CapitaMalls Malaysia Trust -
Share price: MYR1.55
Target price: MYR1.85 (from MYR1.91)
Results In Line; Awaiting New Catalysts
Maintain HOLD. CMMT’s 9M13 core net profit of MYR109.9m (+6.3% YoY) was in line at 77% of our full-year forecast and 73% of consensus. No DPU was declared due to CMMT’s bi-annual distribution policy. Elsewhere, the impact of the potential acquisition of the Tropicana City mall and office tower (TCMO) hinges strongly on the pricing. We maintain our FY13/14/15 earnings forecasts but shave our DCF-based target price to MYR1.85 (-3%) to account for a higher beta of 0.76 (from 0.65) given the more volatile bond market since Jun 2013.
Results tracking expectations. CMMT’s 3Q13 core net profit was MYR37.7m (+9% YoY, +3.6% QoQ), lifting 9M13 earnings to MYR109.9m (+6.3% YoY). The 6.3% YoY growth in 9M earnings was driven by positive rental reversions at its existing assets. Average rental rates rose by 6.5% on renewed leases while the average occupancy rate was stable at 98.8% in 3Q13.
Improvement works and new initiatives. CMMT incurred c.MYR39.4m in capex on its existing assets in 9M13. Refurbishment works at the Sungei Wang Plaza are in progress and are slated to be completed by year end, while The Mines’ storm water rectification works, Gurney Plaza’s fourth-floor reconfiguration works and East Coast Mall’s asset enhancement initiatives (including conversion of some car park bays into retail spaces) are still in progress.
Buying new assets? CMMT received a Letter of Intent (LOI) from Tropicana City S/B at the end of August to explore the potential acquisition of TCMO, a 4-storey shopping mall with car park bays and a 12-storey office tower. Under the terms of the LOI, CMMT has been granted an exclusive period for due diligence. No indicative pricing has been revealed but it could be around MYR500m-600m, we understand.
TCMO – a yield-enhancing acquisition? We are not surprised by the potential asset injection as CMMT has been actively looking for new assets given the limited assets in its sponsor’s portfolio. However, the potential acquisition of the Tropicana office tower would be a shift in strategy to some extent, as CMMT’s focus, track record and expertise have historically all been skewed towards retail properties.
Publish date: 25/10/13