Period  4Q14/FY14

Actual vs. Expectations FY14 realised net income (RNI) of RM149.7m came in within expectations, making up 97% of both consensus and our estimates.

Dividends  A 2nd interim dividend of 4.38 sen was declared, which includes a 0.14 sen non-taxable portion. This brings total FY14 GDPU to 8.91 sen (+1% YoY), vs. our FY14E GDPU of 8.90 sen (6.2% yield).

Key Results Highlights YoY, FY14 GRI grew by 3.4% to RM315.4m due to: (i) completion of ECM’s 2-phase enhancement, (ii) on-selling of electricity to tenants at The Mines (TM), and (iii) higher rental reversions on all assets except for Sungei Wang Plaza (SWP). However, operating cost increased by 10.4% 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. This, coupled with higher refinancing cost (+1%) caused RNI to only increase marginally by 0.9% to RM149.7.

 QoQ, topline increased by 3.1% to RM80.3m as ECM’s 2-phase enhancements were completed. NPI margins improved by 3.1ppt from better cost management, which more than negated the increase in expenditure (+4.4%) and financing cost (+2.0%). Thus, RNI managed to increase by a solid 9.7% to RM39.2m. There was also a FV gain of RM18.4m during the quarter.

Outlook  We expect CAPEX allocation of RM35.0m for FY15, which will be scattered across minor refurbishments throughout CMMT’s portfolio. CMMT spent RM67.4m on CAPEX in FY14 mainly on Phase 2 of East Coast Mall (ECM) AEI, Gurney Plaza (GP) reconfiguration.

 Sungei Wang Plaza 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 FY15E RNI and introduce our FY16E numbers.

Rating Maintain OUTPERFORM

 We maintain OUTPERFORM on CMMT and TP of RM1.47. We remain conservative and assumed a higher 10-year MGS assumption of 4.20% in light of the more volatile bond environment (vs. 3.90% currently), while earnings risk at SWP has been accounted for. Even so, CMMT remains an unwarranted laggard as it is able to command 6.4% gross dividend yields vs. other MREITs of 5.1%-6.2% (save for SUNREIT).

Valuation  We maintain our TP at RM1.47 based on our target FY15E gross dividend yield of 6.3% (net: 5.7%) which is at a +2.1ppt spread to CY14E 10-year MGS of 4.20%.

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

Source: Kenanga