Results

• 1HFY16's gross revenue came in at RM185.65m (+15.60% yoy), translated into normalised net profit of RM81.25m (+8.7% yoy), accounting for 48% and 47.1% of our and consensus full-year estimates, respectively.

Deviations

• Slightly below due to higher than expected other operating expenses attributable to higher impai rment of trade receivables.

Dividends

• Semi-annually dividend of 4.20 sen is declared and going ex on 29 Jul 2016, representing annualized yield of 5.25%.

Highlights

• Growth in both gross revenue and net income was contributed by the newly acqui red property (Tropicana City) and better performance from Gurney Plaza and East Coast Mall on the back of higher rental reversion (+7.5% on portfolio basis excluding Sungei Wang Plaza).

• As expected, NPI for Sungei Wang Plaza (SWP) continued to show decline at 26% due to negative rental reversion ( - 37%) and affected by the ongoing MRT works and closure of BB plaza; whereas The Mines (TM) recorded lower NPI (1.3%) due to the absence of one-off income from utilities recovery.

• Gearing remained at 31.9% but finance cost for the year increased by +34.1% due to new term loan being drawn for the acquisition of Tropicana City Property (TCP) and capital expenditure for AEIs at average cost of debt of 4.5%.

• Portfolio occupancy rate remained healthy at 96.4% and a total of RM11.2m capex were incurred during the quarter for planned AEIs at TCP, TM and East Coast Mall.

• Management is confident to deliver sustainable performance in the 2H, through its proactive retail and asset management despite sluggish performance from SWP.

Risks

• Lower than expected contribution from SWP.

• Prolonged erosion in consumer sentiment.

Forecasts

• Imputed higher other operating expenses for FY16, as a result, our bottom-line has been revised lower by 2.4%.

Rating

HOLD, TP: RM1.60

• Positives: Best practices from the CapitaLand Group and geographically diversified.

• Negatives: Slower than expected recovery from the SWP.

Valuation

• Maintain HOLD recommendation with unchanged TP of RM1.60 based on FY17 DPU.
• Targeted yield remains unchanged at 5.76% based on historical average yield spread of CMMT and 10-year MGS.

Source: Hong Leong Investment Bank Research - 20 Jul 2016