• FY18 earnings within estimate

• Full year CNI declined by 14%yoy while revenue dipped 5%yoy

• 4QFY18 CNI fell 11%yoy as revenue slid 6%yoy

• Maintain NEUTRAL with an adjusted TP of RM1.08

FY18 earnings within estimate. CapitaLand Malaysia Mall Trust’s (CMMT) FY18 core net income (CNI) of RM135.7m was in-line with our expectation at 98.1% but slightly missed consensus’ estimate at 95.2%. A DPU of 1.98 was announced for the quarter, bringing year-to-date DPU to 7.9 sen, which was also within our expectation.

Full year CNI declined by 14%yoy while revenue dipped 5%yoy. The lower CNI of RM135.7m can be attributed to higher operating costs and other management fees. Meanwhile the lower revenue of RM350.1m was mainly because of lower rental income of its Klang Valley malls that offset the growth from Gurney Plaza and East Coast Mall. Occupancy rate for CMMT’s portfolio improved to 93.2% from 91.9% a year ago while rental reversion was at -2.9%.

4QFY18 CNI fell 11%yoy to RM33.5m as revenue slid 6%yoy to RM86.9m. The lower CNI was primarily due to lower interest income and higher finance costs. Meanwhile, revenue declined to RM86.9m because of lower gross revenue at 3 Damansara property (-9.7%yoy), Sungei Wang Plaza (SWP) (-25.1%yoy) and The Mines (-14.1%yoy) in 4QFY18. Sequentially, CNI climbed by 6% while revenue increased marginally by 1%.

Improvement of occupancy rate the main focus. We believe that management will continue to offer rental rates that appeal to the ideal tenant mix for some of its Klang Valley malls to maintain or improve the occupancy rates in the near-term. Rental reversion was positive for Gurney Plaza (+4.2%) and East Coast Mall (+2.8%) but were offset by its Klang Valley assets. Conversely, rental reversion was negative for SWP (-13.3%), The Mines (-16.9%), 3 Damansara mall (-7.5%) and the Tropicana office tower (-5.1%). On top of that, management has planned to increase some of its marketing efforts to draw crowd to its malls. As for The Mines, it planned to build a link bridge to enhance foot fall and possibly reactivate the canal feature in the mall to attract shoppers. It also plans to roll out cashless parking for all of its malls by 1HFY9.

Source: MIDF Research - 30 Jan 2019