This article first appeared in The Edge Financial Daily on July 29, 2019
CapitaLand Malaysia Mall Trust
(July 26, RM1.06)
Maintain neutral with a lower target price (TP) of RM1.01: CapitaLand Malaysia Mall Trust’s (CMMT) first half of financial year ended June 30, 2019 (1HFY19) core net income (CNI) of RM32.5 million made up 38% of our estimate and 37% of consensus’.
A dividend per unit (DPU) of 1.51 sen was announced, bringing cumulative DPU to 3.2 sen, which also missed our estimates.
1HFY19 CNI fell by 26% year-on-year (y-o-y) to RM52.3 million as revenue declined by 2% y-o-y.
CNI for the period was lower mainly due to maintenance expenses that increased by 10% and utilities expenses that climbed 7% compared to a year ago. Non-property expenses increased marginally by 0.7% y-o-y.
Meanwhile, the lower revenue can be attributed to decline in income from Sungei Wang Plaza (SWP) (-11.9% y-o-y), 3 Damansara (-7.0% y-o-y) and The Mines (-19.1% y-o-y).
Revenue from Gurney Plaza and East Coast Mall (ECM) cushioned the drop as top-line contributions from these two malls were up by 5.7% y-o-y and 2.2% y-o-y respectively.
There are ongoing negotiations to plug in the vacant supermarket space left by Giant at the mall, which was one of the main reasons occupancy rate fell by ~8 percentage point (ppts) to 80%.
A supermarket is also a crowd puller for a neighbourhood mall as management sees young families as its main target audience for the mall. It is also looking to further improve the fashion and food and beverage trade mix at The Mines.
To put into perspective, The Mines was the second biggest revenue contributor to CMMT’s portfolio in the previous corresponding period at 20%. This has fallen to 16.8% while ECM has surpassed it as the second biggest revenue contributor.
As for “Jumpa” at SWP, management guided that prospective tenants have committed to about 60% of net lettable area and hopes to achieve 80% commitment post-opening, expected in the third quarter.
Earnings revised by -19%/-11% for financial year ending Dec 31, 2019 (FY19)/FY20 respectively. As a result, our new earnings estimates are now RM110.5 million/RM128.8 million. This is to factor in higher expenses and lower contribution from The Mines.
We rollover our base year to FY20. Our TP is derived from dividend discount model valuation (required returns of 8.4% and perpetual growth rate of 1.2% are maintained).
We think that most of the asset enhancement initiatives will take some time to translate into positive earnings impact. — MIDF Research, July 26