FY16 realised distributable income (RDI) of RM171.1m met both our and market expectations at 99% and 102%, respectively. FY16 GDPU of 8.43 sen was also within expectation (99%). Maintain FY17E earnings and introduce FY18E numbers. Reiterate MARKET PERFORM but increase TP to RM1.62 (from RM1.53) on FY17E GDPS and +1.30ppt (from +1.65ppt) to our 10-year MGS target of 4.20%.

FY16 realised distributable income (RDI) of RM171.1m came in within both our and consensus expectation at 99% and 102%, respectively. Second interim DPU of 4.23 sen was declared, which included a 0.21 sen non-taxable portion, bringing FY16 DPU to 8.43 sen. This also met our FY16E target (99%) of 8.50 sen, implying 5.1% yield.

YoY-Ytd improvements from TCM and TCOT. YoY-Ytd FY16 GRI improved (+8.1%) mainly on the back of: (i) new asset acquisitions, namely Tropicana City Mall and Office (TCM & TCOT) on 10th July 2015 and (ii) positive rental reversions on most assets, primarily Gurney Plaza and The Mines (TM). All in RDI increased by 5.1% after accounting for: (i) higher financing cost (+15.5%) to part finance the acquisition of TCM & TCOT, and (ii) additional revolving credit facilities being drawn down for CAPEX. Meanwhile, DPU declined by 1.9% from the placement for TCM & TCOT in 3Q15. QoQ GRI was flattish, while higher operating cost (+3%) from maintenance and other operating expense dragged RDI down by 1.4%.

Outlook. CMMT has spent RM48m YTD on capex while management previously had allocated RM50m in FY16. In FY17, management is targeting c.RM30m on capex for general refurbishment and AIE at GP and TCM. FY17 will see 49% of leases up for expiry, mostly from GP and ECM, while we expect modest single-digit reversions (save for SWP). Meanwhile, we believe SWP may not see positive rental reversions in the near term of which we have already accounted for, but we expect rental reversions to improve closer to completion of construction works for MRT1 by end FY17.

Maintain FY17E earnings and introduce FY18E. We maintain FY17E NP of RM181m, and introduce FY18E NP of RM187m. Our FY17-18E GDPU are 8.9.2-9.2 sen, translating to 5.4-5.5% yield.

Maintain MARKET PERFORM but increase TP to RM1.62 (from RM1.53). We reiterate our MP call but increase our TP to RM1.62 (from RM1.53), based on FY17E GDPS/NDPS of 8.5 sen/7.7 sen, but on a lower target gross/net yield of 5.5%/5.0% as we lower our spread to the 10-year MGS target of 4.20% to +1.30ppt (from +1.65ppt) on expectation of stronger recovery for SWP in 2H17. Our FY17E target gross yield of 5.5% (net: 4.9%) is closer to but still slightly above sizeable MREIT peers? average of 5.4% pending improvements from SWP. We have priced in most of the downside risk for CMMT and we expect sentiment for the stock to improve going forward, closer to completion of MRT1 in 2H17. As such, pending confirmation of recovery in reversions, we are comfortable with our MARKET PERFORM call.

Risks to our call include: (I) bond yield expansions, (ii) lower-than- expected rental reversions, and (iii) lower-than-expected occupancy rates.

Source: Kenanga Research - 25 Jan 2017