Period  2Q14/1H14

Actual vs. Expectations 1H14 realised net income (RNI) of RM74.9m came in within expectations, making up 48% of both the street consensus and our estimates.

Dividends  1st interim dividend of 4.53 sen was declared, which includes a 0.12 sen non-taxable portion. This is on track to meet our FY14E GDPU of 9.0 sen (6.1% yield).

Key Results Highlights YoY, GRI grew by 5% on positive rental reversions from: (i) The Mines (+8.6%) and from on-selling of electricity to tenants and (ii) East Coast Mall (13.7%) due to the full quarter contribution from completion of

Phase 1 of AEI works. However, operating cost increased by 12% due to cost pressures from: (i) adjustment in property assessment fees, electricity tariff hikes and renewable energy surcharge, and (ii) higher electricity consumption, which resulted in flattish NPI growth (+1%). RNI increased marginally by 1% because of higher expenses (+3%) arising from utility and administrative expenses, coupled with higher financing cost (+4%) due to additional revolving credit facilities drawn down.

 QoQ, topline declined marginally (-1%) due to: (i) a slight dip in occupancy for ECM (100% to 98.5%) from on-going major refurbishment works and (ii) negative reversions from SWP. RNI was dragged down 4% due to similar reasons stated above.

Outlook  Management maintains their CAPEX of RM80.0m for FY14, which will be mainly for Phase 2 of East Coast Mall (ECM) AEI and Gurney Plaza (GP) reconfiguration. So far, CMMT has spent RM29.0m on CAPEX in 1H14.

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

Change to Forecasts We make no changes to our FY14E and FY15E RNIs.

Rating Maintain OUTPERFORM Our call is sector driven. We maintain OUTPERFORM on CMMT as we expect the European QE to be a positive re-rating catalyst for MREITs while most of the near-term earnings risks (e.g. assessment rate hikes) have been put to rest.

Valuation  We maintain our TP at RM1.59 based on our target FY15E gross dividend yield of 5.9% (net: 5.3%) which is a +2.1ppt spread to CY14E 10-year MGS of 3.80%.

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

Source: Kenanga