23 April 2012

CapitaMalls- Potential more than 23% increase in net lettable area for East Coast Mall, target price RM 1.65 - CIMB Research

(CMMT opening stock price today (23.4.2012) was RM 1.39)

AT 25% of our full-year estimate, CapitaMalls Malaysia Trust’s (CMMT) first quarter ending March 31, 2012 results were within expectations, helped by the first full quarter of contribution from East Coast Mall, asset enhancement initiatives for Gurney Plaza and higher rental rates for renewed leases.

The stock remains an “outperform” as it is well-supported by attractive yields of more than 6%. CMMT is our top pick among the real estate investment trusts (REITs). The re-rating catalysts are a potential more than 23% increase in net lettable area for East Coast Mall, and asset enhancement initiatives.

The first-quarter core net profit increased 33.6% year-on-year, driven mainly by the first full quarter of contribution from East Coast Mall, which was acquired on Nov 14, 2011. CMMT also benefited from higher rentals following the completion of asset enhancement works for Gurney Plaza last year.

The REIT declared its first interim distribution per unit (DPU) of 2.09 sen, which translates into a 100% payout. This is in line with our financial year ending Dec 31, 2012 (FY12) forecast for DPU of 8.3 sen.

CMMT achieved a positive rental reversion of 5.6% in the first quarter, which was above its expectations of between 4% and 5%. Various asset enhancement initiatives completed last year helped Gurney Plaza to achieve 10.4% rental reversion. But rental reversion was only 0.6% for Sungei Wang Plaza due to a repositioning of tenant mix.

Capital expenditure (capex) was minimal at RM800,000 in the first quarter. Construction of a new electrical substation has started at the Mines, and East Coast Mall is still upgrading its air-conditioner chillers. We believe that capex is backloaded given that management is guiding for RM50mil capex for FY12.

The Mines shopping mall saw a slight drop in occupancy rate from 98.8% in the fourth quarter last year to 97.3% in the first quarter this year. This was due to the termination of a mini-anchor tenant. Management is not worried, as its rental rate was low. We believe this gives CMMT the opportunity to change the tenant mix and possibly raise rental rates for the vacant space.

Plans for asset-enhancement initiatives at East Coast Mall are unclear as CMMT is still waiting for planning approval from the authorities. No details can be revealed before approval is obtained. Management believes that there is demand for more space and there is potential to improve the trade mix of the mall as half of the mall is occupied by anchor tenants, Parksons and Carrefour, and there are not enough food and beverage and pharmacy outlets.

Gurney Plaza became the first shopping mall in Malaysia to receive the Green Mark’s Gold certification from Singapore’s Building and Construction Authority (BCA) on Dec 23, 2011. The BCA Green Mark is a green building rating system that evaluates buildings’ environmental design and performance.

CMMT had a low asset leverage of only 28.8% as at March 2012. We estimate that it has RM1.2bil debt headroom before it hits the statutory limit of 50%. Its strong balance sheet is supportive of future asset acquisitions.

Source: www.thestar.com.my


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