CMT – CIMB

Zooming in on asset enhancement

• Results in line; upgrade to Neutral from Underperform. FY09 DPU met Street and our expectations (101% of our estimate). We change our assumptions to reflect moderately stronger income growth, and higher but delayed capex. Our FY10-11 DPU estimates rise by 3%. We also introduce FY12 estimates. Following our upgrade, our DDM-based target price rises to S$1.88 from S$1.82 (discount rate 8.1%). We upgrade the stock to Neutral from Underperform as we are more assured of an improving retail performance in 2010 and a possible later injection of Ion Orchard. We see stock catalysts from accretive acquisition announcements.

• Full-year DPU of 8.85cts (CIMB-GK 8.59cts). DPU declined 7% yoy following more units from a rights issuance in 2009. Net property income (NPI) of S$376.8m was up 10% yoy, a net effect of full-year contributions from Sembawang Shopping Centre (re-opened after asset enhancement works), and full contributions from Atrium@Orchard. Distributable income of S$282m grew stronger than NPI, by 18% yoy following: 1) the release of S$4.8m of retained distributable income from 1Q09; and (2) the release of S$2.2m distribution income from CRCT retained in 3Q09.

• Occupancy and rental reversions positive. Occupancy in CMT’s malls remained nearly full at 99.8%. Rental reversions stayed positive at 0.8% p..a. Management is confident of better growth in rental reversions in the new financial year. While portfolio gross turnover per sf declined 2.4% yoy, it improved 11.3% qoq, signifying a recovery in the businesses of CMT’s tenants.

• Asset enhancement of Jurong Entertainment Centre (JEC) and Raffles City basement link would be carried out this year. The work would be completed in 1Q12 and 4Q10 respectively. Total capital expenditure is estimated at S$214m with ROI of 8% for both assets. The asset enhancement would be funded with cash on hand and existing bank facilities.

• Changes in assumptions. We raise our assumptions for income growth of retail malls by up to 7% (from 3%) and increase our capex assumptions for JEC to S$200m (from S$150m) to reflect the new plans announced, and later commencement of work at Atrium@Orchard. Our DPU estimates rise by up to 3%
for FY10-11.