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This article first appeared in The Edge Financial Daily on October 26, 2018

CapitaLand Malaysia Mall Trust
(Oct 25, RM1.07)
Maintain hold with a lower target price RM1.12:
CapitaLand Malaysia Mall Trust (CMMT) cumulative nine months of 2018 (9MFY18) core net profit made up 65% of our full-year forecast and 71% of consensus. The results were below expectations due to sustained negative reversions for selected malls and prolonged rental downtime. Revenue contracted 4.9% year-on-year (y-o-y), driven mainly by higher rental rates for Gurney Plaza (Penang) and East Coast Mall (Kuantan), offset by negative reversions for Klang Valley malls. Overall core net profit declined 15% y-o-y. 9M18 distribution per unit (DPU) stood at 5.9 sen, which was broadly in line.

 

9MFY18 revenue decline was partially mitigated by positive rental reversions for Gurney Plaza and East Coast Mall (+4.3%/+1.4%). The high negative rental reversion for Sungei Wang Plaza (SWP) continued in 9M18 at -13% (1HFY18: -12%), with declining occupancy of 70% (1HFY18: 73%) on account of the asset enhancement initiative (AEI) (rental downtime). A turnaround remains targeted in second quarter of  2019 (2QFY19), upon completion of the AEI. We observed a y-o-y decline in overall portfolio NPI margin from 65% in 3Q17 to 60% in 3QFY18.

Operating stats show that in addition to the SWP, other Klang Valley malls continued to book negative y-o-y reversions as at end-3Q18. The Mines: -12.8%, 3 Damansara: -3%, and Tropicana City Office Tower: -5.1%. Full completion of the refurbishment at the Mines, and 3 Damansara is scheduled for Mar/Apr 2019.

We fine-tune our occupancy rate assumptions for all malls, based on the prevailing occupancy rates as at end-3QFY18. This leads to a 2.3-2.4% decline in FY19-21F rental revenue and 3.2-3.4% cut in FY18-20F earnings per share (EPS). Consequently, we revise downwards FY18- 20F DPU by 2.7-3.4% to 7.9 sen/8 sen/8.1 sen, pegged at an unchanged 104% payout ratio. This, nevertheless, is still 4-5% above consensus dividend per share (DPS) forecasts; it offers solid dividend yields of 7.2%.

We maintain our “hold” recommendation and roll over our valuations to end-2019. We cut dividend discount model-based TP (cost of equity : 8.5%; 7.9% previously, as we impute the revised DPU forecasts and higher adjusted beta). CMMT’s 7.2% dividend yield is therefore the stock’s key appeal. Upside risk is a turnaround in Klang Valley malls’ rental reversions. Downside risk is further delays in SWM’s AEI. — CGSCIMB Research, Oct 24

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