INVESTMENT HIGHLIGHTS

• 1QFY18 earnings within estimates

• Core net income fell 7% as revenue declined by 3%

• 2HFY18 may be better

• Maintain NEUTRAL with unchanged TP of RM1.11

1QFY18 earnings within estimates. CapitaLand Malaysia Mall Trust’s (CMMT) 1QFY18 core net income (CNI) of RM37.3m was in-line with our full year estimates, making up 23.4% of our forecast and 22.9% of consensus’. A DPU of 2.02 was announced, which is also within expectation.

Core net income fell 7% as revenue declined by 3%. Lower NPI from CMMT’s Klang Valley assets continues to be a drag for this quarter’s CNI. Lower gross revenue was registered for Tropicana City Property (-7.8%), Sungei Wang Plaza (SWP) (-14.5%) and The Mines (- 6.2%) compared with the previous year. The lower revenue and CNI are largely attributed to the lower portfolio occupancy rate at 93.7% compared to 95.4% in 4QFY17. The lower CNI is also attributed to higher interest rates that came in at 4.44% vs 4.41% qoq, leading to 2% rise in interest cost.

CMMT’s portfolio rental reversion was at +2.2%, mainly boosted by Gurney Plaza (+4.6%). SWP’s rental reversion has further narrowed to -5.8% (from -16.9% in the previous quarter) and is expected to be contained within the negative single digit range. Besides SWP, Tropicana City Mall also recorded a negative rental reversion of -5.5%.

2HFY18 may be better as we expect occupancy rates to improve as a result of the completion of refurbishment for Tropicana City Mall (TCM) and new tenants that occupy the office tower. There will be more F&B outlets for the ground floor of TCM while it adds a local beauty services provider, Nulnu, at level 2 of the mall. TCM is scheduled to be renamed at the end of 2Q. We also expect better occupancy rate at The Mines following the asset enhancement initiatives there, to be completed by year-end. This is also accompanied by the festive seasons in the second half, which may lead to higher shopper traffic and sales.

Maintain NEUTRAL with unchanged TP of RM1.11. We make no changes to our earnings assumption at this juncture as CMMT’s 1QFY18 earnings were broadly within expectation. The TP is based on DDM valuation (required rate of return: 8.8%, perpetual growth rate: 1.2%). We maintain our Neutral stance on CMMT due to the unexciting earnings in the near-term.

Source: MIDF Research - 25 Apr 2018