• 1HFY17 earnings within expectations

• Marginally lower earnings in 1HFY17

• Neutral earnings outlook

• Maintain NEUTRAL with an unchanged TP of RM1.69

1HFY17 earnings within expectations. CapitaLand Malaysia Mall Trust (CMMT) 1HFY17 core net income of RM80.2 came in within expectations, reaching 48% of our and consensus full year forecast. Distribution per unit for the quarter stands at 2.06sen (-1%yoy).

Marginally lower earnings in 1HFY17. CMMT recorded lower core net income of RM39.9m (-1%yoy) for 2QFY17, as decline in earnings contribution from Sungei Wang Plaza (SWP), The Mines, and Tropicana City property outweighed increase in earnings contribution from Gurney Plaza and East Coast Mall. That led cumulative earnings in 1HFY17 to RM80.2m, declining by a marginal 1%yoy. The slight drop in cumulative earnings was mainly owing to lower contribution from SWP and The Mines. SWP continues to mar by negative rental reversion while lower contribution from The Mines was owing to loss of an anchor tenant and lower rental rates. Meanwhile, CMMT recorded flat rental reversion of +0.6% (excluding SWP) in 2QFY17 while portfolio occupancy rate stood at 95.8%.

Neutral earnings outlook. We maintain our FY17/18 earnings forecast for CMMT. We continue to see neutral earnings outlook for CMMT in FY17, as growing contribution from Gurney Plaza and East Coast Mall would cushion declining earnings from SWP. Nevertheless, we see limited earnings downside risk from SWP to CMMT as SWP is the smallest earnings contributor to CMMT (contributing 8% to total net property income in 1HFY17).

Maintain NEUTRAL with unchanged TP of RM1.69. We maintain our TP for CMMT at RM1.69, based on DDM valuation (required rate of return: 7.7%, perpetual growth rate: 1.9%). Maintain Neutral on CMMT due to its flattish earnings outlook. Meanwhile, dividend yield is estimated at 5%.

Source: MIDF Research - 20 Jul 2017