Results

2Q13 core PAT rose 5.7% yoy to RM36.4m, taking 1H to RM72.2m (+4.9% yoy) or making up 49% and 48% of HLIB and consensus estimates respectively.

Deviations

None.

DPU

2.17 sen DPU was declared in 2Q13, bringing YTD DPU to 4.35 sen, or 52% of our 8.29 sen FY13E DPU forecast.

Highlights

Organic growth in 1H 2013. While Sungei Wang Plaza (SWP) continues to experience flat rental reversion (-0.7%), East Coast Mall (ECM) enjoyed a strong 19.8% reversion as average rental rate (ARR) is still rising from a low base of less than RM5 psf vs. RM6-12 psf for the other malls under its stable.

Asset enhancement initiatives (AEI). CMMT is guiding for RM50m capex spending in 2H 2013, with the bulk of it focused on ECM. We understand that the AEI will mainly entail converting existing carpark space to retail space, which should yield an additional 20,000 sqft of net NLA over the next 2 years. CMMT is guiding for ROI to be in the high single digit range.

Lower financing cost. More good news as CMMT has managed to reduce the interest of its floating rate loan by 30 bps. The floating rate facilities make up 25% of its existing debt.

Risks

Limited portfolio diversification (in terms of market segment as it is pure retail) and internal pipeline; intensifying competition; exposure to rising inflation.

Forecasts

Maintained.

Rating

Maintain HOLD

Positives: Imports best practices from the CapitaLand Group; beneficiary of positive macro economic conditions.

Negatives: Highly specialised portfolio makes CMMT the most sensitive M-REIT to adverse changes in the retail segment.

Valuation

Given the muted interested in the REITs sector as spread vs. risk free rate has widen, we now raise our target DY from 4.7% to 5.0%. With our TP being trimmed from RM1.80 to RM1.70, we maintain our HOLD call.

Source: Hong Leong Investment Bank Research - 22 Jul 2013