CMMT’s 1H20 core net profit of RM19.5m (-68.7% YoY) were below ours and consensus expectation. Overall, the poor performance was mainly due to rental relief given to their tenants. We are still expecting weak results ahead, coming from possibility of extended rental relief and weak rental reversion. We slashed our earnings by 35% in FY20 and 20% in FY21-22 following the weak results. Maintain our SELL rating with a lower TP of RM0.56 (from RM0.68).

Below expectations. 2Q20 core net profit of RM0.192m (-99.0% QoQ, -99.4% YoY) brought 1H20 core net profit to RM19.5m (-68.7% YoY). The results were below ours and consensus expectations, accounting for 31% and 24%, respectively. While poor 2Q20 result was expected, it came below estimates due to the lower-than-expected rental income arising from significant rental waivers given to tenants during the various phases of the MCO, and our expectation of a slower recovery in 2H as some of the rental relief measures are being extended to 2H20 and their weak rental reversion.

Dividend. Declared semi-annual dividend of 1.01 sen per unit (1H19: 3.22 sen), with an option to participate in Distribution Reinvestment Plan (DRP).

QoQ/YoY. Gross revenue plunged to RM42.9m (-33.1% QoQ, -41.2% YoY) due to lower rental income (-26.4% QoQ, -35.1% YoY), car park income (-81.7% QoQ, - 83.8% YoY) and other revenue (-45.6% QoQ, -53.4% YoY), no thanks to rental waiver during the MCO/CMCO/RMCO period, lower shopper traffic and lower occupancies across its assets. In turn, core profit dived to RM0.192m (-99% QoQ, -99.4% YoY).

YTD. Top line declined by 28% due to (i) significant rental waivers and rebates given to non-essential services tenants during the various phases of the MCO; (ii) lower car park and marketing advertising income as well as lower recovery of utilities during the MCO/CMCO/RMCO period; and (iii) lower occupancies at Klang Valley malls. Property operating expenses was a tad lower (-5.7%) due to lower utilities expenses as a result of lower electricity consumption and lower marketing cost during various phases of MCO, which in turn brought down core net profit by 68.7%.

Other updates. CMMT has granted rental relief in a form of rebates of up to RM35m to support affected tenants with about 80% take up in 1H20. Management guided that the rest of the rental relief will be given throughout 2H20 and has no intention to increase the relief amount for now. Occupancy rate has gone down to 88.3% (from 90.9% in 1Q20). Furthermore, shopper traffic in 1H has also declined by 46.2% YoY due to Covid-19 and MCO/CMCO/RMCO.

Outlook. We remain cautious on CMMT’s near term outlook as Covid-19 and MCO/CMCO/RMCO will exert further rental rebates pressure for the management, coupled with their weak rental reversion that have been in negative territory for quite some time. We believe significant negative rental reversion is possible during this crisis in order to retain their tenants and occupancy rate which may place a dent in their earnings, hence, suggesting a slower recovery in 2H20.

Forecast. We slashed our earnings by 35% in FY20 and 20% in FY21-22 following the weak result.

Maintain SELL, TP: RM0.56. We maintain our SELL recommendation with a lower TP of RM0.56 (from RM0.68) based on FY21 DPU and targeted yield of 6.6%, derived from 2 years historical average yield spread of CMMT and 10 year MGS. CMMT’s near term outlook remains unexciting due to the negative repercussion of Covid-19 and MCO/CMCO/RMCO coupled with headwinds of negative rental reversion on some of CMMT’s assets.

Source: Hong Leong Investment Bank Research - 22 Jul 2020