Maybank highlights some key notes from its meeting with Capitaland Malaysia management and noted that rental reversions remained positive in FY23, acquisition focus is shifting towards industrial/logistics, aims to grow DPU through organic growth and acquisitions, looking to divest smaller struggling malls, and targets to improve sustainability with green building certifications.
The house said it will maintain the earnings forecasts but raised its DDM-TP by +5sen to MYR0.64 as it assumes lower beta to 0.7 (from 0.8) due to improved operating environment, leading to a revised Ke of 8.6% (vs. 9.2%).
Positive rental reversion in FY23
In FY23, CLMT recorded positive rental reversion of 7% for its retail assets, of which its ex-Klang Valley malls (i.e. Gurney Plaza, Queensbay Mall and East Coast Mall) recorded +9.9% growth, driven by refreshed tenant mix, while its Klang Valley malls recorded -3.9% growth. The operating metricsfor its retail performance also improved as same-store shopper traffic and tenant sales per sq. ft. grew +25% and +8% YoY respectively. The strong shopper traffic and tenant sales was partly due to contribution from Queensbay Mall (QBM) from 21 Mar 2023.
Looking to divest struggling malls
CLMT’s Klang Valley malls faced some challenges in FY23. Sungei Wang Plaza and and 3 Damansara were still in red in FY23, with negative NPI of (MYR4m) and (MYR1m) respectively, despite high occupancy of 87% and 79% respectively. The Mines however reported a positive NPI of MYR11.5m.
Maybank IB said it understands that management is looking to divest the struggling malls, but believes that it may be difficult to find buyers in the near term.
Expect earnings growth to resume in FY24E
The house expects +10.8% EPU growth in FY24E, mainly from full year contribution of QBM. This assumes (1) positive rental reversions of 3%, and (2) stable occupancy rates at Gurney Plaza, QBM and East Coast Mall (at 99%). Management’s portfolio strategy is to explore yield accretive industrial/ logistics assets and look to divest its low-yielding assets as part of its capital recycling effort.
