Period

2Q15/1H15

1H15 realised net income (RNI) of RM74.8m came in within consensus’ expectations at 46.0%, but slightly below ours at 43.2%, of full-year forecasts. The reason for the results missing our expectations was mainly our slightly more aggressive interest income estimates while overall rental reversions were on the weaker side.

Dividends

A DPU of 4.61 sen, of which 0.18 sen is non-taxable, was declared. This is on track to meet our FY15E target of 8.3 sen

Key Results Highlights

YoY, 1H15 GRI grew by 2.2% due to: (i) completion of East Coast Mall’s (ECM) 2-phase enhancement, and (ii) higher rental reversions on all assets except for Sungei Wang Plaza (SWP). EBIT margins were flattish, but topline growth was not enough to support RNI growth, which declined by 0.1% to RM74.8m. This was on the back of; (i) lower net interest income (-6.7%), higher financing cost (+9.9%) from: additional revolving credit facilities being drawn down for CAPEX, (ii) higher interest expense on floating rate credit facilities, and (iii) higher expenditure (+2.6%).

QoQ, topline declined by 1.7% to RM79.6m due to; (i) negative rental reversions at ECM (-26.3%), and (ii) The Mines GRI also declined marginally (-2.2%) due to lower occupancy of 96.4% (from 97.5%). This was on the back of lower EBIT margins (-0.5ppt) and higher financing cost (+4.4%), which dragged down RNI by 4.5% to RM36.5m.

Outlook

CMMT has spent RM13.9m for Gurney Plaza, Sungei Wang Plaza and The Mines’ AEI (refer overleaf). Management has guided CAPEX allocation of RM35.0m for FY15 on the said assets, which is within our estimates.

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

The placement and acquisition of TCM and TOT was completed on 10 July 2015. 

Change to Forecasts

Our earnings estimates for FY15-16E are unchanged but bias downside pending the conference call briefing with

Rating Valuation

UNDER REVIEW 

Our call and TP are UNDER REVIEW with downside bias pending our conference call briefing with management. Our previous call was UNDERPERFORM and TP of RM1.42 (target gross yield of 6.0% (net: 5.4%) on an average FY15E- 16E GDPS of 8.5 sen). Although the recent decline in share price has resulted in CMMT commanding FY15-16E yields of 6.1%-6.4% vs. its sizeable retail MREIT peers’ average of 5.9%, we reckon concerns remain about the earnings risks arising from SWP.

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