INVESTMENT HIGHLIGHTS

• 9MFY17 earnings slightly below expectation.

• Ytd core net income declined by 2%yoy to RM120.2m

• Earnings forecast reduced slightly

• Maintain NEUTRAL with revised TP of RM1.65

9MFY17 earnings slightly below expectation. CapitaLand Malaysia Mall Trust’s (CMMT) 9MFY17 core net income of RM120.2m was slightly below our expectation, making up 72% or ours and 73% of consensus’ full year forecast. This is mainly due to slightly lower-than-expected rental reversion. Distribution per unit of 2.02sen (-2% yoy) for 3QFY17 will be distributed in the next quarter.

Ytd core net income declined by 2%yoy to RM120.2m. CMMT’s 9MFY17 core net income came in lower due to lower NPI from its Klang Valley assets. Negative rental reversion was seen for The Mines (-5.4%) and Sungei Wang Plaza (SWP) (-23.2%) for 9MFY17. However, East Coast Mall and Gurney Plaza saw positive rental reversion of +4.0% and +1.0% respectively. Excluding SWP, CMMT’s rental reversion ytd registered a 0.7% improvement.

3QFY17 core earnings of RM40.1m was 4% lower yoy due to the decline in NPI of SWP (-37% yoy), The Mines (-7% yoy), and Tropicana City property (-5% yoy). The drop in earnings from The Mines was due to lower occupancy rate and lower rental rates while the decrease in income at Tropicana City property was due to lower occupancy at the office tower. Qoq, core net income was largely unchanged at RM40.1m while gross revenue increase marginally by 1% to RM92.7m. Rental reversion has narrowed to -1.8% compared to -4.5% in 2QFY17.

Earnings forecast reduced slightly. We reduce our earnings forecast for FY17F by 1.2% to factor in the lower-than-expected rental reversion. That said, earnings downside from SWP is limited due as its latest contribution to CMMT’s NPI is just under 7% (from 8% in 1HFY17). Shopper traffic at SWP has also improved with the opening of entrance at the MRT station. Looking forward, CMMT has earmarked RM66m for asset enhancement initiatives (AEI) at East Coast Mall and SWP. We do not expect the AEI to have an impact for FY18 earnings but the efforts may bear fruit for CMMT in the medium to long term.

Maintain NEUTRAL with revised TP of RM1.65 (from RM1.69 previously). We revise our TP to RM1.65 from RM1.69 corresponding to lower earnings forecast and lower DPU forecast. The TP is based on DDM valuation (required rate of return: 7.7%, perpetual growth rate: 1.9%). We maintain our Neutral stance on CMMT due to its flattish earnings outlook. At current price, CMMT’s dividend yield is estimated to be at 5.2%.

Source: MIDF Research - 26 Oct 2017