• Maintain NEUTRAL and MYR0.57 TP, 2% upside with c.7% FY23 yield. CLMT’s 9M23 results were in line with expectations, as the strong retail sales momentum continued, leading to a +6% rental reversion YTD. However, higher borrowing and utility costs, as well as a higher share base following the acquisition of Queensbay Mall led to a marginal +0.7% DPU growth YTD. With gearing high at 44%, CLMT will focus on strengthening organically, particularly with its underperforming Klang Valley malls.

• Results review. 3Q23 core profit of MYR28.7m (+0.2% QoQ, +29% YoY) led to a 9M23 core profit of MYR77.1m (+20% YoY). This was in line with expectations at 74% and 73% of our and Street’s full-year estimates. Revenue declined 1% QoQ, dragged by East Coast Mall which had a seasonally slower quarter following the Aidil Fitri festivities in 2Q. Interest expense rose 8.5% QoQ following the interest rate hikes, and CLMT also reissued a medium-term note of MYR300m at a higher interest rate, leading to a 4.3% average cost of debt in 3Q23 (YTD: 3.98%). 9M23 DPU of 2.98 sen is only 0.7% higher YoY (9M23: 2.96 sen) due to the higher share base.

• Strong retail sales momentum. On a same-store basis, 3Q23 shopper traffic increased 21.6% YoY and tenant sales per sqf were up by 9.1% YoY. Compared to 3Q19, shopper traffic was slightly lower by 0.5%, but tenant sales per sqf was 23.4% higher. This is attributed to changing consumption patterns post pandemic, with customers spending more on higher value items than before when they visit malls.

• Portfolio occupancy stable at 89.6%. On a QoQ basis, the occupancy rates at both 3 Damansara (3Q23: 67.7%, 2Q23: 64.1%) and Sungei Wang Plaza (3Q23: 78.4%, 2Q23: 75.1%) improved slightly upon the signing of new tenants. YTD, only 3 Damansara saw negative rental reversion (-27%) while The Mines (+1%) and Sungai Wang Plaza (+2.5%) recorded low single-digit growth. The non-Klang Valley malls continued to be strong, with the occupancy rate at c.99% and rental reversion between 6-11% YTD.

• Earnings forecast. As results were in line, we made minor adjustments to our earnings forecasts. CLMT’s newly acquired Glenmarie Distribution Centre (MYR39.7m) is expected to only begin contributing revenue in 4Q24 as it is set to undergo a convert-to-suit exercise to transform the logistics property into a distribution centre. The disposal of 3 Damansara Office Tower (MYR52m) is expected to be completed by 4Q23. With gearing high at 44%, we think there is limited room for further inorganic growth. Our TP includes a 2% ESG premium based on CLMT’s 3.1 ESG score (above the 3.0 country median). Key upside/downside risks include stronger/weakerthan-expected retail performance and rental reversion.

Source: RHB Securities Research - 26 Oct 2023