CGS International says the East Coast Mall by CapitaLand Malaysia Trust is an unappreciated mall that delivers resilient performance, this comes after analysts from CGS visited the mall in Kuantan and left with a positive impression of its robust operational performance.

The mall, which houses around 210 tenants within the total net lettable area (NLA) of 467,953 square feet, has consistently
maintained a strong occupancy rate of 97-99% over the last 5 years. Key anchor tenants include Parkson, Aeon Big and Golden Screen Cinemas, which collectively occupy around 40% of the total NLA. ECM has had a healthy tenant mix throughout the years, and the management introduced new and trendy brands such as Boat Noodles, Jonny's, Christy Ng, Garmin, etc over the last two quarters. We believe this new brand lineup would help to create shopping experiences that fit the latest consumer preferences, uplifting the mall's footfall and tenants' sales in FY24F-FY26F. Additionally, management highlighted during the visit that ECM saw an average rental reversion of 10-11% as of Jun 24, slightly higher than the ex-Klang Valley average of 9%.

The mall also benefits from the recovery in tourism activities in Malaysia, to an extent, given that around 10% of its footfall is made up of local tourists. CGS said it projects ECM's revenue and NPI to register a 3-year CAGR of 4.7% and 5.0%, respectively in FY23-26F, reflecting the upbeat near-term outlook.

Resilient earnings ahead
The house anticipates the group to deliver strong net profit qoq in the upcoming 3QFY24F results (tentatively scheduled to be published on 24 Oct 24), underpinned by resilient occupancy rates and higher base rents. While we expect seasonally lower tenants' sales in Jul-Sep 24 amid an absence of major festive seasons, we believe this will be mitigated by higher domestic consumption and the improved tourist arrivals. CGS said it also expects the REIT to benefit from lower utilities expenses in 2HFY24F, following the 1 sen/kWh reduction in electricity tariffs for commercial and industrial users in Malaysia from July to December 2024

Reiterate Add with an unchanged TP
The house reiterates Add on CLMT with an unchanged DDM-derived TP of RM0.80. CGS said it likes CLMT for its exposure to high-quality malls, such as Gurney Plaza and Queensbay Mall, which it believes are poised to deliver high rental reversions and resilient occupancy rates amid a better operating environment. Downside risks include 1) non-renewal of existing leases, 2) unexpected increase in interest rates, and 3) higher-than-expected operating expenses. Re-rating catalysts include 1) stronger-than-expected growth in its tenants' sales, 2) acquisition of new assets and 3) stronger recovery in tourist arrivals and receipts.