CMMT’s FY18 core net profit of RM134.5m (-14.8% YoY) came within our expectations but below consensus. Declared dividend of 3.88 sen per unit. Overall decrease was mainly due to downtime in SW and TM, and lower rental rates and occupancy in its Klang Valley malls. However, these were partially offset by the improved performance from GP and ECM. We maintain our forecasts, HOLD call with unchanged TP of RM1.15.

Within expectations. FY18 revenue of RM350.1m (-5.1% YoY) translated into a core net profit of RM134.5m (-14.8% YoY). The results were within our expectations but below consensus, accounting for 97% and 94%, respectively.

Dividend. Declared dividend of 3.88 sen, going on ex on the 13th February 2019. This brings FY18 dividend to 7.90 sen (FY17: 8.22 sen) per unit.

QoQ. Revenue increased (+0.9%), followed by an increase of core net profit by 2.3%. The increase was thanks to improved performance from Gurney Plaza (GP), East Coast Mall (ECM) and 3 Damansara Property (3DP). The improvement was slightly off set by the increase in finance costs.

YoY. RM86.9m revenue decreased (-5.5%), followed by a decrease of core net profit to RM32.3m (-14.2%). The decline was mainly due to lower revenue caused by lower occupancy rate at Sungei Wang (SW), The Mines (TM) and 3 Damansara (3D). Nevertheless, the decrease was slightly mitigated by improved performance from GP as well as ECM upon completion of its AEI works. This was mitigated with the decrease of property operating expenses attributed to lower property maintenance and marketing expenses. The increase in finance costs was due to higher average cost of debt post OPR hike back in January 2018.

FY18. Core net profit of RM134.5m declined by 14.8%. Essentially, the drop was contributed by (i) lower rental rates and occupancy at SW, TM and 3D, (ii) downtime from AEIs works at SW, and TM as well as (iii) tenant renovation downtime at Tropicana City Office Tower in 1H18. However, the decrease was slightly mitigated by improved contribution from GP and ECM post AEIs as well as the one-off compensation and forfeiture or rental deposit for premature termination of a mini anchor tenant at SW. The increase in property operating expenses was mainly due to (i) one-off additional property assessment fees for prior years and increase in current year’s assessment fees at GP, (ii) increase in current year’s assessment fees at GP and 3D, (iii) higher quit rent at 3D, (iv) higher marketing expenses was incurred for renaming exercise at 3D (formerly known as Tropicana City Mall) and (v) higher property maintenance and (vi) higher reimbursable staff costs. Meanwhile, the increase in finance costs was due to interest expenses incurred on the additional revolving credit facilities drawn down for the capital expenditure works and higher average cost of debt post OPR hike in January 2018.

Occupancy and gearing. Occupancy rate dropped slightly to 93.2% (FY17: 95.4%), while gearing remained the same at 33%.

Forecast. Maintain as the Results Were in Line.

Maintain HOLD, TP: RM1.15. We maintain our HOLD recommendation with unchanged TP of RM1.15 based on targeted yield of 6.2% which is derived from 2 years historical average yield spread of CMMT and 10 year MGS. Despite the upside, we maintain HOLD due to the lacking of catalysts. There is downside risk in DPU following the exit of an anchor tenant in SW and we expect low occupancy from long downtime due to AEIs works and negative rental reversion.

Source: Hong Leong Investment Bank Research - 30 Jan 2019