CMMT’s 4Q19 core net profit of RM32.3m (+13.6% QoQ, 0% YoY) brought the FY19 sum to RM122.8m (-8.7% YoY); the results came within our expectations and consensus. Declared dividend of 3.03 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 RM1.02.

Within expectations. 4Q19 core net profit of RM32.3m (+13.6% QoQ, 0% YoY) brought the FY19 sum to RM122.8m (-8.7% YoY). The results were within ours and consensus expectations, accounting for 101% and 104%, respectively.

Dividend. Declared dividend of 3.03 sen, going ex on the 6th February 2020. This brings FY19 dividend to 6.25 sen (FY18: 7.90 sen) per unit.

QoQ. Gross revenue was up by 2.5% to RM85.8m due to higher car park income (+9.1%) and other revenue (+7.8%). In turn, net property income (NPI) edged up by 1.3%, owing to higher maintenance expenses (+12.0%). However, core net profit increased by 13.6%, thanks to other non-operating income due to compensation income received as a result of termination of existing agreement.

YoY. Revenue decreased marginally 1.3% due to lower contribution in The Mine (TM) and 3 Damansara (3D) but slightly cushioned by better performance from Gurney Plaza (GP) and East Coast Mall (ECM; completion of AEI). Property operating expense was up by 5.5% due to higher maintenance cost (+13.6%). Consequently, this has brought down NPI by 5.6%; however after adjusting the change in fair value, core net profit stayed flattish attributable to other non-operating income.

YTD. FY19 revenue of RM342.3m decreased by 2.2% mainly brought down by lower occupancies in TM and Sungei Wang (SW), lower rental rates at TM and downtime from AEI at SW and TM. The drop was partially mitigated by improved performance from GP, ECM and Tropicana City Office Tower (TCOT) which was supported by higher rental rates and higher rental income. NPI fell by 6% due to increase in property operating expense (+3.7%) mainly from higher utilities. Core earnings dropped by 8.7% attributed from lower net investment income (-19.5%).

Occupancy and gearing. Occupancy rate improved slightly to 93.8% (FY18: 93.2%), while gearing remained the same at 33.7%.

Outlook. Management guided that the committed lease for Jumpa to be ready physically in 1H20. They are confident that this will be the turning point for overall occupancy rate at SW, once the shopper traffic increase with the full opening of Jumpa and will contribute progressively to the portfolio’s NPI in FY20. Nonetheless, we remain cautious on CMMT’s weak rental reversion; especially at SW and TM which faced -12.5% and -17.2% variance over the preceding rental.

Forecast. Maintain as the Results Were in Line.

Maintain HOLD, TP: RM1.02. We maintain our HOLD recommendation with unchanged TP of RM1.02 based on targeted yield of 6.3% which is derived from 2 years historical average yield spread of CMMT and 10 year MGS. Despite possible upside from Jumpa contribution, we maintain HOLD due to the headwinds of negative rental reversion on some of CMMT’s assets.

Source: Hong Leong Investment Bank Research - 29 Jan 2020