Kenanga Research & Investment

Author: kiasutrader   |   Latest post: Fri, 4 Dec 2020, 8:55 AM


CapitaLand M’sia Mall Trust - Below Expectations

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9MFY20 realised distributable income (RDI) of RM44.0m (- 55% YoY-Ytd) came in below our estimate (63%) but within consensus (71%) as we had expected a stronger pickup in 2HFY20 post the various MCOs. No dividends, as expected. Lower FY20-21E CNP by 17-8% to RM58-96m on expectations of weaker reversions going forward. Given the on-going pandemic, the Group will be prioritising occupancy over reversions. Maintain MARKET PERFORM but on a lower TP of RM0.565 (from RM0.625).

9MFY20 realised distributable income (RDI) of RM44.0m came in below our estimate at 63% but within consensus’ at 71%, as we had imputed for a more significant pickup in 2H post the various MCO phases mostly in 2QFY20. No dividends, as expected.

Results’ highlight. YoY-Ytd, top-line was down by 24% on decline from all assets due to rental waivers and rebates given to non-essential tenants during the various MCO phases which were mostly in 2QFY20. All in, RDI declined by 55% despite lower operating cost (-8.8%) and expenditure (-13.9%). QoQ, top-line rebounded, up by 40% post the weak 2QFY20. As a result, RDI jumped to RM23.2m (>100%) from RM0.6m in 2QFY20. Group gearing remained stable at 0.34x which is below MREITs’ gearing limit of 0.60x.

Outlook. Due to the severity and uncertainty of the Covid-19 situation, the Group will be prioritising tenant assistance and cash preservation. Capex of RM20m each in FY20-21 is expected. The Group does not expect to utilise any additional rental assistance, but may assist tenants by way of lower reversions. Similar to most malls, we believe the Group will be prioritising occupancy over reversions. FY20 will see a large number of leases up for expiry at 43% of NLA, of which 50% has been renewed thus far at -10.7% reversion rates. We also expect 30% of leases to expire in FY21.

Lower FY20-21E CNP by 17-8% to RM58-96m on expectations of weaker reversions by end-FY20 and FY21 given the worsening Covid- 19 situation thus far, as we believe the Group would prefer to uphold healthy occupancy levels over reversions. As such, we lower rental reversions in FY20-21 to -13% / -5% (from -5% / +2%), while we expect occupancy of 85-90% (from 80-88%). FY20E/FY21E GDPU/NDPU of 2.8-4.6 sen / 2.5-4.2 sen imply gross yield of 4.5%/7.5% and net yield of 4.1%/6.8%.

Maintain MARKET PERFORM but on a lower Target Price of RM0.565 (from RM0.625). Our TP is based on a lower FY21E GDPU of 4.6 sen (from 5.1 sen) and a +5.4ppt spread (+2.0SD) to our 10-year MGS target of 2.8%. Our applied spread is the highest among retail MREITs under our coverage (+1.5ppt to +2.7ppt) given the weakness of CMMT’s asset profile from negative reversions and risk of weak occupancy. Furthermore, CMMT does not own any prime assets unlike its MREITs retail peers which would make it tougher to weather this pandemic while the concern of retail space oversupply still lingers.

Risks to our call include: (I) bond yield contraction/expansion, (ii) higher/lower-than-expected rental reversions, and (iii) higher/lower than-expected occupancy rates

Source: Kenanga Research - 30 Oct 2020

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