Review

• CapitaLand Malaysia Trust (CLMT)’s 9M24 realised net profit of RM97.2mn came in within expectations, accounting for 74% and 76% of ours and consensus’ full-year forecasts, respectively. 

• 9M24 distribution per unit (DPU) increased 15% to 3.43sen, which was also in line with our full-year DPU projection of 4.52sen. This translates to an annualised dividend yield of 6.5% based on the last closing price. 

• 9M24 net property income (NPI) increased by 24% YoY to RM191.4mn, largely attributed to contribution from QueensBay Mall (QBM) following its acquisition completion towards the end of 1Q23. Additionally, other malls in CLMT's portfolio reported improved gross revenue, driven by higher occupancy rates and positive rental revisions. 

• Finance costs jumped 22% YoY in 9M24, primarily due to increased borrowings utilised to partially finance the QBM and Glenmarie Distribution Centre (GDC) acquisition. The increase was also driven by higher floating rates following the May 2023 OPR hike, as well as refixed rates on certain maturing fixed-rate loans. 

• Realised net profit declined 10% QoQ to RM30.3mn in 3Q24, mainly due to the absence of RM3.0mn in compensation income from an early lease termination recognised in 2Q24. 

• As of 30 September 2024, CLMT's portfolio occupancy was 92.9%, with malls outside the Klang Valley performing exceptionally well, achieving over 99% occupancy. The retail rental reversion for CLMT's portfolio in 9M24 was +8.9%, showing sustained improvement from FY23's +7.5%. 

• In terms of lease expiry, 13%, 35%, 28% and 24% of CLMT’s leases by gross rental income are due for renewal in 2024, 2025, 2026 and 2027 & beyond, respectively, as at 30 September 2024.

 Impact

• No change to our FY24-FY26 earnings forecasts.

 Conference Call Highlights

• The introduction of new retail concepts, tenant offerings and targeted shopper activation programmes across CLMT's malls has led to a 5.7% YoY increase in shopper traffic and a 5.1% rise in tenant sales per square foot in 9M24. 

• CLMT continues to enhance its retail appeal through proactive curation of experiences. The asset enhancement initiatives (AEIs) at Gurney Plaza are on track for year-end completion, bringing new-to-market brands and refreshed retail concepts. Meanwhile, 3 Damansara will begin its next AEIs phase in late 2024, with upgrades to the ground-floor alfresco dining area and the introduction of new F&B brands, set for completion in 2025. 

• CLMT’s industrial portfolio is seeing positive momentum. At Valdor Logistics Hub, a tenant has renewed its lease at a higher rental rate while expanding its leased area. Additionally, the GDC is expected to start contributing to CLMT's income in 2025, following the completion of retrofitting works in 4Q24. 

• Adhering to its prudent and agile capital management strategy, CLMT has diversified funding sources by refinancing and extending loans maturing between 2026 and 2028 to beyond 2031. This increased its average term to maturity from 2.9 years to 4.9 years, resulting in significant annual interest savings. As of 30 September 2024, CLMT has a debt headroom of RM820m, with a gearing ratio of 42.1%. To limit interest rate risk, 85% of total borrowings are at fixed rates.

 Valuation

• CLMT's sustained improvement in operating metrics, along with potential upside from future AEIs and new assets, including the GDC and the proposed acquisition of three freehold ready-built factories in Johor, strengthens our confidence in its growth prospects. 

• As a result, we peg CLMT’s valuation at a lower target yield of 6.25% (previously 6.75%) to reflect its improved outlook. This target yield remains reasonable, as it aligns with the average FY25 yield of retailfocused MREITs. Consequently, we raise our TP to RM0.82 (previously RM0.76). Our TP also includes a 3% ESG premium, reflecting CLMT's 4- star ESG rating. Maintain Buy. 

Source: TA Research - 29 Oct 2024