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This article first appeared in The Edge Financial Daily on April 25, 2019 - May 1, 2019

CapitaLand Malaysia Mall Trust
(April 24, RM1.11)
Maintain hold with an unchanged target price (TP) of RM1.15:
CapitaLand Malaysia Mall Trust’s (CMMT) core net profit (CNP) for the first financial quarter of 2019 (1QFY19) of RM32.5 million (-12.8% year-on-year [y-o-y]) was slightly below our and consensus’ expectations. Overall decrease in 1QFY19 was mainly due to lower contributions from its Klang Valley malls, but partially mitigated by higher rental rates achieved from Gurney Plaza (GP) and East Coast Mall (ECM).

 

We cut our forecasts slightly and is reflected in annual report figures which show a revised earnings per share (EPS) for 2019 and 2020 to -3.5% and -7.5% respectively. Following the dovish tone by major central banks and Bank Negara Malaysia (BNM), we revise our 10-year Malaysian Government Securities yield assumption to 3.9% (from 4.1%) and roll forward valuation to mid financial year 2020 (FY20).

We maintain a “hold” call with an unchanged TP of RM1.15 based on the targeted yield of 6% (from 6.2%).

CMMT’s 1QFY19 revenue of RM87.9 million (+1.1% quarter-on-quarter [q-o-q], -2% y-o-y) translated into a CNP of RM32.5 million (+0.6% q-o-q, -12.8% y-o-y). The results were slightly below our and consensus’ expectations with 23.4% and 22% respectively. The deviation was due to lower-than-expected revenue contribution.

Q-o-q, total revenue for 1QFY19 of RM87.9 million increased by 1.1% compared with RM86.9 million in the previous quarter.

CNP also increased by 0.6% to RM32.5 million from RM32.3 million in 4QFY18. The increase was thanks to improved performance from GP and ECM. CMMT incurred RM14.4 million capital expenditure during the quarter, mainly attributed to the Jumpa (the annex building of Sungei Wang (SW) with 170,000 sq ft of net lettable area) retail layout design and reconfiguration works at SW, enhancement works on the F&B area at The Mines (TM) and tenancy works at ECM.

Y-o-y, RM87.9 million revenue decreased (-2%), followed by a decrease of CNP to RM32.5 million (-12.8%). The decline was mainly due to lower revenue caused by (i) lower occupancy rate at SW, TM and 3 Damansara, (ii) lower rental rates and downtime from asset enhancement initiative (AEI) works at SW and TM, and (iii) absence of a one-off forfeiture of deposit and compensation of premature termination of a mini anchor tenant at SW in 1QFY18.

Nevertheless, the decrease was slightly mitigated by the improved performance from GP and ECM upon completion of its AEI works, and full occupancy attained at Tropicana City Office Tower.

Finance costs were higher by 1.5%, given the increased average cost of debt post overnight policy rate hike as well as higher interest expenses from additional debt drawn down for capital expenditure works. Average cost of debt for 1QFY19 stood at 4.47% (1QFY18: 4.44%).

Occupancy rate dropped slightly to 92.5% (FY18: 93.2%), while gearing increased slightly to 33.8% (FY18:32.5%).

Jumpa began its AEI works since 2Q18 and it is expected to be completed by end of the first half of 2019. It is scheduled for a soft opening in 3Q19. To date, Jumpa has advanced leasing negotiations that exceeds 50%.

We cut our earnings forecasts slightly as well as updated our projection based on FY18 audited account. As a result, FY19-FY20 EPS were revised by -3.5% and -7.5% respectively. — Hong Leong Investment Bank Research, April 24

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