INVESTMENT HIGHLIGHTS

• 1QFY17 earnings within expectations

• Unexciting earnings on sequential basis

• Marginally weaker earnings on yearly basis

• Maintain NEUTRAL with an unchanged TP of RM1.69

1QFY17 earnings within expectations. CapitaLand Malaysia Mall Trust (CMMT) 1QFY17 core net income of RM40.24m was in line with our and consensus expectations, at 24% and 23% of our and consensus full year estimates respectively. Distribution per unit for the quarter is 2.08sen.

Unexciting earnings on sequential basis. On a sequential basis, 1QFY17 core net income of RM40.24m eased by a marginal 2%qoq, mainly due to lower contribution from Sungei Wang Plaza (SWP) and The Mines which offset the growing contribution from Gurney Plaza, East Coast Mall, and Tropicana City property. The weaker contribution from SWP was owing to the negative rental reversion consequent to the ongoing MRT construction works and close of BB plaza. Meanwhile, an indoor Kart Drifting in SWP was introduced at the former car park on level 5 as part of CMMT initiatives to improve the performance of SWP. On the other hand, lower contribution from The Mines was due to loss of an anchor tenant, which resulted in declining occupancy rates in 1QFY17 to 93.6% from 98% in 4QFY16.

Marginally weaker earnings on yearly basis. On a yearly basis, 1QFY17 core net income was lower by 2%yoy, mainly dragged by SWP and The Mines. Net property income (NPI) of SWP fell 28%yoy while NPI of The Mines eased by 6%yoy. Nevertheless, Gurney Plaza and East Coast Mall continues to do well in 1QFY17, where NPI for Gurney Plaza grew 12%yoy while NPI for East Coast Mall improved by 3%yoy. Meanwhile, CMMT recorded flat rental reversion of 0% (excluding SWP) in 1QFY17 while portfolio occupancy rate stood at 95%.

Maintain NEUTRAL with unchanged TP of RM1.69. We maintain our earnings forecast for CMMT. We see flattish earnings outlook for CMMT in FY17 as we expect higher contribution from Gurney Plaza and East Coast Mall would partially offset by the declining contribution from SWP. Also intact is our TP of RM1.69, based on DDM valuation (required rate of return: 7.7%, perpetual growth rate: 1.9%)

Source: MIDF Research - 19 Apr 2017