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

- CMMT’s earnings trajectory continues to uphold further yield accretion, driven by catalysts in accretive AEIs and a potential first-mover acquisition advantage in the immediate term. The good set of 1Q results should further support share price optimism.

- Having attained an 8% positive rental revision for its portfolio in 1Q, current rentals stands at – Gurney Plaza: c.RM8psf, Sungei Wang Plaza: c.RM12psf, The Mines: c.RM6psf and East Coast Mall: <RM6psf.

- East Coast Mall achieved the highest and better-than-expected reversion of 14.8% in 1Q. On-going AEIs, which are scheduled for completion by end-FY14F, would boost rentals thereafter, particularly in the speciality store (50% of NLA), given demand for retail space.

- As highlighted by management, net property income at the East Coast Mall is inclined to experience some slides, stemming from the AEIs downtime. Progressive closure to certain parts of the mall will be done over 5-6 phases. Operations and business will nonetheless remain as usual.

- Sungei Wang (lowest reversion at 2% in 1Q) is poised for a better performance upon completion of AEIs and MRT works in late-FY13 and FY17, respectively. Shoppers’ traffic will continue to be affected by the MRT works for the next 2-3years. Having said that, the MRT crowd complements well with the mall’s shoppers profile. No retail space will be created at the underground passage-way between the mall and MRT.

- Gurney Paragon, a new mall located next to Gurney Plaza, is set to open in July. We believe in Gurney Plaza’s potential in sustaining its position as the preferred shopping destination, despite the competitive rental environment at Gurney Drive.

- This is evident in the waiting list of potential tenants, thanks to the successful AEIs at Gurney Plaza. Stripping off anchor tenants (one-third), the mall delivered a 13% rental reversion in 1Q, just from the speciality stores. The 4th floor is currently undergoing AEIs.

- CMMT is expected to continue charting decent growth levels, overcoming any AEIs or MRT downtime, with an emphasis on sound management, in our view, and more importantly, backed by a well-diversified and balanced portfolio (including an evenly distributed lease expiry).

- A steady cash buffer of RM111mil and 29% gearing as at end-1Q suggest financial strength and capacity for acquisitions. Management is constantly on a hunt for yield accretive acquisitions in Malaysia. We continue to assume a potential injection of Queensbay Mall from its sponsor in FY14F.

Source: AmeSecurities