INVESTMENT HIGHLIGHTS

• Slight disappointment for 1QFY19 earnings

• 1QFY19 CNI declined by 13% to RM32.5m due to higher property expenses amid a 2% dip in revenue

• Contribution from ‘Jumpa’ expected to be minimal in FY19

• Maintain NEUTRAL with an adjusted TP of RM1.05

Slight disappointment for 1QFY19 earnings. CapitaLand Malaysia Mall Trust’s (CMMT) 1QFY19 core net income (CNI) of RM32.5m made up 23% of our estimates and 22.5% of consensus’. A DPU of 1.71 sen was announced, which was also slightly below our expectation.

1QFY19 CNI declined by -13% to RM32.5m due to higher property expenses amid a 2% dip in revenue. CNI for the quarter fell year-on-year mainly due to maintenance expenses that increased by +20%yoy and utilities expenses that climbed +8%yoy. The higher operating expenses can also be attributed to the absence of a one-off service charge rebate at Sungei Wang Plaza (SWP). Revenue, on the other hand, was dragged lower by SWP (-26.8%yoy), 3 Damansara (- 3.4%yoy) and The Mines (-13.7%yoy). Revenue from Gurney Plaza and East Coast Mall cushioned the drop as topline contribution from these two malls was up by +5.0%yoy and +10.6%yoy respectively.

Contribution from ‘Jumpa’ at SWP expected to be minimal in FY19. Management guided that prospective tenants have committed to about 50% of ‘Jumpa’s NLA. They have managed to secure three out of five mini anchors and targets to secure another mini anchor in the near term. Some of the committed tenants are “Camp 5”, “Love, Bonito”, “Miniature”, “Ah Yip Herbal Soup” and “Japanese Curry Noodle and Udon”. The opening is expected in 3Q, which is slightly later than the 1HFY19 timeline we had anticipated earlier.

Earnings revised by -2.5%/-2.5% for FY19F/FY20F respectively. Following which, our new earnings estimates are RM136.5m/RM144.7m. This is to factor in higher than expected property expenses as well as later than expected contribution from Jumpa.

Maintain NEUTRAL with an adjusted TP of RM1.05 (previously RM1.08). Our TP is derived from DDM valuation and our perpetual growth rate of 1.2% is maintained. CMMT’s initiatives to refresh its malls are commendable but we think that some of the asset enhancement initiatives may take some time to translate into positive earnings impact. On the other hand, CMMT’s unit price is cushioned by its net asset value per share of RM1.27 while dividend yield is estimated at 6.1%.

Source: MIDF Research - 24 Apr 2019