This article first appeared in The Edge Financial Daily on January 24, 2020

CapitaLand Malaysia Mall Trust
(Jan 23, RM1.02)
Maintain hold with an unchanged target price (TP) of RM1.03: CapitaLand Malaysia Mall Trust’s (CMMT) financial year 2019 (FY19) core net profit was in line at 98% of our full-year forecast but came in 4% above consensus estimates. FY19 revenue slipped 2.2% year-on-year (y-o-y), dragged by weaker rental revenue and low occupancy rates for Tropicana Mall and Sungei Wang Plaza (SWP), partially offset by higher rental income following the completion of the asset enhancement initiatives (AEI) at East Coast Mall (ECM) and SWP. Overall FY19 core net profit (excluding RM31 million fair value loss) fell by 9% y-o-y largely due to a deferred tax liability charge relating to the 10% Real Property Gains Tax and a 39% y-o-y fall in interest income. FY19 distribution per unit of 6.3 sen (down 21% y-o-y) was a slight 2% above our forecast.

CMMT wrapped up FY19 with a -5.7% portfolio rental reversion (FY18: -2.9%), weighed by its retail assets in the Klang Valley: SWP: -12.5% (FY18: -13.3%), The Mines: -17.2% (FY18:-16.9%), 3 Damansara: -4.5% (FY18: -7.5%). Meanwhile, Gurney Plaza recorded a positive rental reversion of 1% (FY18: +4.2%), while ECM booked in a 0.9% rental reversion (FY18: +4.2%). Tropicana City Office Tower, achieved a -2.4% rental reversion in FY19 (FY18: -5.1%).

New rental income from Jumpa’s 112,000 sq ft of net lettable area will contribute to earnings in stages in FY20 forecasts (FY20F), with a targeted about 90% occupancy rate once all new tenants come on stream in the second half of 2020. In terms of timeline, new revenue contribution from food and beverage tenants had begun to flow through for the fourth quarter of FY19 including the inclusion of two mini-anchor tenants in December. In FY20F, rental contribution from the final mini-anchor tenant is expected by mid-2020. On a guided RM4-RM5 per sq ft average rental rate, we estimate that Jumpa will contribute RM5.3 million-RM6.7 million rental revenue per annum and RM3.8 million to 4.8 million net property income (NPI) per annum (80% NPI margin and 90% occupancy rates), or equivalent to 2%-3% of FY20F earnings per share.

We maintain “hold” and our RM1.03 dividend discount model-based TP in view of the sustained negative rental reversion and low occupancy rates for underperforming malls but well supported by FY20-22F dividend yields of 6.6-6.9%. An upside risk to our call is a turnaround in rental reversions. Downside risks are prolonged negative reversions, rental downtime at The Mines and delays in SWP’s turnaround post AEI completion. — CGS-CIMB Research, Jan 23