CMMT’s 1Q18 core net profit of RM37.3m (-1% QoQ, -7.4% YoY) was within our expectations but slightly below consensus. Overall decrease in 1Q18 was mainly due to lower rental rates and occupancy contributed by its Klang Valley malls, partially mitigated by high rental rates achieved from Gurney Plaza and East Coast Mall. We retain our forecast and maintain our HOLD call with unchanged TP of RM1.33 based on unchanged targeted yield of 6.0%.

Within expectations. 1Q18 total revenue of RM89.7m (-2.5% QoQ, -2.9% YoY) translated into a core net profit of RM37.3m (-1.0% QoQ, -7.4% YoY). The results were in line with ours but slightly below consensus, accounting for 24.1% and 22.8%, respectively.

Dividend. None as dividend is usually payable semi-annually.

QoQ. Total revenue for 1Q18 of RM89.7m declined by 2.5% compared to RM92.0m in the previous quarter. Core net profit also decline by 1.0% to RM37.3m from RM37.6m in 4Q17. The decrease was mainly due to lower rental rates and occupancy which is offset by a one-off compensation and forfeiture of rental deposit for premature termination of a mini anchor tenant (Parkson) at Sungei Wang (SW). Also, lower gross revenue was reported for The Mines (TM) and Tropicana City Property (TCP) which was due to lower rental rates and lower occupancy, respectively. The decline was partially mitigated by improved performance from Gurney Plaza (GP) and East Coast Mall (ECM). CMMT incurred RM1m capex during the quarter, mainly attributed to the commencement of assets enhancements works of anchor space and additional escalators in ECM as well as design fees for the new retail layout at SW.

YoY. Total revenue for 1Q18 of RM89.7m declined by 2.9% against RM92.4m in 1Q17. Core net profit also fell by 7.4% to RM37.3m from RM40.2m in 4Q17. The decrease was principally due to lower rental rates and occupancy. Finance costs were higher by 2% given the increased average cost of debt as a result from the hike in Overnight Policy Rate (OPR) as well as higher interest expenses from additional debt drawn down for capex. Average cost of debt for 1Q18 stood at 4.44% (1Q17: 4.39%; 4Q17: 4.41%).

Occupancy and gearing. CMMT’s occupancy rate declined in 1Q18 but remains satisfactory at 93.7% (4Q17: 95.4%). Gearing remains healthy at 32.9% from 32.8% in 4Q17.

Outlook. While we expect better contribution from new initiatives and improvement works on GP and ECM, we are still concern about the oversupply issue in Klang Valley shopping mall environment in addition to the exit of anchor tenant Parkson in SW. Hence we do not foresee the situation to be improving in the near term.

Forecast. Maintain.

Maintain HOLD recommendation with unchanged TP of RM1.33 based on FY18 targeted yield of 6.0% which is derived from 2 years historical average yield spread of CMMT and 10 year MGS. Despite the weak share prices, we do not think it is time to call a Buy on CMMT due to (i) downward trend in DPU, (ii) the exit of an anchor tenant that would drive down earnings and (iii) major expiry of NLA (circa. 45%) this year.

Source: Hong Leong Investment Bank Research - 25 Apr 2018