CapitaMalls : BUY at RM1.07, TP of RM1.20

CapitaMalls Malaysia Trust reeling in the Malaysian consumer

CapitaMalls Malaysia Trust
(Sept 20, RM1.11)
Initiate coverage with buy call at RM1.07 and target price of RM1.20: We are initiating coverage of CapitaMalls Malaysia Trust (CMMT) with a “buy” and target price of RM1.20. CMMT’s Gurney Plaza, Sungei Wang Plaza strata parcels and The Mines have prospered. These substantially fully-tenanted properties have navigated increasing competition and changing consumer trends and flourished. We see this continuing under the management of CMMT. Our RM1.20 per share discount dividend model-based target price translates into a 6.5% implied yield.

Size is not at the expense of quality. The three properties are located in the high-income, major urban markets of Penang Island, Kuala Lumpur city centre and the greater Klang Valley. They provide exposure to secular trends — a younger, more affluent population with a propensity to spend, increasing urbanisation and rising tourism.

The assets are geographically diversified and no single property contributes more than 40% of total assets, net lettable area or net property income. The well-diversified tenant mix is substantially third-party, unrelated to CMMT. The top 10 tenants account for just 17% of gross rental income. The single largest takes 6%.

Management ability is exemplified in The Mines. Average rentals and occupancies rose even as net lettable area swelled and mall operations were disrupted by construction and renovation work at the depth of the 2009 recession. In fact, the entire portfolio saw better numbers throughout the challenging period, thanks to its hands-on in-house lease and design management teams.

Initiate coverage with “buy” rating. CMMT is currently trading at 7.3% FY2011 yield, against a 7.9% industry average. We value CMMT at RM1.20, based on DDM valuation method. This represents 6.5% implied yield. The premium is justified, given its large portfolio of quality retail assets, proven management capability and access to a regional network. — Maybank IB Research, Sept 20


This article appeared in The Edge Financial Daily, September 21, 2010.