CLMT’s 9M21 profit below expectation

by ANIS HAZIM / pic source: propsocial.my

CAPITALAND Malaysia Trust (CLMT)’s nine-month period ended Sept 30, 2021 (9M21), result was below analyst expectations as its core net profit fell 49% year-on-year (YoY) from weaker-than-expected revenue and a lower net property income (NPI) margin of 32%. 

CGS-CIMB Securities Bhd (CGS-CIMB Research) analyst Sharizan Rosely said the continued rental assistance throughout the various Movement Control Orders resulted in a sequential decline in the group’s revenue since the first quarter of 2021 (1Q21). 

“3Q21’s revenue fell by a steep 31% YoY, (7.7% quarter-on-quarter [QoQ]), while core net profit plunged 79.7% YoY (45% QoQ). 

“Although 4Q21F is set to stage a rebound in retail footfall and tenant sales, thanks to the reopening of economic sectors, we deem 9M21 results as below expectations as we anticipate targeted rental relief to continue in 4Q21F, albeit at a smaller scale,” Sharizan said in a note. 

According to him, CLMT’s tenant retention remains a top priority in 4Q21F amid falling occupancy rates at its Klang Valley malls. 

“All in, 9M21 revenue declined 19% YoY, while core net profit fell 49% YoY, dragged by lower interest income. 9M21 distribution per unit (DPU) of one sen was below 39% of our full-year forecast of 2.6 sen,” he said. 

Nevertheless, CLMT was optimistic with its post-results since the retail sector is heading for a gradual recovery in 4Q21F. 

“For CLMT, its medium-term recovery plans will focus on its underperforming malls with a three-year plan to revive Sungai Wang Plaza, including potential mini anchor tenants, and rejuvenation and tenant reconfiguration of 3 Damansara Mall,” stated Sharizan. 

The analyst noted that the group’s 9M21 rental reversion remained in the negative double-digits (portfolio average: 10.3%, retail malls average: 11.1%), and CLMT expects it to hover around those levels for the financial year of 2021 (FY21F). 

CLMT’s positive indicators since end-September include over 90% of tenants operating, minimal risk of rental relief, and a steady improvement in tenant sales and footfalls. 

“The group noted that its longer-term plans to expand its assets beyond the retail space remain intact (80% retail assets, 20% non-retail assets),” added the analyst. 

CGS-CIMB Research has cut its FY21F earnings per share/DPU by 17.9% on weaker rental income and a slightly lower NPI margin of 48%. 

“We keep our FY22-23F forecasts intact and retain ‘Hold’ rating, supported by the expected retail sector turnaround in 4Q21F. 

“Despite the DPU cut in FY21F, our dividend discount model-based target price is raised slightly to 66 sen on a lower cost of equity of 4.7% due to a lower adjusted beta,” he further said. 

Meanwhile, the upside risks for the group are retail recovery and asset acquisition, while the downside risk is weaker earnings.