CapitaMalls Malaysia Trust - Phase 1 of East Coast Mall AEI complete

Target RM1.47 (Stock Rating: HOLD)

CMMT's FY13 core net profit of RM148.5m was in line with our estimate but below consensus, accounting for 99% of our but only 90% of consensus numbers. We maintain our Hold call on the stock with an unchanged DDM-based target price of RM1.47. We gather from the results conference call that the ongoing MRT construction works will continue to affect shopper traffic at Sg. Wang until 2017, although we believe that the completion of the AEI for the East Coast Mall will provide a buffer for its NPI. For exposure to Malaysian REITs, we suggest investors switch to Axis REIT.

Phase 1 of the East Coast Mall's AEI is completed 

CMMT's first phase of the AEI for its East Coast Mall with a total capex of RM80m over two years has been completed. The first phase involved the reconfiguration of 26k sq ft of existing area, and a conversion of 82 car park lots into retail space that has a total area of approximately 24k sq ft. The first phase also involved the creation of 8k sq ft of additional retail space after CMMT extended the rear part of the mall from the ground floor to level 3. The AEI for the mall is expected to be fully completed by 2H2014 as CMMT is currently doing more work to further enhance the mall. 

Sg. Wang shopper traffic decline 

For 4Q13, CMMT's shopper traffic was rather flattish, declining by 0.1% yoy, while its vehicular traffic declined by 1.8% yoy. The decline in shopper traffic for CMMT's portfolio was mainly due to Sg. Wang, which continues to be plagued by the MRT construction works around the mall. Management does not expect shopper traffic to recover until the MRT construction works are completed, which is expected to be in 2017. 

Higher utilities cost and assessment rates 

CMMT expects the higher electricity and DBKL assessment rates to result in approximately RM3m-4m of additional costs. This is after taking into account the costs that it will pass on to its tenants. The RM3m-4m impact accounts for approximately 1% of its revenues; thus CMMT is not highly concerned about the higher costs.