1H17realised distributable income (RDI) of RM84.2m met both our and market expectations at 49% and 50%, respectively. First interim DPU of 4.14 sen was also within our expectation (48%). We maintain our earnings of RM174- 178m in FY17-18E. Maintain OUTPERFORM and TP of RM1.65 on FY18E GDPS and an unchanged +1.30ppt to our 10-year MGS target of 4.00%.

1H17 realised distributable income (RDI) of RM84.2m came in within both our and consensus expectations at 49% and 50%, respectively. First interim DPU of 4.14 sen was declared, which includes 0.16 sen non-taxable portion. This also met our FY17E target (48%) of 8.5 sen, implying 5.5% yield.

Results highlight. YoY-Ytd 1H17 GRI declined slightly by 0.8% mainly due to: (i) lower GRI at Sungei Wang Plaza (SWP) on negative reversions, but better than 1Q17 negative reversions, (ii) lower GRI at The Mines (TM) due to negative reversions and lower occupancy, and (iii) lower GRI at Tropicana City Mall (TCM) due to negative reversions, but this was mitigated by contributions from Gurney Plaza and East Coast Mall. All in, RDI declined marginally by 1.1% as EBIT margin was flattish at 59.5%. QoQ GRI declined by 0.7% due to similar reasons mentioned above, which mostly translated to bottom-line decline of 1.0% as margins were fairly stable. Note that the Group recorded its first ever quarter of fair value losses (RM11.8m) since listing, dragged down mostly by SWP and Tropicana Property due to negative reversions and lower occupancy (refer overleaf).

Outlook. Management plans to spend c.RM30m on capex for general refurbishment and AIE at GP and TCM in FY17, which is within our assumptions. FY17 will see 43% of leases up for expiry, mostly from GP and ECM, of which we expect modest single-digit reversions. Meanwhile, TCM and TM may continue to see weak reversions, while SWP may not see positive rental reversions in the near term of which we have already accounted for, but we expect improvement upon better accessibility with the MRT1 construction completed.

Maintain OUTPERFORM and TP of RM1.65. We reiterate our OP call and TP based on FY18E GDPS/NDPS of 8.8 sen/7.9 sen, and target gross/net yield of 5.3%/4.8% on an unchanged +1.30ppt spread to the 10-year MGS target of 4.00%. Our FY18E target gross yield of 5.3% (net: 4.8%) is on par with sizeable retail MREIT peers’ average of 5.3% and pending further improvements in reversions from SWP, TCM and TM. We are comfortable with our OP call for now as valuations appear attractive as MGS yield spreads are widening vs. MREITs. Additionally, most of the downside risks for CMMT have been priced in, with positive catalyst arising from potential recovery in reversions, mostly at SWP, now that the MRT1 is completed.

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 - 20 Jul 2017