- We re-affirm our HOLD call on CapitaMalls Malaysia Trust
(CMMT) with an unchanged fair value of RM1.68/unit – based on a 10% discount to
our DCF value, given the limited upside due to its rich valuation.
- CMMT reported a net profit of RM38mil for 3QFY12. This
brought 9MFY12 earnings to RM112mil, which is within expectations – accounting
for 73% of our FY12F earnings and 80% of consensus. Further to that, 9MFY12 DPU
of 6.3sen exceeds 9MFY11 of 5.88sen by 7.7%. No distribution was declared for
the quarter.
- Earnings strength (YoY: +31%, QoQ: +1%) was contributed by:- (1) Fullquarter
contribution from East Coast Mall; (2) Completion of asset enhancement
initiatives (AEI) at Gurney Plaza; and (3) Higher rentals from the new and
renewed leases.
- CMMT’s portfolio occupancy rate remained healthy at 98.5%.
Rental reversion remains strong at +6.7% and should remain positive – East Coast
Mall at +12.9%, followed by Gurney Plaza’s +12.8%, The Mines +6.4% and for
Sungei Wang Plaza at 0.1%. Meanwhile, earnings risks are well managed as the
portion of lease expiry is well spread out at 1.8% (by gross rental income),
29.5% and 40.4% for the remainder of FY12F, FY13F and FY14F, respectively.
- The proposed refurbishment of Sungei Wang Plaza is scheduled to begin in December for over a
one-year period with capex of RM17mil. Meanwhile, Mines’ installed LED TV and
energy-saving lights at the Level 1 and 2A car parks. As for Gurney Plaza, new
carpark system was completed last quarter and AEI is still ongoing. We understand
additional NLA (details not disclosed) will be created at the ground floor to
house a food kiosk and sit-down cafes.
- We see potential growth in East Coast Mall given its
untapped potential. No major AEI has been done since acquisition. More importantly,
the bulk of leases are due for renewals next year. As such, we expect potential
rental upside underpinned by a low average rental at only RM6+psf, compared to
other CMMT’s portfolio and re-mix of tenants upon expiry of leases. In
addition, pending approvals from the relevant authorities, the potential
conversion of carpark space, situated opposite the mall, is expected to
increase NLA by 23%. This conversion and any AEI are targeted to be completed
within two years, while business will operate as usual.
- Given the current elevated valuation for CMMT and search
for yields, distribution yields have compressed to 4.3% and 4.5%, for FY12F and
FY13F, respectively, based on a 90% payout ratio. Gearing is healthy at 28% and
management intends to maintain gearing below 40%, preferably at +/-30%. Any
future acquisition is likely to be funded by a combination of debt and equity,
in our view. Interest cost has been reduced to 4.65% as RM300m term loans have
turn float.
- Nevertheless, we are positive and continue to like CMMT
for its well- diversified portfolio mix as well as strategic locations.
Notably, it has the strongest sponsor, CapitaMalls Asia (CMA). CMA owns
Queensbay Mall in Penang and is developing a retail mall in Taman Melawati with
Sime Darby, which is expected to be completed in FY16. We will not be surprised
if these assets are injected into CMMT in due course.
Source: AmeSecurities
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