Period

1Q15/3M15

Actual vs. Expectations

1Q15 realised net income (RNI) of RM38.4m came in within expectations, making up 23% of consensus and 22% of our estimate.

Dividends

None, as expected.

Key Results Highlights

YoY, 1Q15 GRI grew by 2.5% due to: (i) completion of ECM’s 2-phase enhancement, and (ii) higher rental reversions on all assets except for Sungei Wang Plaza (SWP). EBIT margins were flat, but cost pressures arose from higher financing cost from: (i) additional revolving credit facilities being drawn down for CAPEX, and (ii) higher interest expense on floating rate credit facilities, which increased by 8.6% to RM10.8m. This resulted in a flattish RNI of 0.1% to RM38.2m.

QoQ, topline was flattish, but higher cost pressures from: (i) maintenance expenses and (ii) reimbursable staff cost eroded topline gains as NPI fell by 1.8%. The lower interest income (-0.5%) and slightly higher financing cost (+0.6%) eventually pulled down RNI by 2.4% to RM38.2m.

Outlook

Management guided CAPEX allocation of RM35.0m (which is within our estimates) for FY15, which will be allocated for minor refurbishments at Gurney Plaza and The Mines. To date, CMMT has spent RM6.1m both for Gurney Plaza and The Mines and ECM (refer overleaf).

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 FY15-16E RNI. Note that our estimated per share data accounts for the additional 299.6m units from the potential placement, which is conditional upon the proposed acquisition of TCM and TCOT.

Rating

Maintain UNDERPERFORM

Valuation

We maintain UNDERPERFORM and our TP of RM1.42 as CMMT is lacking near-term catalyst, while FY15-16E gross yields of 5.5% are slightly less attractive than its peer average of 5.6%.

Our TP is based on unchanged target gross yield of 6.0% (net: 5.4%) on an average FY15E-16E GDPS of 8.5 sen. Our target gross yield is based on +2.10ppt spread (vs. sector average of +1.88ppt spread) to our target 10-year MGS of 3.90%.

Note that we benchmark our TP on an average FY15-16E GDPS as we would like to encapsulate the new asset contributions of TCOT and TCM of which full contributions would only be felt in FY16.

Risks to Our Call

Bond yield compression

Better-than-expected rental reversions

Better-than-expected occupancy rates

Source: Kenanga Research - 16 Apr 2015