• Maintain NEUTRAL, MYR0.61 TP from MYR0.58, 7% upside and c.6% yield. 2H22 results beat our expectations with CLMT showing a continued strong recovery amid the economic reopening, buoyed by the festive celebrations. We remain cautious of the negative rental reversions as retaining tenants remains a priority, especially for CLMT’s underperforming assets. Separately, the group will also continue to pursue inorganic growth opportunities, following its proposed acquisition of a logistics facility last month, its first in the industrial segment.

• Earnings beat. Core profit of MYR42m for 1H22 (>100% YoY) exceeded our expectations at 62% of our full-year estimates, but in line with consensus’ at 53%. 1H22 revenue improved by 24% YoY, which is attributed to the broader economic recovery, pent-up demand, festive season, as well as the EPF savings withdrawal. This resulted in tenant sales that were higher than the pre-pandemic average, a figure that should normalise amid the inflationary environment. Compared to pre-pandemic numbers, revenue and core profit for 1H22 were at 78% and 63% of 1H19 respectively. CLMT declared a DPU of one sen in the quarter (vs 0.95 sen in 1Q21).

• Persistent pressure on rental reversion and occupancy. Blended occupancy rate improved marginally to 80.8% in 2Q22 (79.5% in 1Q22), but rental reversion continues to be negative at -4.2%, with only East Coast Mall seeing positive rental reversion at 8%. Sungei Wang and 3 Damansara continue to be loss making, with net property loss of MYR1.2m and MYR0.5m respectively. While 3 Damansara saw a -33% reversion, management guided it is hoping to lease a new hypermarket soon, a key first step in revamping the neighbourhood mall. A hypermarket would also contribute greatly to the occupancy rate, taking up c.100,000 sqft of the c.470,000 sqft mall (current occupancy rate at 51%), but we expect rental psf to be relatively low as it will be an anchor tenant.

• Limited guidance on acquisition plans. Last month, CLMT acquired its first industrial asset, a logistics warehouse property in Sungai Jawi, Penang. This is part of CLMT’s roadmap to achieve 20% AUM of non-retail assets by 2025, however there is no indicative acquisition target value provided by management at this juncture.

• Maintain NEUTRAL. We raise our FY22-24F earnings by 24-27% as we were previously too cautious on the earnings recovery. We also make adjustments to our cost of equity assumption to incorporate the higher interest rate expectation. Our TP includes a 0% ESG premium/discount based on our in-house proprietary methodology.

Source: RHB Research - 25 Jul 2022