CMT – CIMB

Resilient but still expensive

• Maintain Underperform. After our last visit to some of CMT’s malls, we remain confident they can stay resilient despite competition, and our assumptions of 0-5% rental growth for 2009-11 remain realistic. Nonetheless, the impact would likely be offset by capital expenditure on Jurong Entertainment Centre as well as Atrium@Orchard, resulting in flat distribution in the next two years.

• Risks to our estimates include: 1) a poorer-than-expected performance from its centrally located malls and the hotel component in RCS; 2) higher-than-expected construction costs for upcoming asset enhancement works at Jurong Entertainment Centre and Atrium@Orchard; and 3) the creation of a higher-than-expected retail NLA for Atrium @ Orchard.

• DDM-derived target price raised to S$1.30 (from S$1.26). We use a lower discount of 9.5%, down from 9.7% earlier, from a lower risk-free rate of 4.8% applied across our REIT universe. This raises our DDM-derived target price to S$1.30 from S$1.26. Against peers in the SREIT space, CMT appears fairly expensive at 0.8x P/BV and yields of 6% vs. the sector average of 11.3%.