INVESTMENT HIGHLIGHTS

• FY16 earnings within expectations

• Higher full year earnings

• Earnings estimate fine-tuned

• Downgrade to NEUTRAL from BUY with unchanged TP of RM1.69

FY16 earnings within expectations. CapitaLand Malaysia Mall Trust (CMMT) FY16 core net income of RM163.7m was in line with our and consensus expectations, at 95% and 97% of our and consensus full year estimates respectively. Distribution per unit for the quarter is 2.1sen.

Higher full year earnings. On a yearly basis, 4QFY16 core net income of RM40.9m inched up by 1%yoy, bringing full year core net income to RM163.7m (+6%yoy). The higher earnings were driven by full year contribution from Tropicana City Mall properties (acquired in 3QFY15) and also due to higher earnings contribution from most of its assets except for Sungei Wang Plaza (SWP). Notably, performances of Gurney Plaza and East Coast Mall are encouraging with net property income (NPI) of the two assets grew 10%yoy and 5%yoy respectively. On the flip side, NPI of SWP lost 27%yoy due to negative rental reversion as a result of on-going MRT construction works and close of BB plaza. Meanwhile, CMMT recorded rental reversion of +4% (excluding SWP) in FY16 while portfolio occupancy rate remained stable at 96.5%.

Earnings estimate fine-tuned. We revised downwards our earnings forecast for FY17 for house-keeping reason post FY16 earnings announcement. Earnings of CMMT is expected to held steadily as higher earnings contribution from Gurney Plaza, East Coast Mall, and Tropicana City properties should more than enough to offset the weakness in SWP.

Downgrade to NEUTRAL from BUY with unchanged TP of RM1.69, based on DDM valuation (required rate of return: 7.7%, perpetual growth rate: 1.9%). We revise our call on CMMT to Neutral from Buy as the recent run up in share prices renders limited capital upside. Earnings outlook for CMMT remains positive as we opine earnings downside risk from SWP is limited as SWP is now the smallest earnings contributor to CMMT.

Source: MIDF Research - 25 Jan 2017