• Still NEUTRAL, lower MYR0.57 TP from MYR0.61, 9% upside and c.7% yield. 9M22 results beat expectations, with CLMT reporting a better-than- expected recovery from improving occupancy rates and rental reversion. With a new supermarket secured at 3 Damansara Mall, management hopes to ramp up leasing efforts for a turnaround of the mall. While encouraged by the strong results, we remain cognisant of the macroeconomic headwinds which may dampen the pace of recovery moving forward.

• Results review. 9M22 core profit of MYR64.3m (>200% YoY) exceeded expectations at 81% and 79% of our and consensus’ full-year estimates. YTD revenue increased 30.9% YoY, attributed to the absence of rental relief and an improved business environment. Tenant sales for the quarter remained elevated at 105% of the pre-pandemic average – we think this will normalise moving forward, amid the inflationary environment, especially as foot traffic remained below that level (81%). A DPU of 1.01 sen was declared for the quarter, bringing the YTD total to 2.96 sen.

• Narrowing negative rental reversion. From January-March (-7.3%) and January-June (-4.2%), the negative blended rental reversion continued to narrow to -3.6% YTD, driven by East Coast Mall’s rental reversion (+3%). Despite the improvement, we think rental reversion will remain in negative territory in the medium term, as the Klang Valley malls will take longer to turn positive. During the quarter, Sungei Wang remained loss-making (- MYR1m), while 3 Damansara returned to the black (MYR0.03m) for the first time since 2Q21. CLMT secured NSK Grocer as 3 Damansara’s new anchor supermarket tenant (100sq ft NLA), with the focus now being on leasing new F&B, beauty & wellness, daily essentials, and urban leisure tenants. With the signing of the new tenant, CLMT’s occupancy rate increased to 84.9% (2Q22: 82.5%). For FY22F, only 13.4% of gross rental income are up for expiry, and 37% in FY23F.

• Fully green-rated portfolio by 2026. As part of its ESG efforts, CLMT is targeting a 100% green-rated portfolio by 2026, except for Sungei Wang Plaza, which is not 100%-owned. The main efforts will be on upgrading the cooling towers for the malls to be more energy efficient – this will be done for one mall each year to manage capex.

• Maintain NEUTRAL. We raise our FY22-24F earnings by 2-6%, but lower our DDM-derived TP after adjusting our cost of equity assumption in expectation of higher interest rates ahead. Our TP includes a 0% ESG premium/discount based on our in-house proprietary methodology.

Source: RHB Research - 27 Oct 2022