• Maintain NEUTRAL, with new MYR0.57 TP from MYR0.56, 6% upside and c.7% yield. CLMT’s 1H23 results came in within expectations as retail sales and footfall continued to improve, resulting in a 4.7% rental reversion YTD across its portfolio. It also raised its service charge fee from 1 Jun 2023 to offset the increase in utility costs. Despite improving operating metrics, 1H23 DPU is 1% lower YoY following the acquisition of Queensbay Mall (QBM) as the net margin was impacted by higher interest expenses.

• Results review. 2Q23 core profit of MYR28.6m (+44.6% QoQ, +32.7% YoY) led to a 1H23 core profit of MYR48.4m (+15.3% YoY). This is in line with our expectations at 47% of our full-year forecasts, but below Street’s (43%). Revenue rose 33.5% QoQ and 53.3% YoY due to the full quarter contribution from QBM. However, interest expenses during the quarter rose to MYR22.4m (+59.9% QoQ, +103% YoY) following the acquisition. As a result, 1H23 net margin is smaller YoY at 26.4% vs 30.9% in 1H22. 2Q23 DPU of 1.06 sen brings 1H23 DPU to 1.93 sen (1H22: 1.95 sen).

• Portfolio occupancy stable at 88%. On a same-store basis, shopper traffic in 2Q23 was up 25.8% YoY, and tenant sales psf improved 4.8% despite 2Q22’s high base. As a result, rental reversion YTD across its portfolio is encouraging at 4.7%, with only 3 Damansara recording negative rental reversion (-31.6%). East Coast Mall continues to drive earnings growth with a strong 10.2% rental reversion. Portfolio occupancy should remain stable with only 18.6% of leases up for expiry in 2023, and 70.7% of these already renewed or under advanced stages of negotiations. CLMT also raised its service charge fee from 1 Jun 2023 to offset the increase in electricity costs which should help improve its NPI margins in 2H23.

• Update on asset enhancement initiative (AEI). CLMT is commencing its AEI at 3 Damansara to reconfigure the space at the mall’s lower ground to uplift the area and better complement the newly opened NSK Grocer. Following the AEI, a new F&B cluster – taking up to 14,000 sqf – is set to be completed by end 2023, with new dining options slated to open in 2024. Management hopes to fully occupy the lower ground floor before focusing on improving occupancy at the rest of the mall.

• Earnings forecast. Post results, we increase our FY23F-25F earnings by 2-3%. Our TP incorporates a 2% ESG premium based on our in-house methodology and CLMT’s 3.1 ESG score. Key risks include stronger/weaker-than-expected retail performance and retail reversion.

Source: RHB Research - 26 Jul 2023