Results

3Q13 core PAT rose 9% yoy to RM37.7m, taking 9M PAT to RM109m, making up 75% and 70% of HLIB and consensus estimates respectively.

Deviations

None.

DPU

2.26 sen DPU was declared in 3Q13, bringing YTD DPU to 6.61 sen, or 80% of our 8.29 sen FY13E DPU forecast.

Highlights

Organic growth. 9M gross revenue rose 5.0% yoy to RM226.3m, mainly due to higher gross rental income on the back of higher rental rates achieved from new and renewed leases. 9M PAT rose 6.3% yoy thanks to interest cost savings as described below.

Asset enhancement initiatives (AEI). Management has guided for RM50m capex spending in 2H 2013, with the bulk of it focused on East Coast Mall. However, in 3Q, only RM14.3m capex was spent on: (1) Refurbishment works for Sungei Wang Plaza; (2) The Mines’ storm water rectification works; (3) Gurney Plaza’s fourth floor reconfiguration works; and (4) East Coast Mall’s AEI works, which includes the conversion of some car park bays on the third floor into retail space, are still in progress

Lower financing cost in 3Q. In May 2013, CMMT tightened the credit margin of floating rate credit facilities at a more competitive rate, leading to CMMT’s financing costs declining by 36bps yoy to 4.29% p.a.

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

BUY

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

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

Valuation

Given the recent stability in MGS yields, we reduce our target DY from 6.0% to 5.0% and increase our TP from RM1.41 to RM1.70, and upgrade to BUY.

Source:Hong Leong Investment Bank Research - 25 Oct 2013