Results

• CMMT reported 1QFY17 gross revenue of RM73.0m (-1.1% qoq, -1.3% yoy) and normalised net profit of RM40.2m (- 1.7% qoq, -2.0% yoy), accounting for 23.7% and 23.4% of our and consensus full year estimates respectively.

Deviations

• None.

Dividends

• None as dividend is usually payable semi-annually.

Highlights

• YoY: Gross revenue decreased by -1.3% and net income was down by 2% due to (i) negative rental reversions from Sungei Wang Plaza (SWP) and (ii) lower rental rates and occupancy in The Mines and Tropicana City Property (TCP). The decline in gross revenue was mitigated by better performance from Gurney Plaza (GP) on the back of higher rental rates achieved from new and renewed leases.

• The Mines: The Mines experienced a drop in occupancy rate and negative rental reversion in this quarter. The drop in occupancy rate is due to the lease expiry of an anchor tenant (Mines Playzone) while the negative rental reversion is due to management business decision on rent readjustment to balance tenant (Digitamart) occupancy cost.

• Tropicana City Mall: A contraction in NPI (-4% yoy) for Tropicana City Mall is caused by downward rental reversion (-4.1%) given management continuous effort in boosting occupancy rate.

• Gearing and occupancy rate: Overall, average cost of debt improved to 4.39% (from 4.44%); gearing was steady at 32.5% while portfolio occupancy rate declined to 95.0% (from 96.5%).

• Outlook: We understand that 1H17 remains challenging for the CMMT but situation is likely to improve in 2H17 resulting in a stable net profit yoy basis. Management expects that the sustained growth of GP and East Coast Mall (ECM) will help to moderate the lower revenue contribution from other malls under management, which has been affected by rising competition in Klang Valley.

Risks

• Lower than expected contribution from Klang Valley malls under management.

• Prolonged erosion in consumer sentiment.

Forecasts

• We incorporate lower rental reversion rates for malls in Klang Valley to reflect challenging operating environment, resulting in lower FY17-19 bottom-line by 3.1%, 4.7% and 6.7% respectively.

Rating

HOLD ↔ , TP: RM1.59 ↔

• While we expect better contribution from GP and ECM going forward, we are concerned about the Klang Valley shopping mall operating environment which has been plagued by oversupply problem and we do not foresee this situation improving significantly in the near term.

Valuation

• Whilst there are changes to our earnings forecast, we maintain HOLD recommendation with unchanged TP of RM1.59 as we roll forward our valuation horizon from FY17 to FY18 with unchanged targeted yield of 5.6%

Source: Hong Leong Investment Bank Research - 19 Apr 2017