FY20 realised distributable income (RDI) of RM61.8m came in slightly above our estimate (107%) and above consensus (111%) on a better-than-expected top-line in 2HFY20 on MCOs that were more relaxed. FY20 dividend of 3.0 sen is also marginally above (107%). Maintain FY21E CNP of RM96m and introduce FY22E CNP of RM104m on expectations of better occupancy and improving reversions going forward. Maintain MARKET PERFORM and TP of RM0.565 (+2.0SD spread) given its challenging asset profile.

FY20 realised distributable income (RDI) of RM61.8m came in slightly above our estimate at 107% and above consensus’ at 111%, on a marginally better-than-expected top-line in 2HFY20. The declared 2HFY20 GDPU of 1.99 sen, (which included a 0.23 sen non-taxable portion) brought FY20E GDPU to 3.0 sen also slightly above at 107% of our estimate of 2.8 sen, implying 4.8% yield.

Results’ highlight. YoY-Ytd, top-line was down by 24% on decline from all assets due to rental waivers and rebates given to non-essential tenants during the various MCO phases which were mostly in 2QFY20. As a result, RDI declined by 52% despite lower operating cost (-8.7%), lower expenditure (-13.7%) and lower financing cost (-5.7%). QoQ, top- line was down again by 4.4% on weak reversions of -11.8% and rental rebates given to assist tenants due to re-imposition of MCOs in 4QFY20. As a result, RDI was down by 23.2% on the back of higher operating cost (+12.3%). Gearing remained stable at 0.35x which is below MREITs’ gearing limit of 0.60x.

Outlook. Due to the uncertainty of the Covid-19 situation, the Group will be prioritising cash preservation and has accelerated digital adoption among tenants. Capex of c.RM20m in FY21 is expected. The Group does not expect to utilise any additional rental assistance at this juncture, but may assist tenants by way of lower reversions. Similar to most malls, we believe the Group will be prioritising occupancy over reversions. FY21 will see a large number of leases up for expiry at 41% of NLA which is risky in a challenging year, but the bulk of these expiries are in non-Klang Valley malls (61%, namely Gurney Mall and East Coast Mall which are less affected by Covid-19 at this juncture).

Maintain FY21E CNP of RM96m and introduce FY22E CNP of RM104m. All in, we expect FY21 to be a better year than FY20 as more tenants should be able to operate with MCOs that are more relaxed, and 2HFY21 is poised to be a better half once the vaccines are disseminated, and as such we believe occupancy may be able to improve slightly back to 90-92% in FY21-22 (from 86.6% currently) while reversions are expected to be better than FY20 at -5%. FY21E/FY22E GDPU/NDPU of 4.6-5.0 sen / 4.2-4.5 sen imply gross yield of 7.4%/8.1% and net yield of 6.7%/7.3%.

Maintain MARKET PERFORM on an unchanged Target Price of RM0.565. Our TP is based on FY21E GDPU of 4.6 sen and a +5.1ppt spread (+2.0SD) to our 10-year MGS target of 3.1%. The applied spread is the highest among retail MREITs under our coverage (+1.2ppt to +2.4ppt) given the weakness of CMMT’s asset profile from negative reversions as CMMT does not own any prime retail malls unlike its peers which would make it tougher to weather this pandemic while the concern of retail space oversupply still lingers.

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

Source: Kenanga Research - 25 Jan 2021