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CapitaMalls Malaysia Trust (AmResearch) buy; fair value RM1.26

Investment Highlights

• We reaffirm our BUY rating on CapitaMalls Malaysia Trust (CMMT) with our fair value raised to RM1.26/unit from RM1.22/unit previously. Our fair value is arrived after tagging a 10% discount to our revised DCF-value of RM1.40/unit – to incorporate Gurney Plaza extension.

• At our fair value, the REIT offers an attractive yield of 6.7% and a 260 basis point-spread over the 10-year Malaysian Government Securities (MGS) yield of 4.1%.

• CMMT’s 1QFY11 net income came in at RM31.4mil, which is largely in line with our and street’s estimates, covering 29% and 22%, respectively. CMMT also declared a dividend of 1.7 sen/share for 1QFY11.

• There is no YoY comparison as CMMT was only listed in June 2010. But on a sequential basis, net income grew by 11% due to lower management costs.

• We have raised our earnings for FY11F-FY12F by 14%-15% to RM123mil and RM131mil, respectively as we incorporate the additional space of about 140,000sf (or +8%) to the portfolio following the recent injection of Gurney Plaza Extension. We are also introducing FY13F earnings at RM138mil, representing a 5% YoY growth.

• Portfolio remains healthy with the malls’ occupancy rate at almost 100%. Meanwhile, we understand shopper traffic remains strong at 11.9mil in 1Q2011 although this was a slight dip compared with 1Q2010’s 12.1mil – possibly due to festive holidays during the period.

• The portfolio also showed a positive rental reversion of 7.6%, mostly contributed by Gurney Plaza with rental reversion of +9.5%. Further to that, risks to DPU are muted as circa 64%-70% of its gross rental income for FY11F-FY13F has already been secured.

• We remain a BUYer of CMMT with our investment thesis centering around: (1) CMMT – a pure shopping mall play - provides the best exposure to Malaysia’s rising consumer affluence in Malaysia via attractive portfolio of retail assets in Klang Valley & Penang. Malaysia’s retail sales is expected to grow 3% to 5% over the next three years, supported by Malaysia’s expected GDP growth of 4.5%-5.5%.

• (2) CMMT is also backed by a reputable sponsor, CapitaMalls Asia (CMA), a specialist in mall REITs with a solid track record. CMA’s extensive network – via managing malls in India, China, Japan & Singapore – provides key knowledge and understanding of tenants’ requirements.


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