- We re-affirm our BUY recommendation on Capitamalls Malaysia Trust (CMMT), with an unchanged fair value of RM2.15/unit, based on our DCF valuation.

- CMMT reported a 1QFY13 distribution income of RM39mil (+5% YoY, 3% QoQ) and DPU of 2.18 sen (+4.3% YoY). At 25% and 26% of ours and consensus forecasts, respectively, 1Q results met expectations.

- Topline growth (4% YoY, 1% QoQ) was fuelled by an 8% positive rental reversion from new and renewed leases. This ranged between 2%-15% reversions throughout CMMT’s portfolio of assets. A healthy overall occupancy of 98.7% was achieved. The latest book value is at RM2.9bil.

- A revolving credit facility of RM56mil was drawn down for the funding of capital expenditure at Gurney Plaza and Sungei Wang Plaza. In addition, CMMT had re-fixed the interest rate of existing borrowings for 2 years at 4.14%. Thanks to this, the average cost of debt stands at 4.56% (vs. 4QFY12: 4.64%).

- The evenly distributed lease expiry continued to underpin CMMT’s growth. The on-going AEIs at Sungei Wang Plaza and East Coast Mall suggest potential DPU lift in the near- to medium-term. Sungei Wang Plaza AEIs are targeted to be completed by late-FY13.

- CMMT had initiated enhancement works at East Coast Mall in March. We see potential upside in rentals (c.RM6psf currently) from FY15 onwards supported by an additional 23% of NLA:- (1) Conversion of car park bays at Level 3; (2) Reconfiguration of space to improve trade mix; and (3) Extension of the alfresco area on the Ground Floor. AEI works are scheduled for completion in 4QFY14F. Net property yield as at end-FY12 stood at 7.8%.

- More importantly, the mandate to issue up to 353.5mil share hints of a potential injection of Queensbay Mall in the immediate term, in our view.

- Gearing was comfortable at 29% as at end-1QFY13. Based on our scenario analysis of Queensbay Mall’s potential injection, this suggests debt headroom of RM409mil and RM655mil if gearing goes to 33% and 39%, respectively – within its 40% internal gearing benchmark.

- CMMT offers FY13F and FY14F yields of 4.7% and 5.2%, respectively. DPU for FY14F-FY15F have been adjusted to factor in higher contributions from Queensbay Mall.

- With a quality asset portfolio, we like CMMT’s diversified properties and resilient income stream. Management nonetheless continues to eye quality assets for acquisitions, which focus on day-to-day necessity shopping mall.

- CMMT remains as the top BUY, supported by catalysts of accretive AEIs and potential first-mover acquisition advantage for Queensbay Mall in the immediate term.

Source: AmeSecurities