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Analysts cut CMMT FY20-22 earnings forecasts on lower-than-expected 2Q income

TheEdge Wed, Jul 22, 2020 10:41am - 3 months ago


KUALA LUMPUR (July 22): MIDF Research has slashed its earnings forecast for the financial year ending Dec 31, 2020 (FY20) by 21% for CapitaLand Malaysia Mall Trust (CMMT) due to lower-than-expected income for the second quarter (2QFY20).

“CMMT’s 1HFY20 (first-half) core net income of RM19.5 million came in at 25% of our and 24% of consensus full-year estimates.

"The negative deviation can be attributed to steeper-than-expected rental assistance given to tenants during the period. For the quarter, CMMT announced an interim dividend of one sen,” MIDF Research analyst Ng Bei Shan wrote in a note today.

Ng said 2Q core net income (CNI) of CMMT dived 99% year-on-year (y-o-y) to RM200,000, while revenue slid by 41% y-o-y to RM50 million.

“We think that the second quarter might be the worst in view of the reopening of the economy and resumption of consumer activities that include visiting malls. On top of that, we believe that since much of the rental assistance has been deployed, rental income for the coming quarters should also be recovering.

“We maintain our FY21 forecast at RM79 million at this juncture in anticipation of a gradual recovery. We believe that Gurney Plaza and East Coast Mall (ECM) should be holding up well as they are the leading malls in the states they operate in. As for its Klang Valley malls, competition may remain intense due to the number of malls available,” added Ng.

The research house maintained its "neutral" rating for CMMT with a lower target price (TP) of 63 sen, from 69 sen, derived from dividend discount model (DDM) valuation with a required rate of return of 8.1%.

“We maintain our ‘neutral’ call due to its challenging business outlook, but we believe that the unit price should be supported by its NAV (net asset value), which stood at RM1.24 per unit. Its dividend yield expected to be 4.8%,” noted Ng.

Meanwhile, Hong Leong Investment Bank (HLIB) Research also cut CMMT’s earnings forecasts by 35% and 20% for FY21 and FY22 respectively following the weak results.

HLIB Research analyst Nazira Abdullah said she remains cautious about the group’s near-term outlook as Covid-19 and the movement control order (MCO) exert further rental rebate pressure on management, coupled with weak rental reversion which has been in negative territory for quite some time.

“We believe significant negative rental reversion is possible during this crisis in order to retain tenants and occupancy rates, which may place a dent in earnings, hence suggesting a slower recovery in 2HFY20.

“We maintain our ‘sell’ recommendation with a lower TP of 56 sen, from 68 sen, based on an FY21 DPU (distribution per unit) and targeted yield of 6.6%, derived from the two-year historical average yield spread between CMMT and 10-year Malaysian Government Securities (MGS),” she wrote in a note.

At the time of writing today, shares in CMMT was one sen or 1.41% higher at 72 sen, valuing the group at RM1.46 billion. It saw 191,700 units traded.






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