9MFY21 realised distributable income (RDI) of RM21.3m is deemed broadly within our estimates (at 53%) and 47% of consensus as we expected a weak 3Q21 while 4Q21 is anticipated to be a much stronger quarter with the reopening of the economy. No dividend, as expected. Maintain FY21-22E CNP of RM40-98m. Maintain MARKET PERFORM and TP of RM0.580 based on FY22E valuation (on a +1.0SD spread) given its challenging asset profile.

9MFY21 realised distributable income (RDI) of RM21.3m is deemed broadly within our estimate at 53% and consensus’ at 47%, as we anticipated a weaker 3Q21 due to the MCO while 4Q21 is expected to be a much stronger quarter with the reopening of the economy. No dividend, as expected.

Results’ highlight. YoY-Ytd, top-line was down by 19% due to the ongoing rental relief to aid struggling tenants and negative rental reversions (-10.3%) as the Group tried to optimise occupancy and rental. As a result, RDI was down by 51% despite lower financing cost (-19%). QoQ, top-line was down by 8% on rental relief and negative reversions, while operating cost was up by 15% on higher operating expenses. This caused RDI to decline by 70%. Gearing remained stable at 0.36x (vs. 0.35x in 2Q21) which is well below MREITs’ statutory gearing limit of 0.60x.

Outlook. We do expect a recovery in 4QCY21 with the recent opening up of the economy and malls operating at 90% of NLA. FY21 will see a 18% of NLA up for expiry, but the bulk of these expiries are in its non- Klang Valley based malls (Gurney Plaza and East Coast Mall which are less affected by Covid-19 at this juncture) while FY22 will see 40% of leases expiring. The Group will be looking to diversify its asset class beyond retail possibly targeting industrial, and office assets.

Maintain FY21-22E CNP of RM40-98m. We expect the weak rental reversion environment to persist for now as occupancy will take priority over reversions and given CLMT’s challenging asset profile as it does not own prime malls. As such we expect reversions oft -9%/-5% in FY21/FY22. However, we do believe that FY22 will be a better year than FY21 given the rise shopper traffic in recent weeks which should persist well into FY22. FY21E/FY22E GDPU/NDPU of 1.9-4.7sen / 1.7- 4.2 sen imply gross yield of 3.0%/7.4% and net yield of 2.7%/6.6%, respectively.

Maintain MARKET PERFORM and TP of RM0.580 on FY22E GDPU of 4.7 sen and an unchanged 4.5ppt spread (+1.0SD) to our 10-year MGS target of 3.6%. Our applied spread is the highest among retail MREITs under our coverage (between 1.0ppt to 1.6ppt) given the weakness of CLMT’s non-prime asset profile and constant negative rental reversions unlike its peers that mostly own prime retail. As such the pandemic has been particularly tough on CLMT, which is further exacerbated by the lingering concern of oversupply of retail space in the Klang Valley.

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 - 22 Oct 2021