9MFY19 realised distributable income (RDI) of RM96.8m came in within expectations, at 72% and 78% of our and consensus’ estimates, respectively. No dividends, as expected. Maintain FY19-20E CNP of RM135-140m. Maintain OUTPERFORM and TP of RM1.15.

9MFY19 realised distributable income (RDI) of RM96.8m came in within our and consensus expectations at 72% and 78%, respectively. No dividends, as expected.

Results’ highlight. YoY-Ytd, top-line was down by 2.6% due to weakness at Sungei Wang Plaza (SWP), The Mines (TM) and 3 Damansara on weak reversions but amidst improving occupancy for SWP and TM. Gurney Plaza (GP) and East Coast Mall (ECM) continued to see improved rentals. This, coupled with (i) higher operating cost (+3.1%) from higher utilities consumption and (ii) higher financing cost (+1.5%), caused RDI to decline by 19.9%. QoQ, top-line was down marginally by 1.3%. However, flattish operating cost on the back of lower expenditure (-1.2%) resulted in RDI improving slightly to 0.4%.

Outlook. We expect capex of RM30-20m in line with management’s target, mainly for the refurbishment of Sungei Wang Plaza and regular maintenance in FY19 and for AEI works at Gurney Plaza in FY20. FY19 will see 39% of NLA up for expiry (as at end March 2019) while we expect c.30% of NLA expiring in FY20. Note that CMMT’s lease expiries are on a staggered basis of c.30% per annum. SWP may see weak rental reversions in the near term but we expect improvements in 2H19 on: (i) completion of SWP AEIs by 4Q19 (delayed from 3QFY19 previously), and (ii) improved reversions in 2HFY19 post AEIs and introduction of new and smaller tenants.

Maintain FY19-20E CNP of RM135-140m. We are assuming portfolio reversions of -4% to 1% in FY19-20. Our FY19E/FY20E GDPU/NDPU of 6.6-6.8/5.9-6.2 sen implies gross yield of 6.4/6.6% (net yield of 5.7/5.9%).

Maintain OP and Target Price of RM1.15. Our TP is based on a +2.60ppt spread to the 10-year MGS target of 3.40% to FY20E GDPS of 6.8/6.2 sen GDPU/NDPU. Note that our applied spread is the highest among retail MREITs under our coverage (+1.3ppt to +1.7ppt) to serve as a buffer for CMMT’s marginally weaker asset profile from negative reversions, and concerns of oversupply of retail space given that CMMT does not own any prime assets. However, post pricing in conservative earnings and valuations, we believe CMMT warrants an OP call at current levels given its attractive gross yield of 6.5% which is significantly higher than retail MREIT peers’ average of 5.4%.

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

Source: Kenanga Research - 25 Oct 2019