CMMT to embark on various asset enhancement initiatives

CapitaLand Malaysia Mall Trust (July 20, RM1.56)

Maintain hold call with an unchanged target price (TP) of RM1.72: Excluding the fair value loss on investment properties of RM11.8 million, CapitaLand Malaysia Mall Trust (CMMT) reported first half financial year 2017 (1HFY17) realised net profit of RM80.2 million.

Results came in within expectations, accounting for 49% and 46% of ours and the street full-year estimates respectively. 1HFY17 distribution per unit stood at 4.14 sen (down 1.4% year-on-year [y-o-y]), translating into an annualised dividend yield of 5.3% based on last closing price.

CMMT’s 1HFY17 net property income decreased 0.9% y-o-y to RM119.5 million as revenue dipped 0.8% y-o-y. The weaker performance was largely due to lower contribution from shopping malls in the Klang Valley, namely Sungei Wang Plaza, Tropicana City Mall and The Mines.

CMMT’s 1HFY17 rental reversion improved to -4.5% (versus 1QFY17’s -12.4%). Sungei Wang Plaza continued to register negative rental reversion during the period under review. However, as compared to 1QFY17’s negative rental reversion of -39%, it has narrowed to -34% in 1HFY17.

The Mines and Tropicana City Mall also saw negative rental reversions of -3.1% and -3.6% respectively, largely due to the change in trade mix in an effort to rebalance the malls’ tenant portfolio.

In terms of lease expiry, 35%, 30% and 24% of CMMT’s leases (retail) by gross rental income are due for renewal in 2017, 2018 and 2019 respectively. For 2017, the bulk of the renewal will come from Gurney Plaza, with 8% of the net lettable area representing 12% of gross rental income up for renewal.

According to management, the renewal negotiations are on track. Having said that, management expects the rental reversion of CMMT’s portfolio (excluding Sungai Wang Plaza) to break even by end-2017.

Management foresees the retail industry to remain challenging as the consumers’ appetite for spending remains poor. The impending completion of new shopping malls in 2H17 is also expected to further intensify the competition for retail malls.

To ensure the competitiveness of the malls, CMMT will further embark on various asset enhancement initiatives (AEIs) and actively rebalance the trade mix of its malls. For 2017, the group will spend RM30 million for maintenance capital expenditure and AEIs.

They include the proposed link bridge between Sungei Wang Plaza and the existing pedestrian bridge leading to Berjaya Times Square, costing RM4.25 million (CMMT’s 50% share of contribution).

Targeted for completion by end-2018, we are positive on the proposed link bridge as the seamless connectivity would likely drive an increase in footfall to Sungei Wang Plaza. — TA Securities, July 20

This article first appeared in The Edge Financial Daily, on July 21, 2017.

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