KEY INVESTMENT HIGHLIGHTS

• 9MFY20 earnings within expectations

• Earnings leaped on sequential basis

• Challenging outlook due to new wave of Covid-19

• Earnings forecast unchanged

• Maintain NEUTRAL an unchanged TP of RM0.63

9MFY20 earnings within expectations. CapitaLand Malaysia Mall Trust’s (CMMT) 9MFY20 core net income of RM45.7m came in within expectations, meeting 74% and 73% of our and consensus full year estimates respectively. A distribution per unit (DPU) of 1.13sen was announced, bringing cumulative DPU to 2.14sen.

Earnings leaped on sequential basis. Sequentially, 3QFY20 earnings jumped to RM26.23m from RM0.2m in 2QFY20 as earnings in 2QFY20 were weighed by targeted rental waivers and rebates extended to non essential services tenants during MCO and RMCO. That brings 9MFY20 cumulative earnings to RM45.7m (-45%yoy). The lower earnings were mainly due to the weak earnings in 2QFY20. Besides, earnings were also dragged by negative rental reversion of -10.7%, mainly due to double digit negative rental reversion of Sungei Want (-26%) and The Mines (- 33.8%). Nevertheless, the earnings decline was partially cushioned by the lower finance costs (-3.5%yoy) as CMMT refinanced its RM348m term loan at a lower interest rate in August.

Challenging outlook due to new wave of Covid-19. Occupancy rate of CMMT’s retail assets declined marginally to 87.4% in 3QFY20 from 82.9% in 2QFY20 mainly due to challenging operating environment. Looking ahead, we expect outlook for CMMT’s malls to be remain challenging in the near-term due to new wave of Covid-19 in Malaysia and CMCO in Klang Valley which are expected to lower footfall of malls. We think that may prompt CMMT to fully spend its rental relief support of up to RM35m for FY20 and support tenants with a lower rental rate.

Maintain NEUTRAL with an unchanged TP of RM0.63. We make no changes to our earnings forecast as we expect the potential lower rental income from malls in 4QFY20 to be offset by lower finance costs. We maintain our TP for CMMT at RM0.63, based on Dividend Discount Model (DDM). We maintain Neutral call on CMMT due to its unexciting earnings outlook which will be mainly dragged by negative rental reversion

Source: MIDF Research - 30 Oct 2020