- We reaffirm our HOLD recommendation on Capitamalls Malaysia Trust (CMMT) with an unchanged fair value of RM1.50/share based on a DCF valuation.

- 4QFY14 realised net income of RM39mil (+10% YoY, +2% QoQ), were in line with expectations, bringing FY14 realised net income to RM150mil (+1% YoY).

- CMMT has declared its final DPU of 2.26sen which brings FY14 DPU to 8.91sen.

- FY14’s net property income (NPI) grew by a marginal 0.1% despite a 3.4% revenue growth.

- Gross rental income continued to grow in FY14, attributed to:- (1) contribution from the completion of Gurney Plaza and East Coast Mall’s asset enhancement initiatives (AEIs); (2) on-selling of electricity to tenants; and (3) higher gross rental for new and renewed leases, except for Sungei Wang Plaza which continues to be impacted by the MRT works.

- NPI was affected by higher property operating expenses, in particular the electricity hikes and higher property assessment fees. CMMT did not pass on these higher operating expenses to its tenants through higher service charges.

- Overall, CMMT continued to achieve positive rental reversion of +2.9%: Gurney Plaza (+5.3%), The Mines (+10.4%), East Coast Mall (+12%) and Sungei Wang Plaza (-9.3%).

- Occupancy rate remains stable at 98%.

- The retail landscape in Malaysia is likely to be challenging in FY15F. Positively, CMMT’s turnover rent accounts for 3%-4% of gross revenue, which has a minimal impact on earnings, in our view. Furthermore, we expect CMMT earnings to remain stable and grow organically given that its portfolio comprises necessity shopping malls.

- We expect earnings to grow organically by 1%-4% over FY15F-FY7F, backed by healthy rental reversion. 28% of leases are due for renewal in FY15F. Service charges for its malls are maintained for now, except for The Mines which were revised upwards by 30sen, effective 1 January 2015.

- Subject to authority approval, CMMT plans to undertake AEIs at two malls, with an expected capex spending of RM30mil-RM40mil.

- The stock is currently trading at distribution yield of 6.3%.

Source: AmeSecurities