• U/G to NEUTRAL from Sell, new MYR0.58 TP from MYR0.50, with 0% upside and c.5% yield. 1Q22 results exceeded our and consensus’ expectations on the back of the gradual economic recovery and cessation of rental assistance. Rental reversion improved to -7% from -12.7% in FY21, although blended occupancy fell slightly due to the exit of an anchor tenant in 3 Damansara. We remain cautious on the REIT’s prospects, as pressure on rental reversion and occupancy rates are expected to remain.

• Earnings beat. Core profit of MYR20.4m (169% YoY) far exceeded our expectations at 46.6% of our full-year estimates, and 30% of consensus’. 1Q22 revenue was higher by 19.3% YoY due to the reopening of the economy, with management guiding that they do not expect to give out rental rebates this year, thanks to the improved retail outlook. Compared to pre-pandemic numbers, revenue and net profit for the quarter were at 76% and 63% of 1Q19 numbers. CLMT declared a DPU of 0.95 sen for 1Q22 (1Q21: 0.36).

• Rental reversion and occupancy still a concern. Blended occupancy rate declined marginally to 79.5% in 1Q22 (4Q21: 82.5%) after the exit of an anchor tenant at 3 Damansara. East Coast Mall’s rental reversion was a bright spot at 17%, raising the blended reversion from -12.7% in FY21 to - 7.3% as of Mar 2022. 3 Damansara continues to struggle with its reversion rate at -38.6% (from -45.7% for FY21). Sungei Wang and 3 Damansara continue to be loss-making, with net property loss or NPL of MYR1.02m and MYR1.06m, albeit narrowing from MYR1.76m and MYR1.40m respectively in 4Q21.

• Still a long way to go. Tenant sales in the previous two quarters were above pre-pandemic levels, although footfalls remained around 66% following the surge in Omicron cases in February. While we are encouraged by the strong performance during the past two quarters, we remain cautious on the long-term outlook for the REIT. With the exception of Gurney Plaza and East Coast Mall, the REIT’s other assets will likely continue to struggle amidst the retail supply glut in the Klang Valley area. We do not foresee rental reversions to turn positive on a blended basis anytime soon.

• Upgrade to NEUTRAL. We raise our FY22-24 earnings by 38-18% to account for the strong performance in 1Q22, with the REIT recovering better than expected. Our DDM-derived TP is raised to MYR0.58, and includes a 0% ESG premium/discount, based on our in-house proprietary methodology.

Source: RHB Research - 28 Apr 2022