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Analysts cut CapitaLand Malaysia Mall Trust earnings forecasts after it achieved lower-than-expected income

KUALA LUMPUR (April 19): Analysts revised down CapitaLand Malaysia Mall Trust’s earnings after its net income for the first quarted ended March 31, 2021 (1QFY21) came in below expectations.

MIDF Research analyst Jessica Low said in a note today that the real estate investment trust’s (REIT) 1QFY21 core net income of RM7.7 million came in below expectations, making up a mere 10% of her full-year estimate and that of the street’s as well.

“The negative deviation could be attributed to lower-than-expected rental income in 1QFY21 as a result of the imposition of MCO 2.0 (the second movement control order) and steeper-than-expected negative rental reversion,” she said.

Low revised down her earnings forecasts for CapitaLand Malaysia Mall Trust for FY21 by 12.6% and FY22 by 18.8% as she expects earnings of CapitaLand Malaysia Mall Trust to be dragged by negative rental reversion in the near term.

“We expect rental reversion to remain in negative territory due to a challenging retail backdrop,” she said.

Corresponding to the downward revision of her earnings and distribution per unit (DPU) estimates, she revised her target price (TP) for CapitaLand Malaysia Mall Trust to 60 sen from 63 sen.

“We continue to see an unexciting earnings outlook for CapitaLand Malaysia Mall Trust in the near term due to negative rental reversion and a decline in portfolio occupancy rates. Hence, we maintain 'neutral' on CMMT,” she added.

Meanwhile, TA Securities analyst Thiam Chiann Wen also said CapitaLand Malaysia Mall Trust's results came in below expectations, accounting for 9% and 10% of her and the consensus full-year forecasts respectively.

She lowered her earnings forecasts for the REIT for FY21 by 24%, FY22 by 9% and FY23 by 7% after taking into account lower rental reversion and occupancy assumptions.

“Meanwhile, we also factored in higher rental assistances of RM20 million (previously RM10 million), as we expect that the restrictive environment under various MCO phases will likely to last until the end of this year,” she said.

Based on a lower target yield of 5.5% (previously 6.8%), she raised CapitaLand Malaysia Mall Trust's TP to 74 sen from 71 sen previously.

“Nonetheless, we downgrade CapitaLand Malaysia Mall Trust to 'hold' from 'buy' as its share price has outperformed the FBM KLCI and the Bursa Malaysia REIT Index by 12% and 11% year-to-date (YTD) respectively, suggesting that the earnings recovery has been fairly priced in,” she said.

According to CGS-CIMB analyst Sharizan Rosely, CapitaLand Malaysia Mall Trust's 1QFY21 core net profit (excluding impairment in trade receivables) made up 13% to 15% of his and the consensus full-year estimates respectively, and was below expectations.

The key deviation, according to him, was CapitaLand Malaysia Mall Trust's 1QFY21 net property income (NPI) margin of 44% (1QFY20: 53%), which was lower than his full-year forecast of 54%.

“Our forecast for a -11.4% rental reversion in FY21 is unchanged. We reduce our FY21 to FY23 earnings per share (EPS) forecasts on lower NPI margin assumptions, but impute steeper cuts in our DPU estimates as we reflect 1QFY21’s adjustment to distributable profit,” he said.

He maintained his view that CapitaLand Malaysia Mall Trust’s vaccine-driven recovery prospects for FY21 are likely to be weighed down by the underperformance of its Klang Valley malls, while the group’s plans to acquire new assets and diversify away from the retail space may be longer-term positive.

“We reiterate 'hold' but raise our dividend discount model-based TP to 70 sen (from 60 sen) as we update for a lower five-year adjusted beta of 0.5 times (0.75 times previously),” he said.

At 10.12am, CapitaLand Malaysia Mall Trust had slipped 1.5 sen or 2.24% to 65.5 sen, valuing the group at RM1.4 billion.

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