CapitaLand Malaysia Trust (CLMT) – 3QFY24 Report Summary
CapitaLand Malaysia Trust (CLMT) is positioned for steady growth, leveraging the strong performance of its key retail and industrial assets. Below is a detailed overview based on the report.
Overview:
- Recommendation: CLMT has been upgraded to “Add” with a higher target price of RM0.80, up from RM0.51.
- Investment Thesis: CLMT benefits from high-quality retail assets, particularly in Penang, with Gurney Plaza and Queensbay Mall leading growth in rental reversions. The Trust’s future earnings are also expected to receive a boost from the acquisition of new assets like the Glenmarie Distribution Centre (GDC) and factories in Nusajaya Tech Park.
Key Metrics:
- Current Price: RM0.685
- Market Cap: RM1.941 billion (USD 457.5 million)
- Dividend Yield: 6.9% forecasted for FY25, with a potential upside of 16.2%.
Financial Performance:
- Gross Property Revenue (2024F): RM423.9 million, up from RM395.4 million in 2023.
- Net Property Income (2024F): RM240.1 million, projected to grow to RM264.2 million by FY26.
- Net Profit (2024F): RM129.9 million, with a consistent growth trajectory to RM152.0 million in FY26.
Core Earnings Growth:
CLMT is projected to achieve a 3-year earnings per unit (EPU) CAGR of 8.2% over FY23-26, driven by:
- Higher rental reversions: Penang’s retail assets are expected to post above-average rental growth, supported by Penang’s robust economic vibrancy.
- New acquisitions: Incremental earnings from newly acquired assets like GDC and the Nusajaya factories are expected to contribute RM4.2 million in incremental net property income (NPI) from FY25 onwards.
Retail Asset Performance:
- Occupancy: The average occupancy rate across CLMT’s retail portfolio improved to 93.1% as of June 2024, compared to 88.0% in June 2023.
- Rental Reversions: Retail assets, excluding Klang Valley, achieved rental reversions averaging 10.2% in 1H24. Notably, Gurney Plaza and Queensbay Mall in Penang outperformed with higher-than-average rental growth, with rental rates surpassing pre-pandemic levels.
Industrial Segment:
The report highlights CLMT’s expansion into industrial assets, with significant contributions expected from:
- Glenmarie Distribution Centre (GDC): Acquired in August 2023 and expected to contribute from 1QFY25 after retrofitting for temperature control.
- Nusajaya Tech Park: Three factories in this prime industrial area are slated to start contributing earnings from FY25, with expected NPI yields of 5.9-6.7%.
Capital Structure & Expansion:
- Gearing: As of June 2024, CLMT’s gearing ratio stood at 41.9%, leaving room for an additional RM415 million in borrowings for future acquisitions without exceeding the 50% limit.
- Potential Acquisitions: Given limited high-quality malls available for acquisition, CLMT may focus on industrial properties, continuing its recent strategy of adding yield-accretive assets like logistics hubs and factories.
Outlook and Strategy:
- Strong Growth in Penang: CLMT’s success in Penang is fueled by the region’s economic growth, tourism recovery, and sustained investment inflows. Gurney Plaza and Queensbay Mall are expected to continue delivering high rental reversions and steady footfall growth.
- Focus on Acquisitions: Beyond Penang, CLMT’s future growth is likely to be driven by its ability to secure new yield-accretive industrial properties.
- Operating Environment: Malaysia’s resilient retail space occupancy rates (averaging 75-79%) and increasing private consumption, supported by government policies like salary hikes and increased cash handouts, further enhance CLMT’s growth prospects.
Dividend and Valuation:
- Dividend Yield: Projected to grow from 6.45% in 2024 to 7.23% by 2026, offering strong returns for income-focused investors.
- Valuation: With a discounted dividend model (DDM)-derived target price of RM0.80, CLMT offers a potential upside of 16.2%, along with stable dividend yields.
Risks:
Key risks to CLMT’s performance include:
- Non-renewal of existing leases: This could impact rental income, though the strategic location of its malls mitigates this risk.
- Interest Rate Hikes: Unexpected increases in interest rates could raise borrowing costs and compress profit margins.
- Operating Expenses: Higher-than-expected operating costs could reduce margins and affect distributable income to unitholders.
Conclusion:
CLMT is poised for steady growth, driven by its high-quality retail and industrial assets. The Trust’s strong position in Penang and focus on yield-accretive acquisitions provide a solid foundation for sustained earnings and dividend growth. With an attractive target price, strong dividend yield, and opportunities for future expansion, CLMT remains a compelling investment in the Malaysian REIT sector
BY CIMB
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