CAPITALAND MALAYSIA MALL TRUST

By MIDF Research Maintain Neutral Adjusted target price: RM1.02

CAPITALAND Malaysia Mall Trust’s (CMMT) nine month financial year 2018 (9MFY18) core net income (CNI) of RM102.2 mil fell short of MIDF’s full year expectation, making up 64.1% of their full year forecast and 66.2% of consensus.

According to the research house, the negative deviation is due to weaker than expected recovery in occupancy rate and rental reversion.

Portfolio rental reversion was under pressure as for 9MFY18, as rental reversion was positive for Gurney Plaza (4.3%) and East Coast Mall (1.4%) but were offset by its Klang Valley assets.

Lower gross revenue was registered for the 3 Damansara property (previously Tropicana City) which declined by 9.5%, Sungei Wang Plaza (SWP) (-30.3%) and The Mines (-13.8%) compared with the previous corresponding year. The lower revenue for the quarter is largely attributed to the negative rental reversion of 1.3% versus 0.3% in the second quarter of financial year 2017 (2QFY17).

Its portfolio occupancy rate for the quarter stood at 91.9% compared to 91.7% in 2QFY18. Quarter-on-quarter (q-o-q), CNI dipped by 6% while revenue decreased marginally by 1%.

The third quarter of the financial year 2018 (3QFY18) CNI dropped 21% year-on-year (y-oy), sliding to RM31.6 mil from a year ago due to higher operating expenses (5.6% y-o-y) while revenue declined to RM86.2 mil mainly due to lower rental income.

“That said, occupancy rates for The Mines and Tropicana office tower are expected to improve by the next quarter,” analysts said.

The research house called the quarter results “underwhelming” as they had previously anticipated for a better second half as some the CMMT’s asset enhancement initiatives come to a tail end.

Recovery in occupancy rates and rental reversions are also yet to be seen.

Analysts are taking a conservative approach and reducing their rental reversion and occupancy rate while increasing their expenses assumption.

They trimmed the forecast for full year forecast for 2018 and 2019 (FY18F/FY19F) by 13.2%/7.6% to RM137.9 mil / RM149. 5mil following the reduction of revenue forecast by -4.5% and -2.2% respectively.