CapitaLand M’sia Mall Trust - 1H18 Within Expectations

Date: 26/07/2018

Source  :  KENANGA
Stock  :  CMMT       Price Target  :  1.25      |      Price Call  :  HOLD
        Last Price  :  1.07      |      Upside/Downside  :  +0.18 (16.82%)

1H18 realised distributable income (RDI) of RM82.0m came in within expectations at 50% and 52% of ours and consensus. 1H18 DPU of 4.02 sen was also within (50%). Maintain FY18-19E CNP of RM164-165m. Portfolio reversions were also within our expectations of low single-digit to mildly negative. Maintain MARKET PERFORM and TP of RM1.25 on a +2.1ppt spread to the 10-year MGS of 4.20%.

1H18 realised distributable income (RDI) of RM82.0m came in within both our and consensus expectations at 50% and 52%, respectively. First interim DPU of 4.02 sen was declared, which included a 0.44 sen non-taxable portion. This also met our FY18E target (50%) of 8.0 sen, implying 6.5% gross yield.

Results highlight. YoY-Ytd, top-line was down by 3.9% on lower rental rates from negative reversions at Sungei Wang Plaza (SWP), The Mines (TM), and 3 Damansara (previously known as Tropicana City Mall), as well as lower occupancy at SWP and TM due to asset enhancement works. All in, RDI declined by 2.6% on slightly lower expenditure (-3.5%). QoQ, top-line was down by 2.7% due to lower occupancy as SWP, TM and 3 Damansara, as well as lower reversions at TM and ECM, likely due to similar reasons mentioned above. However, marginal increase to interest income (+2.9%) and lower expenditure (-2.0%) caused RDI to decrease to 1.0%.

Outlook. Management plans to spend c.RM70-50m on capex in FY18- 19 for refurbishment at Sungei Wang Plaza, TM, East Coast Mall (ECM) and Gurney Plaza (GP). As at June 2018, FY18 will see 27% of NLA expiring, while we estimate c.30% of NLA expiring in FY19 as CMMT’s expiries are on a staggered basis of c.30% p.a. SWP may not see positive rental reversions in the near term of which we have already accounted for in our forecasts, but we expect it to continue recovering on: (i) improved mall accessibility now that the MRT1 is operational, and (ii) post completion of the AEIs by 2H19.

Maintain FY18-19E of RM164-165m. We expect low single-digit to mildly negative reversions on leases expiring. Our FY18-19E GDPU/NDPU of 8.0-8.1/7.2-7.3 sen suggests gross yields of 6.5/6.5% (net yields of 5.8/5.9%).

Maintain MARKET PERFORM and TP of RM1.25. We reiterate our MARKET PERFORM call and TP based on FY18E GDPS/NDPS of 8.0 sen/7.2 sen, on an unchanged +2.10ppt spread to the 10-year MGS target of 4.20%. Our applied spread is +0.5SD above historical averages to serve as a buffer for near-term fluctuations to the MGS on oversupply issues and interest rate hikes, but we may look to remove this going forward once confidence returns to MREITs’ valuations. CMMT is commanding decent gross yield of 6.5%, which is close to our target yield of 6.3%, vs. its retail peers’ average gross yield of 5.6%. We are comfortable with our call as we believe we are conservative on the sector and have priced in most downside risks into CMMT’s earnings and valuations, while there is recovery potential from better reversions in the longer run, especially post AEIs.

Risks to our call include: (I) bond yield expansions, (ii) lower-thanexpected rental reversions, and (iii) lower-than-expected occupancy rates.

Source: Kenanga Research - 26 Jul 2018

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