INVESTMENT HIGHLIGHTS

• 1HFY18 earnings largely within estimates

• 2QFY18 CNI fell by 16% as revenue declined by 5%

• Better second half expected

• Maintain NEUTRAL with unchanged TP of RM1.11

1HFY18 earnings largely within estimates. CapitaLand Malaysia Mall Trust’s (CMMT) 1HFY18 core net income (CNI) of RM70.7m was largely in-line with our full year expectation, making up 44.4% of our full year forecast and 44.9% of consensus’. A DPU of 2.0 was announced, which is also within our estimates.

2QFY18 CNI fell by 16% as revenue declined by 5%. The lower NPI from CMMT’s Klang Valley assets and higher operating expneses dampened 2QFY18’s core net income (CNI). Lower gross revenue was registered for the 3 Damansara property (previously Tropicana City) (- 9.4%), Sungei Wang Plaza (SWP) (-30.3%) and The Mines (-9.7%) compared with the previous corresponding year. The lower revenue is attributed to the portfolio occupancy rate that is lower at 91.7% compared to 93.7% in 1QFY18. Operating expenses that increased by 6.2% yoy are mainly due to higher assessment fees for the properties and marketing expenses for the renaming of 3 Damansara. Finance costs also increased as average cost of debt came in at 4.47% vs 4.44% qoq.

Portfolio rental reversion improved marginally at +0.3% yoy. For 1HFY18 rental reversion was positive for Gurney Plaza (+4.6%) and East Coast Mall (+1.8%). All the Klang Valley assets recorded negative rental reversion with SWP at -12.0%, The Mines at -5.0%, 3 Damansara mall at -4.0% and the office tower at -5.1%.

Better second half expected as we expect occupancy rates to improve due to completion of refurbishment at the 3 Damansara mall and new tenants that are scheduled to move into the office tower next month. We also expect better occupancy rate at The Mines following the completion of the asset enhancement initiative there, which is expected to be completed by year-end. This is also accompanied by the removal of overhang before the 14th General Election and also the GST free period from now until end-August. Coupled with improving consumer sentiment, the year-end holiday, sales and festive season, we expect shopper traffic and footfall to improve in 2HFY18.

Maintain NEUTRAL with unchanged TP of RM1.11. We make no changes to our earnings assumption CMMT’s 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 - 26 Jul 2018