Results

1Q14 core PAT rose 6.5% yoy to RM38.2m, making up 24% of both HLIB and consensus estimates.

Deviations

Largely in line.

DPU

2.32 sen DPU was declared in 1Q14, or 27% of our 8.44 sen FY13E DPU forecast.

Highlights

Organic growth. 1Q14 gross revenue rose 6.2% yoy, driven by 4.8% yoy increase in rental income and 18.3% yoy increase in other revenue. The rise in rental income was attributed to full-quarter contribution from the newly reconfigured units of Phase 1 asset enhancement works at East Coast Mall, while the rise in other revenue came from onselling of electricity to tenants at The Mines.

Property operating expenses rose 16.0% yoy in 1Q14. The increase was mainly attributed to the adjustment in property assessment fees (which impacted East Coast Mall and CMMT’s interest in Sungei Wang Plaza) as well as the hikes in electricity tariff and renewable energy surcharge which impacted CMMT portfolio. Other contributing factors include higher utility expenses as a result of higher electricity consumption, higher administrative expenses and reimbursable staff costs.

NPI margin contraction. Thus, this led to NPI margin declining by 2.8% ppt yoy to 66.5% in 1Q14.

Lower financing cost in 1Q14. Finance costs declined 13.1% yoy to RM9.9m, mainly because CMMT incurred a one-off incidental cost for the purpose of re-fixing its fixed rate term loans in 1Q13. Average cost of debt for 1Q14 was 4.29% p.a. (1Q13: 4.56% 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

HOLD

Positives: Imports best practices from the CapitaLand Group and beneficiary of sustained (albeit slower) consumption growth.

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

Valuation

Maintain TP at RM1.36 (7.0% target DY).

Source: Hong Leong Investment Bank Research - 17 Apr 2014