Review

• Excluding the RM55.1mn fair value gain on investment properties and the RM2.7mn provision for deferred taxation, CapitaLand Malaysia Trust (CLMT) reported a realised net profit of RM111.2mn for FY23, marking a substantial 24% YoY increase. Results came in within expectations, accounting for 101% and 105% of our and consensus’ full-year forecasts, respectively.

• FY23 distribution per unit (DPU) grew 4% YoY to 4.2sen, largely due to a 24% increase in the weighted average number of units in issue after completing a private placement exercise during the period under review. This translates to a dividend yield of 7.3% based on the last closing price.

• FY23 NPI increased by 43% YoY to RM217.4mn, mainly due to contributions from QueensBay Mall (QBM) and Valdor Logistics Hub, where the acquisitions were completed in March 2023 and December 2022, respectively. Furthermore, other malls in CLMT's portfolio reported improved gross revenue thanks to increased occupancy and positive rental revisions.

• Finance costs jumped 82% YoY in FY23, primarily driven by increased borrowings used to partially finance the acquisition of QBM, and higher average cost of debt due to cumulative Overnight Policy Rate (OPR) hikes of 125 basis points since May 2022. The average cost of debt stood at 4.07% in FY23, compared to 3.24% in FY22.

• Compared to 3Q23, realised net profit increased 21% QoQ to RM33.7mn in 4Q23, largely driven by higher revenue and other nonoperating income.

• CLMT's portfolio occupancy improved by 3.0%-pts to 92.6% as of Dec-23, with ex-Klang Valley malls performing strongly above 98% occupancy. The retail rental reversion for CLMT's portfolio in FY23 was +7.5%, showing sustained improvement from 9M23's +6.3% and a significant recovery from the negative rental reversion of -3.0% recorded in FY22.

• In terms of lease expiry, 37%, 31%, and 32% of CLMT’s leases by gross rental income are due for renewal in 2024, 2025 and 2025 & beyond, respectively, as at 31 December 2023.

Impact

• We raise our FY24 and FY25 earnings forecasts marginally by 0.1% and 0.4%, respectively, incorporating the actual FY23 results and undertaking some housekeeping adjustments.

Conference Call Highlights

• According to management, there was a substantial YoY increase of 25.1% in shopper traffic in FY23, driven by engaging activation programs designed to provide unique experiences for visitors to CLMT's malls. Consequently, this strategy also resulted in a notable 7.8% annual growth in tenant sales per square foot. When compared to the same period in 2019, before the onset of the Covid-19 pandemic, FY23 tenant sales per square foot demonstrated a remarkable 20.3% increase.

• CLMT's strategic focus on organic growth entails a proactive approach to asset management. This includes striking a balance between ensuring healthy occupancy rates and enhancing rental incomes. Their approach includes optimising tenant mix and retail space utilisation, as well as executing strategic marketing campaigns and events to increase footfall and enhance rental income. Furthermore, management places significant emphasis on cultivating robust tenant relationships to bolster tenant retention.

• The management actively seeks inorganic investment opportunities, focusing on yield-accretive options, particularly in emerging asset classes such as industrial assets. This strategic approach aims to secure long-term and sustainable growth.

Valuation

• Considering the sustained improvement in operating metrics, we peg CLMT’s valuation at a lower target yield of 7.0% (previously 7.25%) and arrive at a new TP of RM0.68 (previously RM0.63). With a total upside of 19%, we maintain our Buy recommendation on CLMT.

Source: TA Research - 31 Jan 2024