CLMT’s FY23 core net profit and distribution per unit (DPU) beat our expectations on better-than-expected occupancy and rental revenue. The group's earnings remain resilient amid incoming supply of malls in Klang Valley, focusing in other major cities while concurrently diversifying into the industrial and logistics sector. Maintain MARKET PERFORM with a higher TP of RM0.58 (from RM0.53) as we roll over our valuation base to FY25F.

Within expectations. CLMT’s FY23 core net profit of RM111.2m beat our full-year forecast by 11% as we had underestimated the group’s retail-driven revenues, which was supported by higher occupancy and positive rental reversion. Meanwhile, this met consensus full-year estimates at 105%. A final DPU of 1.09 sen (full-year FY23: 4.17 sen) also beat our expectation of 3.9 sen for FY23.

YoY, FY23 gross revenue and net property income rose by 43% mainly driven by additional contributions from Queensbay Mall following its acquisition in March 2023. Overall occupancy rate for the group grew to 92.6% (+6.7ppt) while also benefiting from a positive rental reversion of 7.5%. Fair value adjustment contributed to a 119% increase of net investment income, resulting in a 249% growth in pre-tax profit. Adjusting for these gains, CLMT’s FY23 core net profit and distributional income would report at RM111.2m (+24%) and RM109.8m (+26%), respectively.

QoQ, revenue grew by 5%, mainly contributed from higher year-end occupancy rates. Interest and investment income rose significantly due to fair value gains which led to net profit that rose by 249%. Removing this, core net profit would increase by 21%.

Outlook. The resilience of the group's retail assets is evident in their ongoing operations, despite the incoming supply of malls in Klang Valley which intensifies competition amongst malls. YoY, there was a notable increase in tenant sales (+8%) and shopper traffic (+25%), showcasing the group's adaptability to changing consumer trends through robust retail activities.

On another front, the divestment of 3 Damansara Office Tower was finalized in December 2023, consistent with their ongoing portfolio reconstitution strategy aimed at reallocating capital into more lucrative opportunities within the industrial sector. The group expresses optimism in its logistics sector, with third-party logistics and e-commerce playing pivotal roles in expanding their operations via the Glenmarie Distribution Centre, likely to be tenanted by 2HFY24.

Forecasts. Post results, we raise our FY24F earnings by 14% as we incorporate stronger revenues to reflect ongoing tenancy ratios. Meanwhile, we also introduce our FY25F numbers.

Maintain MARKET PERFORM with a higher TP of RM0.58 (from RM0.53). Against an unchanged target yield of 7.5% (derived from a 3.5% yield spread above our 10-year MGS assumption of 4.0%), we roll over our valuation base year to FY25F with distribution per unit of 4.4 sen. We believe the earnings reflected from QBM’s acquisition 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. There is no adjustment to our TP based on ESG which is given a 3-star rating as appraised by us.

Source: Kenanga Research - 31 Jan 2024