Period  3Q14/9M14

Actual vs. Expectations 9M14 realised net income (RNI) of RM110.6m came within expectations, making up 71% of consensus and 72% of our full-year estimate.

Dividends  None, as expected.

Key Results Highlights YoY, 9M14 GRI grew by 4% to RM235.1m on the back of positive rental reversions from: (i) The Mines (+7.4%), (ii) ECM (+13.5%) due to the full quarter contribution from completion of Phase 1 of AEI works, and (iii) Gurney Plaza (+7.7%). However, operating cost increased by 11% due to cost pressures from: (i) electricity tariff hikes and renewable energy surcharge, (ii) higher electricity consumption, (iii) higher reimbursable staff costs, and (iv) property assessment fees, which impacted GP and ECM, resulting in flat NPI growth. However, RNI increased marginally by 1% due to lower financing cost (-1%) and higher interest income (8%).

 QoQ, topline was flat. However, operating cost increased by 1% due to other operating expenses, which dragged down NPI by 1% to RM50.6m. That coupled with higher financing cost (+4%) due to additional revolving credit facilities drawn down dragged RNI down by 3% to RM35.7m.

Outlook  We expect CAPEX allocation of RM60.0m for FY14, which will be mainly for Phase 2 of East Coast Mall (ECM) AEI and Gurney Plaza (GP) reconfiguration. So far, CMMT has incurred RM42.4m CAPEX in 9M14.

 Ms Low Peck Chen (former CFO) was appointed the new CEO on 8th Oct 2014 replacing Ms. Sharon Lim. Ms Low in turn will be replaced by Ms Yue Pei San.

 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 RNI.

Rating Maintain OUTPERFORM

 We maintain OUTPERFORM on CMMT as we believe the stock remains an unwarranted laggard as it is able to offer 6.5% gross dividend yields vs. other MREITs’ 5.2%-6.1%. We expect any European QE to be a positive re-rating catalyst for MREITs while most of the near term earnings risks (e.g. assessment rate hikes and weakness at SWP) have been accounted for.

Valuation  We maintain our TP at RM1.57 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 (ii) weakening rental income.

Source: Kenanga