CLMT is acquiring an industrial property in Elmina Business Park, Sungai Buloh for RM180m. At an initial yield of 6.7%, the acquisition is earnings accretive to CLMT for 10 years. Given completion date targeted in 4QFY25, we maintain our earnings forecasts, TP of RM0.70 but upgrade our call to OUTPERFORM from MARKET PERFORM call with CLMT's dividend yield now leading our sector coverage at 6%-7% (against the average of 5%- 6%) Featuring an automated Industrial warehouse. CLMT is acquiring a single-storey logistic warehouse, with an annexed three-storey office building that are currently being constructed within Elmina Business Park, Sungai Buloh for a cash consideration of RM180m.

6.7% asset yield. The buildings will generate an initial gross yield of 6.7% of the purchase price while the lessee (i.e. Projek Tetap Teguh Sdn. Bhd.) will lease the property for a fixed term of 10 years with an option to renew for another 2 terms of 5 years each. The acquisition is in line with the group's aspired acquisition NPI yield target of 6% and above.

The deal is expected to complete in 4QFY25, of which we estimate CLMT to be able to generate a net increase of RM3.6m PBT annually to its portfolio. This will also raise the group's net gearing from 0.42x to 0.44x, which is still below the 0.5x gearing limit prescribed by the SC for listed REITs.

Given the current trend of yield compression in industrial space, we are positive on the above acquisition which is able to offer 6.7% yield, underpinned by a term of 10 years lease that allows the group to see long-term stable income.

Forecasts. We maintain our forecast as the above acquisition is likely to only materialise in 4QFY25 and see full income incorporation in FY26.

Valuations. Maintained TP of RM0.70 based on a FY25F net distribution of 4.7 sen against a target yield of 6.75% (derived from a 3.0% yield spread above our 10-year MGS assumption of 3.75%).

There is no adjustment to our TP based on ESG given a 3-star rating as appraised by us (see Page 4).

Investment case. CLMT's performance will continue to be underpinned by its retail assets in Penang which is poised to see positive consumer sentiment from robust developments in the industrial space. Upgrade to OUTPERFORM as its dividend yield prospects of 6%-7% stands above its peers (averaging at 5%-6%), and would be a preferred pick for yield seekers.

Risks to our call include: (i) elevated risk-free rate, weighing on REIT valuation, (ii) over-supply of retail malls especially resulting in depressed rentals; and (iii) lower-than-expected occupancy rates.

Source: Kenanga Research - 3 Dec 2024