Period  4Q13 / FY13

Actual vs. Expectations FY13 realised net income (RNI) of RM148.5m came within expectations, making up 100% of the street and 101% of our estimates.

Dividends  2nd interim dividend of 4.5 sen was declared, which includes a 0.01 sen non-taxable portion. Total FY13 GDPU amounted to 8.85 sen (6.4% yield), within our expectations.

Key Results Highlights YoY, GRI grew by 5% to RM305.1m, due to (i) higher rental rates from new and renewed leases, mainly at East Coast Mall (+21%), The Mines (+10.3%) and Gurney Plaza (+8.8%), (ii) on-selling of electricity to tenants at The Mines. East Coast Mall enjoyed the high rental reversions due to the completion of phase 1 AEI works. Finance cost was reduced by 3% on capital management efforts, which resulted in lower effective interest rates. These were more than sufficient to offset an increase in expenditure (+14%) to RM23.6m, and higher operating cost (+4%) to RM96.5m which was brought about by higher electricity consumption, marketing expense and property maintenance expense. Thus, RNI was up by 8% to RM148.5m.

 QoQ, topline grew marginally by 2% to RM78.8m due to similar reasons as stated above. Operating costs fell by 6%, which were sufficient to negate the one-off due diligence cost incurred for unrealized projects of RM1.9m. Thus, RNI grew in tandem with topline to RM38.6m. PAT increased by 11% to RM41.9m stemming from fair value adjustments of RM3.3m on all four assets during the quarter.

Outlook  Management guided CAPEX of RM80m for FY14, which will be mainly for East Coast Mall (ECM) AEI and Gurney Plaza (GP) reconfiguration.

 Sungei Wang may not see positive rental reversions until the construction works for MRT-1 are completed, but positively, occupancy rates have maintained at 98%.

 Management did not guide for any near-term acquisitions, but the most obvious target under its parent’s books is Queensbay Mall in Penang while CMMT is also is open to third party deals. 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  Post house-keeping, there is a +2% increase to FY14E RNI.

Rating Maintain MARKET PERFORM

 We maintain our MARKET PERFORM as we see minimal DPU catalysts and expect acquisitions to be slow given the low cap rate environment. Further upsides to TP hinges on yield accretive acquisitions and bond yield compressions.

Valuation  We increase out TP slightly to RM1.44 (from RM1.41) based on slight adjustments to our estimates. Our TP is based on target FY14E gross dividend yield of 6.3% (net: 5.6%) or a +2.1ppt spread to CY14E 10-year MGS of 4.15%.

Risks to Our Call  (i) Bond yield expansion or compression vs. our target 10-yr MGS yield (ii) weakening rental income.

Source: Kenanga