Period

3Q15/9M15

Actual vs. Expectations

9M15 realised net income (RNI) of RM114.6m came in within consensus’ expectations at 70% and broadly within ours at 69%.

Dividends

None, as expected.

Key Results Highlights

YoY, GRI grew by 7.0% due to: (i) inclusion of new assets, Tropicana City Mall and Office on 10th July 15, (ii) completion of East Coast Mall’s (ECM) 2-phase enhancement, and (ii) higher rental reversions on all assets except Sungei Wang Plaza (SWP). EBIT margin was flattish but higher financing cost (+19.7%) from additional revolving credit facilities being drawn down for CAPEX, and higher interest expense on floating-rate credit facilities weighed down on RNI, which only increased by 3.6% to RM114.6m. However, DPU declined by 2.1% to 6.51sen due to the placement for Tropicana City Mall (TCM) and Tropicana City Office Tower (TCOT) which came in 3Q15.

QoQ, topline was up by a solid 14.2% to RM90.9m mainly due to similar reasons mentioned above, but primarily because TCM and Office acquisition was completed on 10 July 2015. This was on the back of lower RNI margins (-2.1ppt) from higher financing cost (+29.4%), which caused RNI to increase by only 8.9% to RM39.8m.

Outlook

CMMT has spent RM17.1m YTD for Gurney Plaza, Sungei Wang Plaza and The Mines’ Asset Enhancement Initiatives (AEIs). Management is maintaining its CAPEX guidance allocation of RM35.0m for FY15 on the said assets and Tropicana City Mall, which is within our estimates.

Sungei Wang Plaza may not see positive rental reversions pending the completion of construction works for MRT1 by 2017.

The placement and acquisition of TCM and TOT were completed on 10 July 2015, reflected in 3Q15 results.

Change to Forecasts

We make no changes to our FY15-16E earnings estimates.

Rating

Maintain UNDERPERFORM

Valuation

We maintain UNDERPERFORM as upsides are limited as there is no fresh re-rating catalyst for the stock while recent acquisitions are not DPU-accretive in the near term. Our TP is based on a target gross yield of 6.5% (net: 5.9%) on a similar FY16E GDPS of 8.5 sen. Although the recent decline in share prices has resulted in CMMT commanding FY15-16E yields of 5.9%-6.1% vs. its sizeable retail MREIT peers’ average of 5.9%, we reckon that investors remain concerned about the earnings risks arising from SWP.

Risks to Our Call

Bond yield compression

Better-than-expected rental reversions

Better-than-expected occupancy rates

Source: Kenanga Research - 19 Oct 2015