• Maintain NEUTRAL, lower MYR0.56 TP from MYR0.59, 8% upside and c.7% yield. 1Q23 results missed expectations mainly due to higher utilities and interest costs, offsetting revenue growth from higher occupancy rates as well as income contributions from new properties. Rental reversion turned positive, mainly driven by East Coast Mall and Gurney Plaza, while 3 Damansara and Sungei Wang Plaza continue to bring down earnings.

• Results Review. 1Q23 core profit of MYR19.8m (-14.7% QoQ, -3.1% YoY) missed expectations at 18-21% of our and consensus estimates. Revenue was up 13.9% QoQ (+16.1% YoY) from higher revenue contribution from most of CLMT’s properties from an improved retail environment, as well as contributions from Valdor Logistics Hub and Queensbay Mall. Utilities expenses increased 28% QoQ mainly because of the electricity tariff surcharge, and finance costs increased 11.3% QoQ (+28.9% YoY) from the interest rate hikes, and partly due to the increase in borrowings of MYR763m for the acquisition of Queensbay Mall. As a result, the DPU is lower at 0.87 sen (1Q22: 0.95 sen, 4Q22: 1.05 sen).

• Improved occupancy rates. While earnings were hit by higher expenses, CLMT’s portfolio mostly recorded an improved occupancy rate QoQ, with the exception of Sungei Wang Plaza. The overall portfolio occupancy rate improved from 84.3% as at Dec 2022 to 85.6% as at Mar 2023. 26.5% of leases expiring in 2023 have been renewed in 1Q with a 3.1% positive rental reversion – mainly driven by East Coast Mall and Gurney Plaza – while Sungei Wang Plaza and 3 Damansara continued to see negative rental reversion (-2.7% and -33.2%) and reported NPI loss in the quarter.

• Rough start in acquiring QBM. Gearing ratio is at 44% following the acquisition of Queensbay Mall (QBM) for MYR990.5m. The acquisition of QBM was completed on 21 March with just MYR227.85m raised from a maximum of MYR495.25m that was proposed, resulting in a high-gearing ratio of 44%. Following the acquisition, CLMT recognised a fair value loss of MYR8m as a result of higher incidental costs capitalised against the independent valuation. Regardless, the expected NPI yield of c.7% and positive rental reversion outlook should provide long term earnings stability for the REIT, offsetting the negative rental reversion of its struggling malls.

• Earnings forecast. Post results, we lower our FY23-25F earnings forecast by -2-5%. Our TP incorporates a 2% ESG premium based on our in-house methodology. Key risks include stronger or weaker-than-expected retail performance and rental reversions.

Source: RHB Research - 28 Apr 2023