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.

Looking for properties to buy or rent? With >150,000 exclusive listings, including undervalued properties, from vetted Pro Agents, you can now easily find the right property on Malaysia's leading property portal EdgeProp! You can also get free past transacted data and use our proprietary Edge Reference Price tool, to make an informed purchase.