1QFY22 realised distributable income (RDI) of RM20.4m is within our estimate at 21% and consensus at 28% of respective full-year forecasts. No dividends, as expected. Maintain FY22E CNP of RM98m but lower FY23E CNP to RM101m (from RM126m) on expectations of challenging reversions given the high quantum of leases for expiry of 48.8-31.4% in FY22-23. Downgrade to MARKET PERFORM on an unchanged TP of RM0.560 post rolling forward to FY23E GDPU of 4.8 sen and a higher 10-year MGS target of 4.15% (from 3.90%).

1QFY22 realised distributable income (RDI) of RM20.4m is well within our estimate at 21% and consensus’ at 28% of respective forecasts. No dividends, as expected.

Results’ highlight. YoY-Ytd, top-line was up by 19.3% on improved retail sentiment and less rental assistance given to tenants during the period. All in, RDI increased by 169% on flattish operating cost and lower financing cost (-16%). QoQ, top-line was up by 2.3% on slight improvements with the reopening of the economy. Bottom-line was up by 16% on lower operating cost (-4%) and financing cost (-8.2%) on lower financing rates. Gearing remained stable at 0.36x, well below MREITs’ statutory gearing limit of 0.60x.

Outlook. This coming year will be challenging for CLMT given high lease expiries in FY22-23 of 48.8-31.4% and negative reversion track record, currently at -7%. That said, we expect earnings to improve going forward with the reopening of the economy and shopper traffic is expected to pick up in coming months. The group is also looking to diversify its asset class beyond retail possibly targeting industrial and office assets.

Maintain FY22E CNP of RM98m for now but lower FY23E CNP to RM101m (from RM126) as we expect FY22 reversions to be more challenging than we initially expected given the high percentage of lease expiries. That said, investors can still expect YoY earnings improvements from the absence of rental holidays as complete lockdowns are less likely. As such, we expect reversions of -11%/-7% (from -6%/-5%) in FY22/FY23. FY22E/FY23E GDPU/NDPU of 4.7 sen/4.8 sen / 4.2 sen/4.3 sen imply gross yield of 8.3%/8.6% and net yield of 7.5%/7.8%, respectively.

Downgrade to MARKET PERFORM (from OP) on an unchanged TP of RM0.560. Our call is downgraded as share price has played catch up since our last report. Our TP remains unchanged despite rolling forward our valuations to FY23 of 4.8 sen and 4.5ppt spread (+1.0SD), but on a higher 10-year MGS target of 4.15% (from 3.9%), in line with our in-house estimates. We have applied the highest parameters among pure retail MREITs under our coverage (between 1.0ppt to 1.6ppt) due to CLMT’s non-prime asset profile and constant negative rental reversions unlike its peers that mostly own prime malls. CLMT has been facing challenging negative reversions prior to the pandemic on tough retail environment and the lingering concern of retail space oversupply 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 - 28 Apr 2022