Date of Report: October 10, 2024
Broker Name: CGS International Securities
Overview of CapitaLand Malaysia Trust (CLMT)
CapitaLand Malaysia Trust (CLMT) is a real estate investment trust (REIT) primarily focused on high-quality malls in Malaysia. The trust holds a strong market presence in various regions, including notable assets like East Coast Mall, Gurney Plaza, and Queensbay Mall. CLMT is listed on Bursa Malaysia with a market cap of RM1,996m (US$466.3m) as of the report date. It has a free float of 39.8%.
Positive Operational Performance at East Coast Mall
CGS analysts conducted a site visit to CLMT’s East Coast Mall (ECM) in Kuantan on October 8, 2024, and provided a favorable review of its operational performance. ECM boasts a total net lettable area of 467,953 square feet and has maintained a high occupancy rate of 97-99% over the last five years. The mall houses approximately 210 tenants, with anchor tenants including Parkson, Aeon Big, and Golden Screen Cinemas, which collectively occupy around 40% of the total space.
Strategic Tenant Mix and New Brands
Management has made strategic efforts to diversify and enhance the tenant mix at East Coast Mall by introducing trendy brands such as Boat Noodles, Jonny’s, Christy Ng, and Garmin in the past two quarters. These additions align with changing consumer preferences, which is expected to boost footfall and tenant sales in the coming financial years. Additionally, ECM benefits from a modest recovery in tourism, with local tourists accounting for about 10% of the mall’s footfall.
Rental Growth and Revenue Outlook
ECM has recorded an average rental reversion of 10-11% as of June 2024, surpassing the ex-Klang Valley average of 9%. The mall’s performance is expected to remain resilient due to a combination of solid occupancy rates and rising base rents. CGS projects ECM’s revenue to achieve a compound annual growth rate (CAGR) of 4.7%, while net property income (NPI) is forecasted to grow at 5.0% from FY2023 to FY2026.
Earnings Projection for 3QFY24
CapitaLand Malaysia Trust is anticipated to report a strong net profit for 3QFY24, with the results expected on October 24, 2024. This growth is driven by stable occupancy levels, higher base rents, and reduced utility expenses, particularly following the reduction of electricity tariffs for commercial users in Malaysia. Domestic consumption and improving tourist arrivals are also expected to contribute to the company’s performance, offsetting a typically slower sales season in July-September due to the absence of major festivals.
Target Price and Dividend Yield
CGS reiterates its “Add” recommendation on CLMT with a target price (TP) of RM0.80, representing a potential upside of 15.1% from the current price of RM0.695. The dividend yield is projected to rise from 6.35% in FY2024 to 6.84% in FY2025 and 7.13% in FY2026. The total projected dividend per unit (DPU) is expected to register a 3-year CAGR of 5.9% from FY2023 to FY2026.
ESG Commitments
CLMT aligns its Environmental, Social, and Governance (ESG) strategies with its sponsor, CapitaLand Investment (CLI). The trust is working towards achieving Net Zero by 2050, with a 46% reduction in Scope 1 and 2 emissions by 2030. As of FY2023, 39% of CLMT’s portfolio, measured by gross floor area, had received green certification. The trust achieved notable reductions in energy consumption, water usage, and carbon emissions intensity from a 2019 baseline, further highlighting its commitment to sustainability.
Financial Performance Summary
Key financial highlights for CLMT include:
- Gross Property Revenue (RMm): RM395.4 (FY2023), projected to grow to RM423.9 (FY2024) and RM440.7 (FY2025).
- Net Property Income (RMm): RM219.1 (FY2023), projected to grow to RM240.1 (FY2024) and RM254.1 (FY2025).
- Net Profit (RMm): RM163.7 (FY2023), expected to adjust to RM129.9 (FY2024) and RM142.8 (FY2025).
- Distributable Profit (RMm): RM108.8 (FY2023), expected to increase to RM129.8 (FY2024) and RM143.1 (FY2025).
- Dividend per Share (DPS): Projected at RM0.044 (FY2024), RM0.048 (FY2025), and RM0.050 (FY2026).
Risks and Catalysts
Downside Risks:
- Non-renewal of existing leases
- Unexpected increases in interest rates
- Higher-than-expected operating expenses
Re-rating Catalysts:
- Stronger-than-expected growth in tenants’ sales
- Potential acquisition of new assets
- A stronger recovery in tourist arrivals and spending
Conclusion
CapitaLand Malaysia Trust remains a key player in Malaysia’s REIT sector, with strong assets, improving financials, and an ESG-forward strategy. The trust’s exposure to high-quality malls, robust earnings projections, and potential growth opportunities make it an attractive investment with a favorable outlook through FY2026.
