Results

• 9MFY15 gross revenue of RM251.5m (+7.0% yoy) was translated into normalised net profit of RM114.5m (+3.6% yoy), accounting for 64.4% and 70.5% of our and consensus full-year estimates respectively.

Deviations

• Higher than expected cost of acquisitions.

Dividends

• None.

Highlights

• 9M15 gross revenue improved mainly due to completion of acquisition exercise on Tropicana City Mall and Office Tower as well as higher rental at East Coast Mall following asset enhancement exercise. Additionally, revenue also grew as a result of higher rental rates from new and renewed lease from overall properties, save for Sg Wang Plaza (SWP). NPI margin remains unperturbed at 66% (Figure #6).

• Finance cost during the quarter jumped by +29% due to new term loan being drawn to (1) partly finance acquisition of Tropicana City Property; (2) additional revolving credit facilities draw down for East Coast Mall asset enhancement; (3) higher interest rate post OPR hike in July 14; and (4) interest rate re-fixing exercise.

• We reiterate our views that SWP will remain a laggard for CMMT until KVMRT works completes in 2017. YTD contribution to gross revenue and net property income has dropped by -18.3% and -24.1% respectively.

• Occupancy rate remains healthy at 96% (Figure #5).

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.
• Disruption in visitors to SWP due to KVMRT construction works.

Forecasts

• We made changes in our FY15 DPU assumption from 8.5 sen to 8.0 sen post adjustment. This is largely to reflect higher than expected cost in relation to acquisition.

Rating

• HOLD , TP: RM1.41
• 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 to adverse changes in the retail segment.

Valuation

• Maintain HOLD recommendation but TP cut to RM1.41 (from RM1.49) post earnings adjustment.
• Targeted yield remains unchanged at 6.4% based on historical average yield spread of CMMT and 7-year MGS.

Source: Hong Leong Investment Bank Research - 19 Oct 2015