CMT – CIMB

High capex needs

• Maintain Underperform; target price raised to S$1.74 (from S1.54). 3Q09 results were in line with Street and our expectations. Revenue was up with increased contribution from more assets. We remain confident in the resilience of its suburban assets, but expect high capital expenditure for Jurong Entertainment Centre and Atrium@Orchard to strain distribution growth in the medium term. High capex needs and higher-than-peers valuations cause us to maintain our Underperform rating.

• DPU in line, despite retention of S$2.5m. YTD DPU of 6.45cts forms 75% of our full-year forecast. Distributable income of S$74.9m was up 23% yoy on contributions from Atrium@Orchard, the completion of asset enhancement work at Sembawang Shopping Centre and moderate growth (1.8%) in renewed rentals. This excludes S$2.5m of distributable income received from CRCT retained for distribution in the last quarter. (YTD, CMT has retained S$7.3m, which it has committed to distribute by 4Q09.) Nonetheless, DPU for 3Q09 (2.35cts) was down 35% yoy due to increased units after its rights issue.

• Reducing lumpiness in debt expiry, before acquisitions. The credit market is improving. Management says there have been increasing offers for longer debt tenures ranging from five to 10 years vs. only three years earlier. Indicative spreads are 175bp (5-year debt) and 210bp (10-year debt). CMT believes that its overall cost of debt will remain stable, with expectations of declining loan spreads offsetting a rising SOR.

• We raise our growth assumptions for 2009 (from no growth to moderate) for CMT’s key assets, impressed by its ability to achieve positive rental reversions. We are also assuming: 1) 20% growth for its hotel business in Raffles City in 2010, in line with our bullish expectations for CDLHT; and 2) much stronger contributions from CRCT in view of its positive YTD performance. Our DPU estimates consequently rise by 2-8% for 2009-11. Rolling our target price forward lifts our DDM-derived target price (discount rate 8.4%) to S$1.74 (from S$1.54).