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

Stock Name: CMMT
Company Name: CAPITAMALLS MALAYSIA TRUST

Research House: AMMB

Price Call: BUY

Target Price: 1.68

- We re-affirm our BUY rating on CapitaMall Malaysia  Trust (CMMT) and raise our fair value toRM1.68/unit (vs.RM1.15/unit previously), based on a 10% discount to our DCF valueof RM1.86/unit. We have raised our earnings assumption by 5% from FY15F onwardsaccounting for organic growth. Taken together with the DPU estimate of 7.9 senfor FY12F, our fair value implies a total return of 17% over the currentprice. 

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

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

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

- Portfolio occupancy remains strong at nearly 100%. Occupancyat The Mines saw a marginal drop this quarter from 98.8% to 97.3% because ofrenovation works and reshuffling of trade mix. However, management is confidentthat the occupancy rate will revert to nearly 99% as they are in the midst ofclosing 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 planningapproval. 

- Meanwhile, shopper's traffic was rather stable with12.9mil visitors registered during the quarter, accounting  for an increase of 17% YoY. 

- The portfolio also showed a positive rental reversion of5.6%, 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 senexceeds 1QFY11 DPU of 1.90 sen by 10%. 

- At projected dividend yields of 5.6% and 5.9% for FY12Fand FY13F, respectively, valuation is not cheap. Nevertheless, we believe CMMThas a solid strategy to grow DPU. It has consistently outperformed marketexpectations, given its quality retail portfolio, strong parentage and more importantly,ready access to a large pool of established retailers. We believe CMMT offers alow risk exposure to the retail REIT sector. 

Source: AmeSecurities