1HFY20 realised distributable income (RDI) of RM20.8m (- 28% YoY) came in broadly within our (30%) and consensus (26%) estimates on expectation of a stronger 2HFY20 post various MCOs. 1HFY20 dividend of 1.01 sen is also broadly within (30%). Maintain FY20E/FY21E CNP of RM70m/RM104m. Given the on-going pandemic, the Group will be prioritising tenant assistance and cash conservation. Maintain UNDERPERFORM and TP of RM0.650.

1HFY20 realised distributable income (RDI) of RM20.8m came in broadly within our estimate at 30% and consensus’ at 26%, on expectation of a stronger 2H post the various MCO phases mostly in 2QFY20. The declared 1HFY20 GDPU of 1.01 sen declared which included a 0.17 sen non-taxable portion is also deemed broadly within our FY20 target (30%) of 3.4 sen, implying 4.8% yield.

Results’ highlight. YoY-Ytd, top-line dropped by 28% on decline from all assets due to rental waivers and rebates given to non-essential tenants during the various MCO phases. As a result, RDI declined by 69% despite lower operating cost (-5.7%) and expenditure (-17.6%).

QoQ, top-line was down by 33% (this could be the weakest quarter in FY20) due to the various MCO phases that fell within the quarter. All in, RDI was down by 96.9% mainly due to the sharp top-line decline and high fixed cost as operating cost only declined by 13% and expenditure by 19%.

Outlook. Due to the severity and uncertainty of the Covid-19 situation, the Group will be prioritising tenant assistance and cash preservation. Capex of RM20m each in FY20-21 is expected. FY20 will see a large number of leases up for expiry at 43% of NLA, of which 30% has been renewed thus far at -1.2% reversion rates. We also expect 30% of leases to expire in FY21.

Maintain FY20-21E CNP of RM70-104m for now as we expect to see gradual improvements in 2H given that 90% of tenants have resumed business under the RMCO from 5 July 2020. We are expecting FY20 portfolio occupancy of 85% on pre-empted weakness at SWP, The Mines and 3 Damansara, and portfolio reversions of -5% in FY20 given the challenging environment. Meanwhile, we expect FY21 to see low single-digit reversions on leases renewed within that year, on portfolio occupancy of 88%. FY20E/FY21E GDPU/NDPU of 3.4-5.1 sen/3.1-4.6 sen imply gross yield of 4.8%/7.1% and net yield of 4.3%/6.4%.

Maintain UNDERPERFORM and Target Price of RM0.65. Our TP is based on FY21E GDPU of 5.1 sen and a +4.8ppt spread (+2.0SD) to our new 10-year MGS target of 3.3%. Our applied spread is the highest among retail MREITs under our coverage (+1.5ppt to +2.5ppt) given the weakness of CMMT’s asset profile from negative reversions and risk of weak occupancy. Furthermore, CMMT does not own any prime assets unlike its MREITs retail peers which would make it tough to weather this pandemic while the concern of retail space oversupply still lingers.

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

Source: Kenanga Research - 22 Jul 2020