CGS Investment believes Capital Malaysia Trust is set to record improved earnings in FY24F-26F, backed by a set of better operating metrics, particularly from its retail assets in Penang. In 1H24, the rental reversions of CLMT’s retail assets averaged 8.7%. Excluding its Klang Valley malls, its average rental reversion in 1H24 was even higher at 10.2%, anchored by upbeat
performance from Gurney Plaza and Queensbay Mall.
This comes amid the growing vibrance of Penang’s economy, which we believe will record strong economic expansion and sustained inflows of investment over FY24F-26F. The average rental rates for its malls outside of Klang Valley (Gurney Plaza, Queensbay Mall and East Coast Mall) have now marginally surpassed pre-Covid-19 2019 levels. While the average rates of its other malls remain below 2019 levels, its overall retail assets’ average rental rate is now on par with 2019’s. Furthermore, its retail assets’ average occupancy rate rose to 93.1% as at endJun 24 from 88.0% as of end-Jun 23.
Driven by inorganic growth
In addition, the house said it expects the growth in CLMT’s FY24F-26F EPU to be partially driven by incremental earnings from newly acquired assets, including the Glenmarie Distribution Centre (GDC) and the 3 factories in Nusajaya Tech Park (NTP). We estimate both new assets will make maiden earnings contributions from 1QFY25F onwards, with lucrative NPI yields of 5.9-6.7% in FY25F. Despite its 41.9% gearing as at end-Jun 24, CGS said it estimates CLMT can stomach around RM415m in additional borrowings for future acquisitions without exceeding the 50% gearing limit set by SC. Also, given the lack of high-quality malls in Malaysia, we believe the group is likely to acquire new industrial properties.
Upgrade to Add with a higher TP
CGS has lift its FY24F/25F core earnings per unit (EPU) estimates by 27%/30% to factor in higher average rental reversion assumptions and incremental contributions from GDC and the 3 factories. it has also introduces FY26F core EPU of 5.3 sen with implied yoy growth of 4.2%. And upgrades CLMT from Hold to Add with a higher DDM-derived TP of RM0.80 (from RM0.51) post the earnings revision and model update.
CGS said it likes CLMT for its exposure to high-quality malls, such as Gurney Plaza and Queensbay Mall, which we believe are
poised to deliver high rental reversion and resilient occupancy rates amid a better operating environment. Downside risks include 1) non-renewal of existing leases, 2) unexpected increase in interest rates, and 3) higher-than-expected operating expenses
