Results

2Q14 core PAT rose 0.8% yoy to RM36.7m, with YTD net profit of RM74.9m making up 48% and 48% of HLIB and consensus estimates respectively.

Deviations

Largely in line.

DPU

2.21 sen DPU was declared in 2Q14, bringing YTD DPU to 4.53 sen, or 51% of our 8.81 sen FY13E DPU forecast.

Highlights

Organic growth. 1Q14 gross revenue rose 4.9% yoy, driven by 1.6% yoy increase in rental income and 29.0% 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.

NPI margin contraction reflects cost pressures. NPI margin declined by 2.2%-ppt yoy to 65.5% in 2Q14, due 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.

Lower DBKL assessment rates. We understand that CCMT had previously made provision for 100% increase in the assessment rate, but now expect the rate hike to be 25%, and will make write-back in 2H14.

Impact of OPR hike. We expect the impact from the rate hike to be minimal given only 29% of its borrowings are floating rate in nature. Average cost of debt was stable qoq (2Q14: 4.30% p.a. vs. 1Q14: 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 for FY14 but marginally increase FY15-16 forecast by 0.8% to reflect additional 30k sft of new NLA created by the reconfiguration of retail space in East Coast Mall. The asset enhancement is expected to complete by end 2014.

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 - 18 Jul 2014