Results

9MFY14  core net  profit  of  RM110.6m  (+0.6% yoy) c ame in within  our  expectation  but  a  little  below  consensus, accounting for 71.8% and 71.0% of HLIB and consensus full year estimates, respectively.

Deviations

Largely in-line.

Dividends

During the quarte r, 2.12 sen dividend was declared, bringing the  YTD  dividend   to 6.65 sen, accounting  for  77.8% of  our full year DPU expectation.

Highlights 

Higher  YTD  revenue  of  3.9%  yoy  due  to:  (1)  onselling  of electricity to tenants at The Mines; (2) full period contri bution from  newly  reconfigured  units  of  Phase  1  asset enhancement  works  at  East  Coast  Mall;  and  (3)  higher gross rental inc ome as a result of higher rate for rental rates from  new  and  renewed  leases,  except  for  Sungei  Wang Plaza.

Sungei  Wang  Plaza  continues  to  be  affected  by  the construction  of  Mass  Rapid  Transit  project   (MRT),  evident by decrease in gross revenue contribution (  - 8.8% yoy ) and also negative rental reversion ( -7.3%) over preceding rental. The  MRT  is  expected  to  be  in  operation  in  2017  and  w e expect  it  will  contribute  positively  to  Sungei  Wang  Plaza’s earnings.

Occupancy rate for the portfolio remain stable at 97.9%, with positive  contribution  from  East  Coast  Mall  (+0.8%  yoy) mainly  due  to  completion  of  Phase  1  asset  enhancement initiatives.   We  believe  upon  completion  of  the  MRT  works, the occupancy rate for  the portfolio  will improve.

Capex incurred  was  RM42.2m  for the properties during the period.  Installation  of  new  chillers  at  The  Mines  and  fourth floor  reconfiguration  at  Gurney  Plaza  has  been  completed. Works  in  progress  includes  creation  of  new  retail  space  at Gurney  Plaza,  and  also  extension  of  alfresco  area  and reconfiguration  of the ground, first and second  floor at East Coast Mall to improve  its trade mix.

Risks

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

Forecasts

Unchanged.

Rating

• Positives: Imports best practices from the CapitaLand Group and  beneficiary  of  sustained  (albeit  slower)  cons umption growth.
• Negatives:  Highly  specialised  portfolio  makes  CMMT  the most  sensitive  M- REIT  to  adverse  changes  in  the  retail segment.

Valuation

• We  derived  new  TP  of  RM1.46  (previously  RM1.36)  with target  yield  of  6.3%  (previous ly  7.0%)  based  on  historical average  yield spread  of CMMT  and 7-year  MGS.
• Maintain  HOLD  recommendation  on the stock.

Source: Hong Leong Investment Bank Research - 23 Oct 2014