- CMMT reported a 1HFY12 distribution income of RM74mil,
which is largely in line within our and market expectations - making up 48%-52%
of the respective forecasts. A DPU of
4.2 sen (vs. 3.9 sen in 1HFY11, +7.7% YoY) was declared, representing a 100%
distribution rate – in line with our forecast.
- YoY (+30%) and QoQ
(+25%) topline growth was due to the newly-acquired East Coast Mall and
completion of asset enhancement works at Gurney Plaza, and more importantly,
higher rental reversions (1HFY12: +7.3%) in new and renewed leases. Overall
occupancy remained at nearly 99%, reflecting retailers’ confidence in the attractiveness
of CMMT’s malls.
- During 2QFY12, CMMT had incurred RM8mil capital
expenditure in enhancement initiatives at all its malls. The Mines has started
the short-term water rectification works, while construction of a new power
substation is underway. East Coast Mall has completed the upgrading works on
air-conditioner chillers.
- Separately, CMMT has just received approval from the
Securities Commission to establish a 20-year Medium Term Note Programme of up
to RM3bil for future growth. In light of this, it provides CMMT with another
source of capital with a lower cost of funding. Average cost of debt to-date
stands at 4.74%. Management is constantly on a lookout for potential accretive
acquisitions and is looking at cap rates of at least 7%
- Approval to convert the carpark space (+NLA 23%) in front
of East Coast Mall is still underway. We believe that this positive move would
suggest further yield accretion, as CMMT’s internal ROI threshold is between
8%-10%, which is higher than its distribution yield. We understand from industry
sources that a retail mall freeze is likely to take effect in Penang to curb
excess supply. This, we believe, is good news to CMMT as it would bring great
benefits to Gurney Plaza, given the well-managed mall and increasing demand for
lots.
- The upcoming MRT at Jalan Bukit Bintang will inevitably
bring positive impact to Sungei Wang Plaza, albeit some disruptions in the
short term due to the construction works, whereby the MRT will be connected at
the basement of the mall. MRT commuters are typically the targeted shoppers of
Sungei Wang Plaza. Hence, we are of the view that the number of traffic
shoppers would rise to a higher level upon completion of the rail facility.
- No change to our HOLD rating on CMMT, and likewise our
fair value of RM1.68/unit based on a 10% discount to our DCF value of
RM1.86/unit, given that valuations have expanded and yields compressed. Given
CMMT’s portfolio of retail malls being focused on necessity shopping and backed
by Malaysia’s rising consumer affluence, we believe the medium- to long-term
growth remains intact. We remain positive on CMMT, underpinned by a network of
well-diversified retail malls in Penang, Kuala Lumpur and Kuantan, as well as
the REIT’s strong parentage.
Source: AmeSecurities
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