CLMT’s 9MFY23 core net profit and distribution per unit (DPU) were within our expectations. The group is witnessing a rise in its earnings, despite potential challenges in the retail sector, it remains resilient amid economic uncertainties. While CLMT is diversifying into the industrial and logistics sector, it maintains a primary emphasis on retail, which restricts its contributions in this new venture. Maintain MARKET PERFORM and TP of RM0.53 on our unchanged assumptions and target yield of 7.5%.

Within expectations. CLMT’s 9MFY23 core net profit RM77.5m made up of 77% and 73% of our full-year forecast and consensus full-year estimates, respectively. A DPU of 1.05 sen (YTD: 2.98 sen) is also within expectations.

YoY, 9MFY23 gross revenue rose by 39% primarily driven by the strong performance of contributed significantly by Queensbay Mall. While Valdor Logistics Hub also contributed, it was not as notable compared to QBM. The overall occupancy rate grew to 89.6%, with Gurney Plaza (+8%) and Sungei Wang Plaza (+8%) also contributed to the improved top line, benefiting from a positive rental reversion of 6.3%. The improved performance in the retail segment led to an increase of net property margin (56.3%, +2.5ppt) resulting in a 7% growth in pre-tax profit. Overall, excluding unrealised fair value losses of RM8.0m, the 9MFY23 core net profit and distributable income experienced substantial increases of 19% and 20%, respectively.

Outlook. CLMT’s retail assets remain to demonstrate resilience in its operations, despite the rising business costs and economic challenges. Strong retail activities highlight the group's adaptability to changing consumer trends. Overall CLMT’s malls success is attributed to engaging activation programs, which have led to an impressive 9% year-on-year increase in sales per square foot for tenants, creating experiences that draw in visitors and sustain footfall. On another note, the proposed divestment of 3 Damansara Office Tower and the completed acquisition of Glenmarie Distribution Centre are part of the group's expansion strategy into the flourishing industrial and logistics sector, aimed to strengthen income and portfolio stability. That said, limited contributions are expected in the near-term given CLMT’s predominantly retail-driven portfolio (99% of gross revenue).

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 3.5% yield spread above our 10-year MGS assumption of 4.0%). We believe the earnings reflected 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 Oct 2023