CapitaLand Malaysia Mall Trust
(July 26, RM1.23)
Maintain neutral with an unchanged target price (TP) of RM1.11: First half of financial year 2018 (1HFY18) earnings largely within estimates. CapitaLand Malaysia Mall Trust’s (CMMT) 1HFY18 core net income (CNI) of RM70.7 million was largely in line with our full-year expectations, making up 44.4% of our full-year forecast and 44.9% of consensus’. A distribution per unit (DPU) of two sen was announced, which is also within our estimates.
Second quarter FY18 (2QFY18) CNI fell by 16% as revenue declined by 5%. The lower net property income (NPI) from CMMT’s Klang Valley assets and higher operating expenses dampened 2QFY18’s core net income (CNI). Lower gross revenue was registered for 3 Damansara (previously Tropicana City) (-9.4%), Sungei Wang Plaza [SWP] (-30.3%) and The Mines (-9.7%) compared with the previous corresponding year.
The lower revenue is attributed to the portfolio occupancy rate that is lower at 91.7% compared with 93.7% in the first quarter of financial year 2018 (1QFY18). Operating expenses that increased by 6.2% year-on-year (y-o-y) are mainly due to higher assessment fees for the properties, and marketing expenses for the renaming of Tropicana City to 3 Damansara. Finance costs also increased as average cost of debt came in at 4.47% versus 4.44% quarter-on-quarter (q-o-q).
Portfolio rental reversion improved marginally at +0.3% y-o-y. For 1HFY18 rental reversion was positive for Gurney Plaza (+4.6%) and East Coast Mall (+1.8%). All the Klang Valley assets recorded negative rental reversion with SWP at -12.0%, The Mines at -5%, 3 Damansara mall at -4% and the office tower at -5.1%.
Better second half expected as we expect occupancy rates to improve due to completion of refurbishment at the 3 Damansara mall and new tenants that are scheduled to move into the office tower next month. We also expect better occupancy rate at The Mines following the completion of the asset enhancement initiative there, which is expected to be completed by year-end.
This is also accompanied by the removal of overhang before the 14th general election and also the goods and services tax-free period from now until end-August. Coupled with improving consumer sentiment, the year-end holiday, sales and festive season, we expect shopper traffic and footfall to improve in 2HFY18. — MIDF Research, July 26