Period  1Q14

Actual vs. Expectations   1Q14 realised net income (RNI) of RM38.2m came within expectations, making up 24% of the street consensus and 25% of our estimates.

Dividends  None, as expected.

Key Results Highlights YoY, GRI grew by 6% to RM79.0m, due to (i) higher rental rates from new and renewed leases at The Mines (+11.3%), East Coast Mall (+10.4%), and Gurney Plaza (+7.0%), (ii) on-selling of electricity to tenants at The Mines, and (iii) newly reconfigured units at Phase 1 of on-going AEI works at East Coast Mall. Finance cost was reduced by 13% on capital management efforts. These were sufficient to negate the increase in expenditure (+4%) to RM5.5m, and operating cost (+16%) to RM26.5m which was brought about by: (i) the adjustment in property  assessment fees, (ii) electricity tariff hikes and renewable energy surcharge, and (iii) higher electricity consumption. Thus, RNI was up by 7% to RM38.2m.

 QoQ, topline growth was flattish at RM79.0m. Topline was flattish as all, save for The Mines which grew 5%, registered slight QoQ declines in GRI. The quarter saw a drop in expenditure by 25% to RM5.5m. However, increase in operating cost, due to similar reason mentioned above, by 10% to RM26.5m dragged down the quarter’s RNI by 1% to RM38.2m.

Outlook  Management guided CAPEX of RM80m for FY14, which will be mainly for Phase 2 of East Coast Mall (ECM) AEI and Gurney Plaza (GP) reconfiguration.

 Sungei Wang may not see positive rental reversions pending the completion of construction works for MRT-1 by 2017.

 CMMT had previously extended the time frame for listing approval of 20% of its fund size by six months to 1st April 2014, which it did not utilise. Meanwhile, the most obvious acquisition target under its parent’s books is Queensbay Mall in Penang but CMMT is also open to third party deals. We are not bullish on the asset acquisition environment as cap rates remains low.

Change to Forecasts We make no changes to our FY14E and FY15E 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 maintain our TP at RM1.47 based on our target FY14E and FY15E gross dividend yields 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