CMMT’s 1QFY16 results in line with expectations

CapitaLand Malaysia Mall Trust (April 15, RM1.46)

Maintain hold with a target price of RM1.45: CapitaLand Malaysia Mall Trust’s (CMMT) first quarter ended March 31, 2016 (1QFY16) earnings were within our and consensus’ expectations.

Year-on-year (y-o-y) earnings growth was largely supported by additional contributions from its new assets and improved profits from Gurney Plaza and East Coast Mall. However, we remain cautious about Sungei Wang Plaza (SWP), which could limit near-term earnings.

CMMT’s 1QFY16 net profit was RM41 million (+7.3% y-o-y; +1.2% quarter-on-quarter), accounting for 25%/24% of our/consensus full-year estimates. 1QFY16’s higher y-o-y earnings were mainly lifted by: i) additional contributions from Tropicana City property (TCP; 14% of 1QFY16 revenue); and ii) higher revenue from Gurney Plaza (+7.1% y-o-y) and East Coast Mall (+5.6% y-o-y) due to positive rental reversions (+4.6% and +11.5% respectively) and sustained occupancy rates (98.6% and 99.7% respectively).

Its 1QFY16 net profit, however, was partly offset by: a) higher interest expenses from additional debt to facilitate the acquisition of TCP, b) additional operating expenses from TCP; and c) SWP’s lower revenue (-18.4% y-o-y) due to a negative rental reversion of -36%.

We maintain our FY16 to FY18 net profit forecasts of RM166 million to RM182 million whereby earnings growth is mainly backed by positive rental reversions and stable occupancy rates at Gurney Plaza (36% of 1Q revenue) and East Coast Mall (15% of 1Q revenue).

We remain cautious about SWP, which could entail further earnings risks due to the closure of Bukit Bintang Plaza and the ongoing Mass Rapid Transit construction, which would affect shopper traffic. We also believe that it would be challenging for malls in less prominent locations, such as The Mines and TCP, to sustain their current positive rental reversion rates. — Maybank Investment Bank Research, April 15

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This article first appeared in The Edge Financial Daily, on April 18, 2016. Subscribe to The Edge Financial Daily here.