INVESTMENT HIGHLIGHTS

• 1HFY19 earnings missed expectations

• 1HFY19 CNI fell by 26% to RM52.3m as revenue dipped 2%

• Improving occupancy rate at The Mines is key

• Maintain NEUTRAL with an adjusted TP of RM1.01

1HFY19 earnings missed expectations. CapitaLand Malaysia Mall Trust’s (CMMT) 1HFY19 core net income (CNI) of RM32.5m made up 38% of our estimate and 37% of consensus’. A DPU of 1.51 sen was announced, bringing cumulative DPU to 3.2sen, which also missed our estimates.

1HFY19 CNI fell by 26%yoy to RM52.3m as revenue declined by 2%yoy. CNI for the period was lower mainly due to maintenance expenses that increased by 10% and utilities expenses that climbed 7% compared to a year ago. Non-property expenses increased marginally by 0.7%yoy. Meanwhile, the lower revenue can be attributed to decline in income from Sungei Wang Plaza (SWP) (-11.9%yoy), 3 Damansara (- 7.0%yoy) and The Mines (-19.1%yoy). Revenue from Gurney Plaza and East Coast Mall (ECM) cushioned the drop as topline contribution from these two malls was up by 5.7%yoy and 2.2%yoy respectively.

Improving occupancy rate at The Mines is key. There is ongoing negotiations to plug in the vacant supermarket space left by Giant at the mall, which was one the main reasons occupancy rate fell by ~8ppt to 80%. A supermarket is also a crowd puller for a neighbourhood mall as management sees young families as its main target audience for the mall. It is also looking to further imrove the fashion and F&B trade mix at The Mines. To put into perspective, The Mines was the second biggest revenue contributor to CMMT’s portfolio in the previous corresponding period at 20%. This has fallen to 16.8% while ECM has surpassed it as the second biggest revenue contributor. As for “Jumpa” at SWP, management guided that prospective tenants have committed to about 60% of NLA and hopes to achieve 80% commitment post-opening, expected in 3Q.

Earnings revised by -19%/-11% for FY19F/FY20F respectively. As a result, our new earnings estimates are now RM110.5m/RM128.8m. This is to factor in higher expenses and lower contribution from The Mines.

Maintain NEUTRAL with an adjusted TP of RM1.01 (previously RM1.05). We rollover our base year to FY20F. Our TP is derived from DDM valuation (required return of 8.4% and perpetual growth rate of 1.2% are maintained). We think that most of the asset enhancement initiatives will take some time to translate into positive earnings impact. On the other hand, CMMT’s unit price is supported by its net asset value per share of RM1.24 while dividend yield is estimated at 6.1%.

Source: MIDF Research - 26 Jul 2019