News

• CMMT has announced that due diligence exercise and market valuations for Tropicana City Mall and Office Tower have been completed.

• In view of the above, CMMT has proposed to undertake placement up to 299.6m new units and expected to raise gross proceeds up to RM395.5m.

• The proposal is expected to be completed in 3QFY15.

Comments

• The news is not a surprise to us as CMMT has earlier mentioned in the previous announcement that purchase consideration for Tropicana Mall and Office Tower will be funded through debt and/or equity fundraising.

• Out of 299.6m new units, 190.8m units shall be placed out to investors to be identified later and expected to raise RM251.85m, which gives an indicative price of RM1.32 per unit. The remaining 108.8m units shall be place out to CMMT Investment Lt, subjects to gross proceeds amounting up to RM143.65m, which also gives an indicative price of RM1.32 a unit.

• Taking into account the proceeds from placement, postacquisition will result in net gearing ratio to increase marginally from 0.23x in FY14 to 0.25x in FY15 vis-à-vis 0.34x if fully funded by debt.

• The management views that placement is the most appropriate avenue of fund raising at this juncture as it will improve CMMT’s gearing ratio as well as trading liquidity thereby results in CMMT becoming more attractive to local and foreign institutional investors.

Risks

• Limited portfolio diversification (in terms of market segment as it is pure retail) and internal pipeline
• Intensifying competition in super-prime Bukit Bintang area
• Exposure to rising inflation
• Disruption in visitors due to KVMRT construction works

Forecasts

• Since the company has guided for the source funding on the acquisition exercise, our previous assumptions that the acquisition to be entirely funded by debt is no longer valid.
• We tweaked our DPU assumptions for FY15 from 8.9sen prior to acquisition to 8.2sen post placement exercise. As such our target price is also cut to RM1.49.

Rating

HOLD , TP: RM1.49

Positives

• : Imports best practices from the CapitaLandGroup and beneficiary of sustained (albeit slower) consumption growth.

Negatives

• : Highly specialised portfolio makes CMMT themost sensitive to adverse changes in the retail segment.

Valuation

Maintain HOLD recommendation on the stock and TP changed to RM1.49.

• Targeted yield remains unchanged at 6.4% based on historical average yield spread of CapitaMalls Malaysia Trust’s and 7-year MGS.

Source: Hong Leong Investment Bank Research - 10 Mar 2015