CapitaMalls  Malaysia  Trust’s  1Q14  results  were  in  line  with expectations. Management is  still on track to deliver  FY14  DPU growth of  about  4-5%,  underpinned  by  its  proactive  AEIs.  We  are  especially positive  on  the  ongoing  refurbishment  of  the  ECM  that,  so  far,  has resulted  in  the  mall’s  net  property  income  improving  by  9.9%  y-o-y. Maintain NEUTRAL and MYR1.41 FV.

Within  expectations.  CapitaMalls  Malaysia  Trust’s  MYR38.2m  1Q14 net  profit  (+6.5%  y-o-y;  -0.9%  q-o-q)  was  in  line  with  expectations.  A 2.32  sen  dividend  was  declared  this  quarter,  up  6.4%  y-o-y.  Revenue growth  was  attributed  to:  i)  the  kick-in  of  positive  rental  reversion,  ii) incremental  contribution  from  the  completion  of  the  East  Coast  Mall (ECM)’s  Phase 1  refurbishments, and iii)  income from the on-selling of electricity to tenants at The Mines.  Average rental reversion was only at 1.0%  during the quarter under review,  dragged down by  Sungei Wang Plaza (SWP)’s negative reversion of 6.3%. Nonetheless we are confident that  this  figure  will  improve  in  subsequent  quarters,  as  both  ECM  and The Mines have recorded rental reversions of above 10% in 1Q14.

Continuous enhancements to boost long-term earnings. We believe that  the  trust  is  still  on  track  to  deliver  a  4-5%  DPU  growth  in  FY14, underpinned  by  its  proactive  asset  enhancement  initiatives  (AEIs). CapitaMalls  Malaysia  Trust  has  a  slew  of  AEIs  in  the  pipeline,  which include:  i)  Phase  2  of  ECM’s  reconfiguration  –  due  for  completion  in 4Q14, ii) tenancy remixing at Gurney Plaza’s ground floor extension wing –  to  be  completed  in 1Q15, and  iii)  the reconfiguration of level 4  at  The Mines to  further improve its trade mix  –  work to  proceed  between July 2014-early 2015.  The trust  plans to spend a total of MYR80m capex in FY14,  mainly  to  complete  ECM’s  refurbishment.  This  refurbishment continues to bear fruit, with  the mall’s net property income growing 9.9% y-o-y.  We  reiterate  that  CapitaMalls  Malaysia  Trust  has  indicated  its commitment  to  maintain  a  100%  distribution  payout,  barring  any unforeseen circumstances.

Maintain  NEUTRAL.  No  changes  to  forecasts.  Our  DDM-based  FV  is maintained at  MYR1.40.  The stock  currently trades at a decent net yield of about 6%, and the completion of ECM’s enhancements  could lead to potential earnings upside.

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Company Profile
CapitaMalls Malaysia Trust  specialises in retail assets that include Sungai  Wang Plaza and Gurney Plaza. It is part of the renowned Singapore-based CapitaLand Group through its sponsor CapitaMalls Asia.

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Source: RHB