CapitaLand Malaysia Trust (CLMT) is witnessing a rise in its earnings, despite potential challenges in the retail sector, it remains resilient amid economic uncertainties, according to Kenanga Research (Kenanga)
However, in its Results Note today (Oct 26), it attributed the rise to Queensbay Mall (QBM) but cautions against its less prime asset profile.
“We believe the earnings reflected from acquisition of QBM is fairly priced in at current levels. Its less prime asset profile amid the uncertain economic outlook and elevated inflationary environment may put a strain to its retail-centric portfolio going forward,” it said.
Post-results, the research house maintains MARKET PERFORM and TP of RM0.53 on its unchanged assumptions and target yield of 7.5%, no adjustment to our TP based on ESG which is given a 3-star rating.
“Our TP is based on our FY24F gross DPU of 4.0 sen against an unchanged target yield of 7.5% (derived from a 3.5% yield spread above our 10-year MGS assumption of 4.0%.
The research house said for the first nine months of the year (9MFY23), CLMT’s core net profit of RM77.5 million made up of 77% and 73% of our full-year forecast and consensus full-year estimates, respectively.
“The distribution per unit (DPU) of 1.05 sen (YTD: 2.98 sen). Both core net profit and DPU are within expectations,” it said.
“While the group is diversifying into the industrial and logistics sector, it maintains a primary emphasis on retail, which restricts its contributions in this new venture,” it said.
Kenanga said for year-on-year, 9MFY23 gross revenue rose by 39% primarily driven by QBM, as well as Valdor Logistics contributions, although was far notable than the former.
It said that the overall occupancy rate grew to 89.6%, with Gurney Plaza (+8%) and Sungei Wang Plaza (+8%) also contributed to the improved top line, benefiting from a positive rental reversion of 6.3%.
“The improved performance in the retail segment led to an increase of net property margin (56.3%, +2.5ppt) resulting in a 7% growth in pre-tax profit.
“Overall, excluding unrealised fair value losses of RM8.0m, the 9MFY23 core net profit and distributable income experienced substantial increases of 19% and 20%, respectively,” Kenanga added.
As of the outlook, it noted that CLMT’s retail assets remain to demonstrate resilience in its operations, despite the rising business costs and economic challenges.
“Overall CLMT’s malls success is attributed to engaging activation programs, which have led to an impressive 9% year-on-year increase in sales per square foot for tenants, creating experiences that draw in visitors and sustain footfall.
“On another note, the proposed divestment of 3 Damansara Office Tower and the completed acquisition of Glenmarie Distribution Centre are part of the group’s expansion strategy into the flourishing industrial and logistics sector, aimed to strengthen income and portfolio stability.
“That said, limited contributions are expected in the near-term given CLMT’s predominantly retail-driven portfolio (99% of gross revenue,” it said.
Among Kenanga’s risks to call include bond yield contraction or expansion, higher or lower-than-expected rental reversions, and higher or lower than-expected occupancy rates.
