CLMT’s 1QFY23 results met our expectation. Post-results and factoring in contributions from QBM, we raise our FY23 earnings projection by 21%, lift our TP by 4% to RM0.53 (from RM0.51) based on a target yield of 7.5% but maintain our MARKET PERFORM call.

Within expectations. 1QFY23 net profit of RM20.0m (-3% YoY) made up 24% of our previous full-year estimate (and at 15% of consensus, which might be skewed by timing assumptions of Queensbay Mall (QBM) contributions). A DPU of 0.87 sen has been declared.

Results highlights. YoY, on the back of a 16% rise in gross revenue to RM78.5m, core net profit dipped 3% to RM20.0m in 1QFY23 because of higher property operating expenses (+24%, chiefly attributable to increased utilities costs and maintenance expenses) and other non operating expenses (+27%, mainly due to higher finance costs and management fee). By property asset, the major earnings contributors were Gurney Plaza (+12% in net property income or NPI to RM25.7m) and East Coast Mall (-5% in NPI to RM9.7m). Overall portfolio occupancy rate was at 89.2% as of end-March 2023 (vs. 85.9% end December 2022) while gearing stood at 44.3% end-1QFY23 (up from 36.2% end-FY22) following the QBM acquisition.

Back on track. As business environment has normalised, in 1QFY23, shopper traffic stood at 95% versus 1Q19’s level while tenant sales psf was at 113% of 1Q19’s threshold. In terms of portfolio lease expiry profile, as a percentage of gross rental income, 30.5% is due for expiry this year (of which 26.5% of these leases have been renewed and/or under advanced negotiations).

QBM starts contribution. Following the completion on 21 Mar 2023 of its acquisition of QBM for RM990.5m – funded by debt (77%) and new equity (23%, via a private placement of 465.0m units at an issue price of RM0.49/unit) – CLMT has started booking in contributions from QBM (amounting to NPI of RM2.0m in 1QFY23). Based on a circular to unitholders dated 8 Feb 2023, QBM is forecasted to post NPI of RM72.3m in FY23 (vs. RM69m in the 11-month period ended Nov 2022). We are projecting NPI contributions from QBM of RM52.0m (9- month impact) this year and RM73.9m next year.

Forecasts update. We have updated our core net profit forecasts (since our last report dated 25 Jul 2022) to RM100.1m (+21%) for FY23 and RM105.7m (new) for FY24 to capture contributions from QBM and post-results fine-tuning. Correspondingly, imputing an enlarged number of units following the private placement exercise brings our FY23/FY24 gross DPU to 3.9 sen (from 3.8 sen) and 4.0 sen (new), implying yields of 7.5% and 7.7%, respectively.

Remains a MARKET PERFORM. Attaching a target yield of 7.5% on FY24F GDPU (which is derived from a 3.0% yield spread above our 10-year MGS assumption of 4.5%) as we roll over our valuation window, our TP is revised to RM0.53 (from RM0.51). This is to reflect CLMT’s challenging prospects, given its less prime asset profile amid the uncertain economic outlook and elevated inflationary environment. There is no adjustment to our TP based on ESG which is given a 3-star rating as appraised by us.

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 2023