• Reiterate SELL call with a new MYR0.91 TP from MYR0.89, 10% downside, plus 7% 2020F yield (-3% total return). Capitaland Malaysia Mall Trust continues to register yet another lacklustre quarter, with earnings having missed expectations – ultimately leading the REIT to display negative growth in its full-year performance. Weak reversions, coupled with a dire outlook on its Klang Valley assets, suggest that occupancy rates should remain under pressure moving forward. Jumpa, in our view, will not mitigate the REIT’s overall poor performance in the near future.
• Earnings missed again. CMMT reported an FY19 core net profit of MYR103.3m (having excluded MYR30.7m worth of devaluation) – below our and market expectations. Topline saw a 2.2% decline YoY from lower occupancy rates demonstrated by its Klang Valley assets. Meanwhile, core net profit declined 23% YoY, stemming from higher operating expenses arising from electricity surcharge at Gurney Plaza, East Coast Mall, and 3 Damansara. CMMT declared a DPU of 1.52 sen for 4Q19, amounting to a DPU of 6.25 sen for FY19 vs 7.90 sen in FY18 – translating into a c.6% yield.
• Net property income (NPI) dropped 6% YoY. Sungei Wang Plaza saw a turnaround in 4Q19, in which an NPI of MYR0.79m was registered vs a loss of MYR0.58m in 3Q19. This was likely due to the downtime at the mall having come to an end. Nevertheless, CMMT’s Klang Valley assets continue to display negative growth in 4Q19, with NPI dropping 6% YoY. On a YoY basis, only East Coast Mall saw positive growth in NPI: +8%.

• Slight improvement in occupancy rates. Blended occupancy showed a marginal improvement: Increasing to 93.6% in 4Q19 from 92.1% in 3Q19. This was mainly due to an improvement in occupancy for The Mines and Sungei Wang Plaza post Jumpa’s soft launch. Despite the improvement in occupancy, we believe occupancy rates will remain under pressure moving forward, amidst the oversupply threat. As of 3Q19, 22.2% of the REIT’s total NLA was up for renewal, with 56% up for renewal in FY20, of which 10% have renewed to date.

• Rental reversion remains weak. Despite a slight improvement, CMMT’s rental reversion for all its Klang Valley retail assets generally remained weak, demonstrated by the fact that only Gurney Plaza and East Coast Mall in Penang and Pahang are in positive territory: +1% and +0.9%. The Mines – the REIT’s main concern – demonstrated a further decline in rental reversion to -17.2% from -16.2% in 3Q19. Sungei Wang Plaza’s rental reversion continued its negative streak (-12.4%, a mild improvement from 3Q19’s -14.4%). Jumpa’s growth potential will be slow in our view, and we are only mildly positive that its opening will benefit the rest of the main block in a material way.

• We keep our call. We introduce our FY22F earnings of MYR124m, making no changes to our earnings forecast, seeing that the results missed due to revaluations. Post housekeeping, TP is marginally raised to MYR0.91

Source: RHB Securities Research - 3 Mar 2022