Period

4Q15/FY15

Actual vs. Expectations

FY15 realised distributable income (RDI) of RM162.8m came in within our and consensus’ expectations at 98% and 96%, respectively.

Dividends

2nd interim DPU of 3.99 sen was declared, which includes a 0.01 sen non-taxable portion. FY15 GDPU of 8.60 sen came in at 105% of our FY15E GDPU of 8.20 sen (5.8% yield), hence is within expectation.

Key Results Highlights

YoY-Ytd, FY15 GRI grew by 9.3% due to: (i) inclusion of new assets, Tropicana City Mall and Office (TCM & TCOT) on 10th July 15, (ii) completion of East Coast Mall (ECM)’s 2-phase enhancement, and (iii) higher rental reversions on all assets except Sungei Wang Plaza (SWP), which continued to be affected by on-going MRT1 works. EBIT margin was reduced slightly by 0.7ppt to 59.9%, attributable to: (i) inclusion of TCM & TCOT property operating expenses, (ii) higher marketing expenses from East Coast Mall for the rebranding event in 2Q15, and (iii) higher property maintenance expense but the increase was partly offset by lower electricity consumption and electricity tariff rebate. Higher financing cost (+24.8%) from additional revolving credit facilities being drawn down for CAPEX, and higher interest expense on floating-rate credit facilities weighed down on RDI, which only increased by 2.8% to RM162.8m. However, DPU declined by 3.5% to 8.60 sen due to the placement for Tropicana City Mall (TCM) and Tropicana City Office Tower (TCOT) which came in 3Q15.

QoQ, topline was up by 2.6% to RM93.9m mainly from positive rental reversion on most assets (save for SWP), and contribution from TCM & TCOT, which was completed on 10 July 2015. Bottomline increased in tandem with topline 1.5% to RM42.3m, on the back of higher financing cost (+2.5%), and lower expenditure (-1.2%).

Outlook

CMMT has spent RM34.8m YTD for Gurney Plaza, Sungei Wang Plaza and The Mines’ Asset Enhancement Initiatives (AEIs). In FY16, management allocated c.RM60m for Gurney Plaza and TCM’s AEIs.

FY16 will see 33.9% of portfolio NLA up for expiry, mostly on Gurney Plaza (14.4% of portfolio NLA).

Sungei Wang Plaza may not see positive rental reversions pending the completion of construction works for MRT1 by 2H17.

Change to Forecasts

In FY16, we expect a soft reversion as management tries to manage tenant occupancy cost. As we have factored this into our estimates, we make no changes to our FY16E RDI and introduce FY17E RDI. We are estimating gross yields for FY16-17E at 6.0-6.2% (net: 5.4-5.6%)

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 an unchanged target gross yield of 6.5% (net: 5.9%) on FY16E GDPS of 8.5 sen. Our target gross yield is based on +2.50ppt spread (vs. peers average of 1.78ppt spread) to our target 10-year MGS of 4.00%.

Although CMMT commands FY16-17E yields of 6.0-6.2% vs. its sizeable retail MREIT peers’ average of 6.0%, 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 - 21 Jan 2016