CMT's profit margins under threat as costs soar

Expenses will rise due to increased marketing efforts.

CapitaLand Mall Trust might see its profit margins eroded by higher marketing costs, which will exacerbate shrinking rental reversions in its retail portfolio.

According to a report by DBS, CMT is looking to ramp up its marketing efforts in order to attract younger shoppers. These aggressive initiatives will drive up operating expenses in the medium term.

"The manager is looking to ramp up marketing efforts to attract a younger audience by deploying various digital and social media initiatives and the rollout of the enhanced CapitaStar reward programme to attract and retain shoppers. While the immediate benefits are not obvious and are likely to drive up operating expenses in the medium term, we laud the efforts of the management in embracing changes in shoppers' expectations," said DBS.

At the same time, DBS expects that CMT will have difficulty raising rents, as retailers continue to grapple with lower profits and sales.

Despite these headwinds, CMT remains DBS' mall manager of choice, as its malls will continue to see strong demand from retailers.

"We believe that expectations of weak reversions given retail headwinds have already been priced into the stock. In addition, the Trust’s earnings will be further bolstered by the recent acquisition of Bedok Mall,” DBS said.