Friday, 8 March 2013

CapitaMalls Malaysia Trust - Continuing AEI to enhance rentals HOLD

- We re-affirm our HOLD recommendation on CapitalMalls Malaysia Trust (CMMT), with an unchanged fair value of RM2.00/unit, based on our DCF valuation.

- It was announced on Bursa Malaysia yesterday that CMMT has awarded a contract via a project management agreement to CapitaLand Retail Malaysia Sdn Bhd as the manager for the asset enhancement initiative (AEI) works at the East Coast Mall (ECM) in Kuantan.

- This is for a fee of 3% of the final contract sum for the AEI works. The estimated cost of the AEI works is RM43.3mil.

- To recap, the AEI is to create additional retail space for ECM via the conversion of car park bays at Level 3. In addition, the AEI works will include reconfiguration of space to improve the trade mix and extension of the alfresco area on the Ground Floor.

- Therefore, an additional NLA of c.23% will be added to the mall. The AEI is envisaged to commence in mid-March FY13 and to be completed by the fourth quarter of 2014.

- Given the untapped potential of ECM and high demand for floor space, we believe there is potential rental upside. This is further underpinned by the low average rental of c.RM6psf, compared to other CMMT’s portfolio.

- Further to that, the bulk (32% of NLA) of ECM’s leases is up for renewals this year. As such, we are expecting a potential rental upside to kick-in.

- All in, we are keeping our estimates at this juncture, without the inclusion of the potential rental upside from the additional NLA at ECM.

- We continue to remain positive on CMMT’s for its well-diversified retail malls in Penang, Kuala Lumpur and Kuantan, which focuses on necessity shopping.

- This is further backed by Malaysia’s rising consumer affluence. Notably, it also has the strongest sponsor, CapitaMalls Asia.

Source: AmeSecurities

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