KEY INVESTMENT HIGHLIGHTS

• 9MFY19 earnings in line with expectations

• CNI for the first nine months fell by 21%yoy to RM80.7m

• 3QFY19 CNI declined 10%yoy to RM28.4m

• Maintain NEUTRAL with an unchanged TP of RM1.01

9MFY19 earnings in line with expectations. CapitaLand Malaysia Mall Trust’s (CMMT) 9MFY19 core net income (CNI) of RM80.7m made up 73% of our estimate and 72% of consensus’. A DPU of 1.51 sen was announced, bringing cumulative DPU to 4.7sen, which is also within our estimate.

CNI for the first nine months fell by 21%yoy to RM80.7m as revenue declined by 3%yoy. CNI for the period was lower mainly due to maintenance expenses that increased by 7% and utilities expenses that climbed 5% compared to a year ago. Non-property expenses increased marginally by 0.5%yoy. The lower revenue on-year can be attributed to decline in income from Sungei Wang Plaza (SWP) (-16.4%), 3 Damansara (-5.5%) and The Mines (-16.0%) as these assets recorded negative rental reversion. On the flip side, Gurney Plaza and East Coast Mall (ECM) registered topline growth at 4.1% and 5.4% respectively.

3QFY19 CNI declined 10%yoy to RM28.4m as revenue dipped by 3%yoy to RM83.7m. This was primarily because of lower occupancy rates at The Mines (84%) and SWP (80.8%) as well as lower rental rates at The Mines. Meanwhile, property expenses for the quarter were higher by 13%yoy, which explains the greater quantum of decrease in CNI compared to revenue. Also resulting in the lower 3QFY19 CNI is the branding and social media marketing costs for the soft launch of Jumpa. Meanwhile, CMMT’s portfolio occupancy rate showed sequential improvement from 90.9% in 2QFY19 to 92.4% in 3QFY19 based on committed leases.

Jumpa may further lift the prospects of SWP in FY20. Jumpa’s soft launch was on September 25, where its Ground and Lower Ground floors were opened to greet visitors. Tenants that have started operations at Jumpa include F&B outlets as well as fashion and sportswear. Leasing progress for Jumpa is 90.5%. The other floors are still under renovation. Management expects the committed lease to be ready physically in 1HFY20. This may in turn improve the overall occupancy rate at SWP once the shopper traffic increase with the full opening of Jumpa.

Occupancy rate at The Mines expected to improve further to 85% from 84% as management continues its leasing exercise. This will be an improvement from 80.1% in 2QFY19. They have identified a supermarket operator that will take up about 30,000 sq ft of the vacant space left by Giant Hypermarket with potential physical opening by early 1QFY20.

Maintain NEUTRAL with an unchanged TP of RM1.01 as we keep our earnings estimates. Our TP derived from DDM valuation and our perpetual growth rate of 1.2% is maintained. We think that management will continue to balance between occupancy rate and rental reversion of its assets. 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 6.2%.

Source: MIDF Research - 25 Oct 2019