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

-  The group’s sponsor, CapitaMalls Asia Limited (CMA), has just commenced construction of Melawati Mall – a 50:50 joint venture with Sime Darby.

-  The Melawati Mall is located at the north east of Kuala Lumpur city centre – an eight-storey shopping mall with net lettable area of 620,000sf. Construction is expected to complete at end-2016.

-  We are positive on this development as it paves way for a stronger pipeline of assets for injection (in addition to Queensbay Mall) into CMMT.

-  A new mall typically takes at least three years of operation to stabilise. As such, should Melawati Mall be considered for an injection, we opined it could only happen the earliest in 2020.

-  As a recap, CMMT received a letter of intent from Tropicana Corporation Bhd to explore the possibility acquiring the latter’s:- (1) Tropicana City Mall (TCM) – a 4-storey shopping mall; and (2) Tropicana City Office Tower – a 12-storey office building. The group is currently conducting due diligence for the said properties. We believe that TCM fits well within CMMT’s portfolio, which focuses on necessity and day-to-day shopping malls.

-  We maintain our FY13F-FY15F estimates. CMMT’s 3QFY13 results are due for release on 24 October 2013.

-  We remain positive and favourable on CMMT because of its first mover acquisition advantage. We believe CMMT will be the first to embark on an acquisition move compared to Pavilion REIT (HOLD, FV: RM1.65/share) and IGBREIT (HOLD, FV: RM1.38/share), underpinned by:- (i) Queensbay Mall’s position as a ready and yield-accretive asset ; and (ii)TCM – the due diligence exercise hints that a potential acquisition of TCM could be in the making. 

Source: AmeSecurities