall acquisition.

Risks. (i) Dilution risk from private placement, (ii) weaker consumer sentiment impacting retail performance, (iii) governance risks involving key shareholders, and (iv) potential delays in asset completion or AEI execution.

Read more details in:

Disclaimer

The report is for internal and private circulation only and shall not be reproduced either in part or otherwise without the prior written consent of Apex Securities Berhad. The opinions and information contained herein are based on available data believed to be reliable. It is not to be construed as an offer, invitation or solicitation to buy or sell the securities covered by this report.

Opinions, estimates and projections in this report constitute the current judgment of the author. They do not necessarily reflect the opinion of Apex Securities Berhad and are subject to change without notice. Apex Securities Berhad has no obligation to update, modify or amend this report or to otherwise notify a reader thereof in the event that any matter stated herein, or any opinion, projection, forecast or estimate set forth herein, changes or subsequently becomes inaccurate.

Apex Securities Berhad does not warrant the accuracy of anything stated herein in any manner whatsoever and no reliance upon such statement by anyone shall give rise to any claim whatsoever against Apex Securities Berhad. Apex Securities Berhad may from time to time have an interest in the company mentioned by this report. This report may not be reproduced, copied or circulated without the prior written approval of Apex Securities Berhad.

Market Mover
Settlement Rates
Currency Buy Rates (RM) Sell Rates (RM)
USD 4.066848 4.098389
EUR 4.573345 4.576847
CNY 0.610768 0.611237
HKD 0.518416 0.521927
SGD 3.179278 3.200904