Review

• CapitaLand Malaysia Trust (CLMT)’s 1H24 realised net profit of RM67.0mn came in within expectations, accounting for 51% and 53% of ours and consensus’ full-year forecasts, respectively.

• CLMT declared a first income distribution of 2.36sen/unit (+22% YoY) for 1H24, which was also in line with our full-year DPU projection of 4.52sen. This translates to an annualised dividend yield of 7.2% based on the last closing price.

• 1H24 net property income (NPI) increased by 35% YoY to RM129.4mn, largely attributed to 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 34% YoY in 1H24, primarily due to increased borrowings utilised to partially finance the QBM and Glenmarie Distribution Centre (GDC) 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 4.5% in 1H24, compared to 3.8% in 1H23.

• Sequentially, the performance remained stable, with both gross revenue and NPI increasing by around 2% in 2Q24 compared to 1Q24.

• As of June 2024, CLMT's portfolio occupancy was 93.1%, with malls outside the Klang Valley performing exceptionally well, achieving over 99% occupancy. The retail rental reversion for CLMT's portfolio in 1H24 was +8.7%, showing sustained improvement from FY23's +7.5%.

• In terms of lease expiry, 21%, 34%, and 45% of CLMT’s leases by gross rental income are due for renewal in 2024, 2025 and 2026 & beyond, respectively, as of 30 June 2024.

Impact

• No change to our FY24-FY26 earnings forecasts. Conference Call Highlights

• The introduction of new retail concepts, tenant offerings and targeted shopper activation programmes across CLMT's malls has led to a 6.5% YoY increase in shopper traffic and a 6.6% rise in tenant sales per square foot in 1H24.

• CLMT will begin the next phase of asset enhancement initiatives (AEI) at Gurney Plaza, revitalising the tenancy mix after refurbishing the entrance driveway and reconfiguring the Sports Direct & USC unit in September 2023. Shoppers can anticipate new-to-market offerings and exciting retail concepts once the AEI is completed in the second half of 2024.

• The construction work at GDC is on track to be completed in 4Q24. To recap, CLMT has signed a letter of offer with a reputable international luxury fashion retailer to lease GDC for ten years. In accordance with the terms of this agreement, CLMT will undertake a convert-to-suit project, converting the building into a temperature-controlled distribution centre at an estimated cost of RM14.6mn. With a gross annual rental revenue of approximately RM3.5mn, the investment yield is projected to be around 6.5%, based on the total investment outlay of RM54.3mn.

• 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 in the medium term.

Valuation

• Incorporating a 3% ESG premium, we adjust our TP to RM0.76/unit from RM0.74/unit previously. Our TP is based on an unchanged target yield of 6.75%. Reiterate Buy.

Source: TA Research - 25 Jul 2024