Kenanga maintains 'underperform' on CMMT

KUALA LUMPUR: Kenanga Investment Bank Research is keeping its "underperform" outlook on Capitaland Malaysia Mall Trust following the release of the real estate investment trust's (REIT) 1HFY20 earnings, which was broadly within its expectations.

The research house said realised net distributable income for the first half of the year was RM20.8mil, which met 30% and 26% of its and consensus full-year estimates.

There are expectations of a stronger second half following the end of the restrictions imposed in the second quarter although the REIT will continue to prioritise tenant assistance and cash preservation, it said.

"Maintain FY20-21E CNP of RM70-104m for now as we expect to see gradual improvements in 2H given that 90% of tenants have resumed business under the RMCO from 5 July 2020," said Kenanga, which kept its target price on the stock at 65 sen a share.

For FY20, the research house expects portfolio occupancy of 85% on pre-empted weakness at SWP, the Mines and 3 Damansara. It also expects portfolio reversions of -5% in FY20 given the challenging environment.

The following year, it expects FY21 to record low single-digit reversions on leases renewed within that year on portfolio occupancy of 88%.

It added that capex of RM20mil in each of FY20 and FY21 is to be expected.

"FY20 will see a large number of leases up for expiry at 43% of NLA, of which 30% has been renewed thus far at -1.2% reversion rates. We also expect 30% of leases to expire in FY21," said Kenanga.

The research house added that CMMT's lack of prime assets unlike its MREIT retail peers will make it harder to weather the pandemic while the concern of retail space oversupply lingers.
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