Kenanga Research & Investment

CapitaLand Malaysia Trust - A Penang Edge

kiasutrader
Publish date: Thu, 25 Apr 2024, 11:14 AM

CLMT’s 1QFY24 core net profit and distribution per unit (DPU) met expectations. Queensbay Mall (QBM) will continue to drive the group’s portfolio performance and cushion the weakness from its retail assets in the Klang Valley that are subject to intense competition. We maintain our forecasts, TP of RM0.58 and MARKET PERFORM call.

CLMT’s 1QFY24 core net profit of RM33.5m met expectations at 28% of both our full-year forecast and the full-year consensus estimate. A proposed income distribution of 1.19 sen per unit is on track to meet our full-year DPU forecast of 4.4 sen.

YoY, its 1QFY24 revenue surged 43% mainly due to the full quarter contribution from QBM (due to its completion in 21 March 2023) coupled with a higher occupancy rate of 93% (vs. 89% a year ago). Its 1QFY24 core net profit surged by a sharper 67% to RM33.5m as its operating expenses (including those of QBM) rose at a slower pace of 22% (vs. 43% at the top line).

QoQ, its 1QFY24 revenue increased by 3% likely due to positive rental reversions and the Chinese New Year festive shopping boost.

However, its 1QFY24 core net profit was flattish as operating expenses are typically seasonally higher in 1Q periods.

Outlook. Its operating performance has improved as reflected in: (i) a higher occupancy rate of 92.4% for its retail assets (from 88.3% in 1QFY23), (ii) 9% and 16% growth rates for shopper traffic and tenant sales, respectively, and (iii) a 9% rental reversion for its malls in 1QFY24.

Nonetheless, it is mindful of cautious consumer spending due to elevated costs of living and recent service tax hike. CLMT is less affected by the entry of new malls in Klang Valley as it derives bulk of its earnings from its malls in Penang.

Forecasts. Maintained.

Valuations. We also maintain our TP of RM0.58 based on a target yield of 7.5% (derived from a 3.5% yield spread above our 10-year MGS assumption of 4.0%). The yield spread is on the higher range applied within our sector peers (average 2.0%) owing to the group’s less optimum assets in the Klang Valley. There is no adjustment to our TP based on ESG which is given a 3-star rating as appraised by us (see Page 4).

Investment case. CLMT will likely continue to see solid performances from its Penang assets. However, its less prime asset profile amid weakened consumer spending and the influx of new malls may put a strain to its retail assets in the Klang Valley (namely, Sungei Wang and 3 Damansara). Maintain MARKET PERFORM.

Risks to our call include: (i) elevated risk-free rate, weighing on REIT valuation, (ii) over-supply of retail malls especially resulting in depressed rentals and occupancy rates; and (iii) further deterioration in consumer spending.

Source: Kenanga Research - 25 Apr 2024

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