CLMT’s 1HFY23 core net profit and distribution per unit were within our expectation. The group is expected to see a meaningful boost in revenue with the injection of Queensbay Mall (QBM) to its portfolio. However, the retail climate may see challenges on inflationary pressures which could undermine consumer spending. Progressively, the group hopes to expand its logistics profile to diversify portfolio. Maintain MARKET PERFORM and TP of RM0.53 on our unchanged assumptions and target yield of 7.5%.

Within expectations. 1HFY23 net profit of RM49.7m made up 50% of our full-year forecast but shy of consensus, accounting for 44% of its full-year estimates. The negative deviation from street’s end could be due to overly bullish projections from QBM. Meanwhile, a distribution per unit (DPU) of 1.06 sen (YTD: 1.93 sen) is also within expectations.

YoY, 1HFY23 gross revenue rose by 35% mainly thanks to the inclusion of QBM on 21 March 2023. Excluding contributions from QBM, portfolio gross revenue would have only improved by 12%. Key assets Gurney Plaza (+16%) and East Coast Mall (+9%) also generated a stronger top line as overall tenant occupancy grew to 88.0% (+7.2ppt) while riding on positive YTD rental reversion of 4.7%. Net property margin was relatively stable (54.2%, -0.6ppt) but a surge in finance cost from heavier borrowing in support of QBM’s acquisition led pre-tax profit to decline by 4%. That said, with the reinclusion of fair value losses of RM8.0m, 1HFY23 core net profit and distributable income rose by 14% and 15%, respectively.

Outlook. Excluding QBM, CLMT’s retail assets appear to have picked up to pre-Covid levels in terms of shopper traffic. Retail activities have been relatively stronger thanks to elevated consumer spending post Covid although there are signals of tapering in the near term. Rising inflation and interest rates could dampen overall spending, with the immediate period likely to be dragged by the lack of seasonal factors. That said, the inclusion of QBM would continue to be a welcomed addition to the group, making up 26% and 34% of 2QFY23’s gross revenue and net property income respectively. To deleverage from the consumer market softness, the group seeks to bolster its industrial and logistics offerings, most recently with a planned convert-to-suit temperature-controlled distribution centre which could be completely acquired by 2HFY23. However, contributions will be limited given CLMT’s portfolio which is almost entirely retail-related.

Forecasts. Post-results, we maintain our FY23F/FY24F earnings.

Maintain MARKET PERFORM and TP of RM0.53. Our TP is based on our FY24F gross DPU of 4.0 sen against an unchanged target yield of 7.5% (derived from a 3.0% yield spread above our 10-year MGS assumption of 4.5%). We believe the earnings accretion from QBM’s acquisition is fairly priced in at current levels. Its less prime asset profile amid the uncertain economic outlook and elevated inflationary environment may put a strain to its retail-centric portfolio going forward. 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 - 26 Jul 2023