Review

• CapitaLand Malaysia Trust (CLMT) reported a realised net profit of RM33.5mn (+67% YoY, -1% QoQ) in 1Q24. Results came in within expectations, accounting for 26% and 28% of ours and consensus’ full-year forecasts, respectively.

• 1Q24 distribution per unit (DPU) stood at 1.19 sen (+37% YoY).

• 1Q24 net property income (NPI) surged by 63% YoY to RM64.0mn, largely attributed to the full-quarter contribution from QueensBay Mall (QBM) following its acquisition completion towards the end of 1Q23. Additionally, other malls in CLMT's portfolio reported improved gross revenue, driven by higher occupancy rates and positive rental revisions.

• Finance costs jumped 69% YoY in 1Q24, primarily due to increased borrowings utilised to partially finance the QBM acquisition, alongside a higher average cost of debt attributed to cumulative Overnight Policy Rate (OPR) hikes totalling 125 basis points since May 2022. The average cost of debt stood at 4.39% in 1Q24, compared to 3.58% in 1Q23.

• Sequentially, the performance remained stable, with 1Q24 gross revenue and NPI seeing an increase of 3% and 2%, respectively, compared to 4Q23.

• CLMT's portfolio occupancy improved 0.5%-pts to 93.1% as of Mar-24, with ex-Klang Valley malls performing strongly above 99% occupancy. The retail rental reversion for CLMT's portfolio in 1Q24 was +9.1%, showing sustained improvement from FY23's +7.5%.

• In terms of lease expiry, 30%, 32%, and 38% of CLMT’s leases by gross rental income are due for renewal in 2024, 2025 and 2026 & beyond, respectively, as at 31 Mar 2024.

Impact

• We tweak our FY24-26 earnings forecasts upward by 0.4-0.5% following a review and housekeeping of our earnings model.

Conference Call Highlights

• In 1Q24, CLMT achieved a significant YoY increase of 8.6% in shopper traffic on a same-store basis. This growth can be attributed to the implementation of engaging activation programs meticulously crafted to offer visitors unique and immersive experiences across CLMT's malls. As a result of this strategic approach, there was a remarkable 16.0% YoY surge in tenant sales per square foot during the same period.

• In 1Q24, CLMT announced the acquisition of three industrial properties in Johor that are expected to contribute positively to CLMT’s earnings upon completion in 4Q24. The properties are fully occupied, with sixyear lease terms featuring built-in rent escalations ranging between 2% and 6% annually. The acquisition is projected to generate an annual net property income of RM1.7mn, offering a first-year gross yield of approximately 7.3%.

• Additionally, management is actively seeking yield-accretive investment opportunities, particularly in emerging asset classes like industrial and logistic assets, aiming for these to constitute 20% of the total portfolio AUM in the medium term.

Valuation

• Rolling forward our valuation base year to CY25, we arrive at a new TP of RM0.74/unit (previously RM0.68/unit), based on a target yield of 6.75%. Reiterate Buy.

Source: TA Research - 25 Apr 2024