CLMT's 9MFY24 core net profit is above our expectation as the group continues to see strong growth from all of its key ex-Klang Valley assets, namely Queensbay Mall (QBM). This was further bolstered by strong rental reversion in its Valdor industrial asset, also in Penang. We raise our FY24F/FY25F earnings forecast by 6%/10%, resulting in an uplift to TP to RM0.70 from RM0.64.

Maintain MARKET PERFORM call.

CLMT's 9MFY24 core net profit came in at RM97.3m met consensus expectations at 76% but was above our full-year forecast (making up 81% of our estimate). The positive deviation was due to our more conservative projection on QBM income contribution to the group.

Meanwhile, it declared an estimated after-tax income distribution of 0.96 sen, bringing YTD net distribution to 3.1 sen, which is on track to meet our full-year forecast of 3.9 sen net.

YoY, its 9MFY24 revenue grew 17% 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. Its core net profit rose by a sharper 28% as its operating expenses (including those of QBM) increased at a slower pace of 8% which also translated to a higher NPI margin of 57.2% (+3.4 ppt).

QoQ, its 3QFY24 revenue and net profit dipped 4% and 9% respectively mainly due to seasonally weaker 3Q for retail REIT.

Highlights. Its industrial asset in Valdor Logistic Hub saw a high 37% rental reversion although it will likely stabilise in the coming years. Meanwhile, the Glenmarie distribution centre has secured a tenant who will commence rental payments from FY25, contributing NPIs of up to RM3m/year.

Outlook. Topline figures were encouraging in the quarter, bolstered by a decent rental revision and tenant sales growth. On the downside, it appears that malls in the Klang Valley i.e. Sungei Wang Plaza, 3 Damansara, and the Mines have yet to show signs of improvement in tenant occupancy.

Forecasts. We raise our earnings forecast by 6% and 10% in FY24F and FY25F respectively to account for strong growth in its key retail assets (i.e. Gurney Plaza, QBM and East Coast Mall) and higher income projection from the industrial segment.

Valuations. We upgrade our TP RM0.70 from RM0.64 following our earnings revisions based on FY25 NDPU forecast of 4.7 sen against an unchanged target yield of 6.25% (derived from a 2.5% yield spread above our 10-year MGS assumption of 3.75%). The yield spread is on the higher range applied within our sector peers (average 1.75%) owing to the group's higher risk 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 are poised to benefit from positive consumer sentiment underpinned by robust developments in the industrial space. However, the same cannot be said for its retail assets in the Klang Valley that are subject to intense competition from bigger rival malls. Maintain MARKET PERFORM.

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 Oct 2024