Capitamall M’sia Trust - Results largely in-line with positive rental reversion on newly acquired malls BUY

- We re-affirm our BUY rating on CapitaMall Malaysia  Trust (CMMT) and raise our fair value to RM1.68/unit (vs.RM1.15/unit previously), based on a 10% discount to our DCF value of RM1.86/unit. We have raised our earnings assumption by 5% from FY15F onwards accounting for organic growth. Taken together with the DPU estimate of 7.9 sen for FY12F, our fair value implies a total return of 17% over the current price. 

- CMMT’s 1QFY12 net income came in at RM35mil, which is largely in line with our and street’s estimates, making up 22% and 24%, respectively.

- CMMT recorded an increase of RM19mil (+35.3%) of gross rental income over 1QFY11, which was mainly contributed by its recent acquisition of the East Coast Mall and Gurney Plaza Extension as well as the completion of the asset enhancement works at Gurney Plaza last year. Additionally, higher rental rates were achieved from new and renewed leases.

- During 1QFY12, the portfolio incurred higher property expenses attributed to higher utility and marketing expenses, and reimbursable staff cost. Hence, net property income grew by 11.4% QoQ and 32.4% YoY.

- Portfolio occupancy remains strong at nearly 100%. Occupancy at The Mines saw a marginal drop this quarter from 98.8% to 97.3% because of renovation works and reshuffling of trade mix. However, management is confident that the occupancy rate will revert to nearly 99% as they are in the midst of closing a deal.

- The proposed plan to convert the huge car park space (NLA: 100,000sf or +23%) into retail space at East Coast  Mall is currently pending planning approval. 

- Meanwhile, shopper’s traffic was rather stable with 12.9mil visitors registered during the quarter, accounting  for an increase of 17% YoY. 

- The portfolio also showed a positive rental reversion of 5.6%, mostly contributed by East Coast Mall with a rental reversion of +12.1%, followed by Gurney Plaza at +10.4%. Further to that, 1QFY12 DPU of 2.1 sen exceeds 1QFY11 DPU of 1.90 sen by 10%. 

- At projected dividend yields of 5.6% and 5.9% for FY12F and FY13F, respectively, valuation is not cheap. Nevertheless, we believe CMMT has a solid strategy to grow DPU. It has consistently outperformed market expectations, given its quality retail portfolio, strong parentage and more importantly, ready access to a large pool of established retailers. We believe CMMT offers a low risk exposure to the retail REIT sector. 

Source: AmeSecurities