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

- 1HFY13 distributable income at RM77mil (+4% YoY, -1% QoQ), met expectations, comprising 49% of ours and 52% of consensus estimates. DPU rose by 3.6% YoY to 4.35sen – its first income distribution for the year.

- 1HFY13 revenue rose by 4% YoY to RM149mil, helped by higher rental rates achieved from new and renewed leases. Positive rent reversion of 7.9% was achieved for 1HFY13, with +8.9%, -0.7%, +9.9% and +19.8% for Gurney Plaza, Sungei Wang, The Mines and East Coast Mall, respectively. Portfolio occupancy remained strong at 98.8%.

- In May 2013, the group re-priced the credit margin of existing floating rate credit facilities, which resulted in a reduction of c.30bps. The resulted decline in credit margin coupled with better interest rate had therefore reduced finance costs – average cost of debt in 2QFY13 stood at 4.31% vs. 4.74% previously.

- The group had consistently proactively managed capital and 75% are on fixed loan. This limits the rising rates given the concern over rising bond yields in recent weeks. It has manageable gearing level of 28%.

- Progression of the asset enhancement initiatives are well on track. Refurbishment works at Sungei Wang is anticipated to be completed by end-FY13. While the mall is poised for better performance thereafter, MRT works continue to directly impact shoppers’ traffic until completion in FY17F. We think this could lead to flat rental growth during the MRT downtime. The mall nonetheless stands as a long-term beneficiary of the Bukit Bintang Central MRT station.

- East Coast Mall’s asset enhancement works includes the conversion of some car park bays on the third floor into retail space, which started in April. However, net property income is inclined to experience some decline in 2HFY13F, stemming from the downtime. Business will be as usual given that AEIs are done in phases progressively.

- CMMT is highly diversified in the retail space and we believe its portfolio should be able to support any AEI or MRT downtime to continue charting decent growth levels. More importantly, it has a sound management.

- Our BUY on CMMT is premised on the group’s first mover acquisition advantage, in our view, when compared to other retail REITs. Forward yields are decent at 5% levels.

Source: AmeSecurities