• CLMT’s 3QFY23 core earnings rose 35% yoy on contribution from the newly acquired QBM and higher contribution from Gurney Plaza.

• 9MFY23 core net profit was in line with our expectations. Overall occupancy rate improved to 89.6% as at Sep 23 (vs. 83.1% as at Sep 22).

• Reiterate Hold with a TP of RM0.51. We believe FY23-25F dividend yields of 5.4-6.4% will support the share price.

Earnings Driven by Malls in Penang

• CapitaLand Malaysia Trust (CLMT) reported a 3QFY23 core net profit of RM27.8m (+35% yoy, -6.5% qoq), taking 9MFY23 core net profit to RM77.5m (+23% yoy). This is deemed within our expectations, as it accounts for 72% of our FY23F forecast. Our 9MFY23 core earnings exclude the loss on revaluation of RM7.9m.

• The higher 3Q23 earnings were mainly attributed to Queensbay Mall (QBM; acquisition completed in Mar 23). QBM achieved a net property income (NPI) of RM19.6m in 3QFY23, just second to Gurney Plaza, which achieved a NPI of RM25.3m (+4.8% yoy). Overall portfolio occupancy rate improved to 89.6% as at 30 Sep 2023 (vs. 83.1% as at Sep 22). The group announced a DPU of 1.05 sen (83% of payout), taking 9MFY23 DPU to 2.98 sen, ahead at 98% of our FY23F forecast of 3.05 sen.

More Spending on High Value Items

• Management guided that in 3QFY23, the sales value of tenants psf is 23.4% higher than in 3QFY19 (pre-pandemic level), although footfall has yet to recover fully — at 13.9m same-store shopper traffic, footfall is still 0.5% lower than in 3QFY22. The higher sales value of tenants psf, we believe, indicates sustained spen ding and spending on higher value items. As at 30 Sep 23, the three top categories of spending in CLMT’s malls have been fashion/accessories (29%), food & beverage (22%), and beauty & health (13%), according to management.

Retain Hold; Stock Supported by 5-6% Dividend Yields

• We have made no changes to our earnings forecasts. Our DDM-based TP is unchanged at RM0.51 (CoE; 6.4%, terminal growth: 3%). The stock is supported by FY23-25F dividend yields of 5.4-6.4%. We are upbeat on CLMT’s newly acquired QBM (in 1Q23), which comes with a high occupancy rate of 98.9% as at Sep 23, as well as overall improvement in the portfolio occupancy rate to 89.6% as at Sep 23 vs. 83.1% as at Sep 22. However, we are still concerned about its Klang Valley malls’ negative rental reversions – namely The Mines and Sungei Wang Plaza – which could offset the positives from higher occupancy rates. As such, we reiterate our Hold rating.

• Upside risks include the ability to increase occupancy rates for its portfolio and strong rental reversions to bring rental income back to pre-Movement Control Order (MCO) levels of 2019. Downside risks include further drops in overall occupancy rates and negative rental reversions, especially for its malls in the Klang Valley.

Source: CGS-CIMB Research - 26 Oct 2023