KUALA LUMPUR: Despite a slight dip in earnings in the first quarter, RHB research continues to be bullish on KLCCP Stapled Group on the back of its quality assets and deep pockets.

"The stability of the office segment and initiatives within retail and management services have mitigated the toll COVID-19 has taken on the hospitality unit in 1Q20," said the research house in a note.

It maintained its buy call on the counter with a target price of RM8.55, which represents a 9% premium to its last traded price of RM7.83 on Tuesday.

Pre-tax profit for the office segment was 0.3% lower year-on-year in 1Q due to higher one-off repair and maintenance works.

RHB noted that the group's management is confident over the stability of its commercial segment due to the long-term triple net lease arrangement with Petronas. Meanwhile, ExxonMobil managed to renew its lease last February despite the impact Covid-19 has had on earnings.

Moving ahead, RHB expects the newly reconfigured space in Suria KLCC, which would welcome smaller speciality stores, to prop up earnings following the movement control order (MCO) and despite delays to the progress of Phase 2.

Nevertheless, RHB is only mildly optimistic that it will mitigate the impact of Covid-19 on 2Q20 numbers due to the MCO and rental assistance offered.

The hotel segment is the worst-hit by the Covid-19 pandemic as occupancy rates plunged to 44% from 64% in RFY19 while books and events were cancelled.

The segment's pre-tax profit fell to a RM8.84mil loss as compared to a profit of RM6.17mil in the previous quarter following a massive refurbishment exercise last year.

"We believe the segment’s performance is indicative of its outlook for the rest of the year, as travel is likely to be subdued. We remain bearish on this business," said RHB.