24 July 2012

Summary of Analyst Report: Capitamalls Malaysia Trust (CMMT) target price RM 1.85, Buy - HwangDBS Vickers Research

Capitamalls Malaysia Trust (CMMT) reported net profit of RM133mil in the second quarter of 2012 (+75% year-on-year, +286% quarter-on-quarter), underpinned by higher revenues and higher revaluation gains (RM98mil). Core net profit was RM34mil resulting in first half 2012 earnings being in line with our (50%) and consensus' expectations. Top line growth of 25% year-on-year was fuelled by full rental recognition from East Coast Mall, rentals from additional net lettable area from Gurney Plaza asset enhancements and organic rental reversions across all properties. First half dividends per unit of 4.2 sen was declared, which represents a 100% payout including non-cash items. Net property income (NPI) margin of 68% was three percentage points lower than second quarter 2011's 71%. This is attributed to higher utilities, marketing and staff expenses primarily from East Coast Mall (accounted for 65% of the increase in property expenses). We believe Gurney Plaza's NPI margin of 69% was also lower than the second quarter 2011's 72% arising from gestational period of its completed asset enhancement initiatives. However, occupancies remained resilient at almost 100%. FY12 will see growth through rental reversions, while revenues from Gurney Plaza's recent asset enhancement initiative will continue to take shape. East Coast Mall remains ripe for asset maximisation, with rentals still below that of Gurney Plaza and Sungei Wang, while NPI margins have high upside potential. In the longer term, CMMT's prospects are bright with a right of first refusal (ROFR) on Queensbay Mall (owned by parent CapitaMalls Asia), which could drive future revenues. The REIT has spare capacity to gear up for such an acquisition, given its 28% gearing ratio. We like CMMT for its strong pedigree in asset management, consistent maximisation of its properties and potential for inorganic growth through acquisitions. The REIT has potential for capital management as its RM3bil medium-term-notes programme could mean lower cost of debt if drawn down to refinance its RM300mil in debt due in 2015. Source: www.thestar.com.my


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