Period  3Q13/9M13

Actual vs. Expectations   9M13 realised net income (RNI) of RM109.9m came within expectations, making up 74% of the street and our estimates.

Dividends  None, as expected.

Key Results Highlights QoQ, topline grew 4% to RM77.4m on the back of positive average rental reversions of 6.5% from the preceding rental terms; The Mines and East Coast Mall provided the strongest reversions at 10% and 19%, and from the on-selling of electricity to tenants at The Mines. This was sufficient to negate the 6.5% increase in operating cost to RM25.6m and 0.4% higher financing cost to RM9.8m. Sungei Wang NPI was flattish as improved occupancy rates were offset by a minus 3% reversions. We reckon management is prioritizing occupancy over reversions, especially with the disruptions caused by the on-going MRT-1 construction works.

 YoY, 3Q13 topline grew 6% to RM77.4m due to similar reasons stated above. RNI increased by 9% to RM37.7 due to a 5% reduction in financing cost to RM9.8m stemming from managements initiatives to reduce the average cost of debt. Correspondingly, 9M13 RNI increased 6% to RM109.9m on improved rental rates which help offset the higher operating expense from maintenance, and higher repair and replacement cost. PAT was reduced by 7% as 9M13 fair value adjustments were 21% lower at RM77.9m compared to 9M12.

Outlook  CMMT may spend RM35.7m on CAPEX in 4Q13 based on guidance given in 2H13. They have spent RM14.3m in 3Q13 CAPEX on East Coast Mall, Gurney Plaza and Sungei Wang Plaza during 3Q13.

 Sungei Wang may not see positive rental reversions until the construction works for MRT-1 are completed in 2017, but positively, occupancy rates have recovered slightly.

 While management did not provide clarity on any near term acquisitions, the most obvious target under its parent’s books is Queensbay Mall in Penang while CMMT is also is open to third party deals (e.g. Tropicana Mall and Office Tower). We believe assets acquisitions for M-REITs are tough to come by due to the low cap rate environment of 5%-6% vs. 7%-8% previously.

Change to Forecasts No changes to estimates.

Rating Maintain MARKET PERFORM We maintain our MARKET PERFORM view as we see minimal DPU catalysts and expect acquisitions to be slow, while newly acquired assets to contribute to minimal accretions to DPU given the low cap rate environment. Further upsides to TP hinges on yield accretive acquisitions.

Valuation  No changes to TP of RM1.60 based on target FY14E gross dividend yield of 5.5% (net: 5.0%) or a +1.6ppt spread to CY14E 10-yr MGS of 3.9%.

Risks to Our Call  (i) bond yield expansion, (ii) challenges in acquiring yield accretive assets.

Source: Kenanga