CLMT’s 1HFY24 core net profit and distribution per unit (DPU) met expectations. Queensbay Mall (QBM) and Gurney Plaza will continue to drive the group’s portfolio income, cushioning the weak performance from its retail assets in the Klang Valley. We maintain our forecasts, TP of RM0.58 and UNDERPERFORM call.

CLMT’s 1HFY24 core net profit of RM67.0m met expectations at 55% and 53% of our full-year forecast and the full-year consensus estimate, respectively. It declared an income distribution of 1.17 sen, bringing YTD distribution to 2.1 sen which is on track to meet our full-year forecast of 3.9 sen.

YoY, its 1HFY24 revenue grew 23% mainly due to the full income recognition of QBM during the period (of which acquisition was completed in Mar 2023) coupled with positive rental revisions and higher overall occupancy rates at 93.1% (1HFY23: 88.0%). Its core net profit rose by a sharper 35% as its operating expenses (including those of QBM) increased at a slower pace of 10%, QoQ, its 2QFY24 revenue inched up 2% while net profit was flattish due to slight disruptions to traffic arising from asset enhancement efforts.

Outlook. The group appears to be able to raise the rentals for its malls in Penang by as high as 10% as compared to the preceding year.

However, the quantum of rental revisions may ease going forward given the competition from two new malls in Penang, i.e. Sunshine and Waterfront, slated for opening in 2025. In addition, we continue to be cautious on consumer spending particularly from the low to mid income groups due to elevated inflation and subsidy rationalisation.

Forecasts. Maintained.

Valuations. We also maintain our TP of RM0.58 based on a target yield of 7.5% (derived from a 3.5% yield spread above our 10-year MGS assumption of 4.0%). The yield spread is on the higher range applied within our sector peers (average 2.0%) owing to the group’s low-yielding assets in the Klang Valley. There is no adjustment to our TP based on ESG which is given a 3-star rating as appraised by us (see Page 4).

Investment case. CLMT’s performance will continue to be underpinned by its retail assets in Penang which will be buoyed by traffic from the middle-income and affluent groups. The same cannot be said for its retail assets in the Klang Valley that are subject to intense competition from rival malls that are newer and more posh. Maintain UNDERPERFORM.

Risks to our call include: (i) elevated risk-free rate, weighing on REIT valuation, (ii) over-supply of retail malls especially resulting in depressed rentals and occupancy rates; and (iii) further deterioration in consumer spending.

Source: Kenanga Research - 25 Jul 2024