CMT – CIMB

Mixed signals

• DPU in line; maintain Neutral; target price raised to S$1.93 from S$1.91. 1Q10 results met Street and our expectations. DPU of 2.23cts forms 24% of our full-year estimate. We adjust our assumptions to include S$6.8m of capex for Junction 8 and Tampines Mall and S$700m of Euro-medium-term notes issued this month. Our DPU estimate falls by 2% for 2010 but increases by up to 3% for 2011-12 as contributions from asset enhancement flow in. Our DDM-based target price (discount rate 8.1%) rises to S$1.93 (from S$1.91) as a result. Improving retail sales and an anticipated jump in tourist arrivals this year augur well for CMT. However, in the course of recovery, there could be bouts of volatility particularly for malls in central areas where supply has increased. As a result, maintain Neutral on the stock.

• Opex could rise in 2H10. Available income for distribution was S$80.6m in 1Q10. Some S$9.5m has been retained on the side of caution in view of a record number of leases due for renewal in 2H10 (60% of the total due this year), and an anticipated rise in utility costs with rising oil prices. Nonetheless, management is committed to a 100% payout for the year. If the full S$80.6m were paid out, 1Q10 DPU would have been 2.53cts, or 28% of our full-year forecast.

• Mixed signs for retail sales. Net property income grew 5.7% yoy to S$97.7m, attributed mainly to full contributions from Sembawang Shopping Centre following asset enhancement work in Dec 09, lower interest cost after a repayment of borrowings in 2009 and higher rental rates for new and renewed leases. Average growth rate of lease renewals in 1Q10 was 2% per year, a stark improvement from the average 0.8% in FY09. There were also higher GTO contributions in more trade categories than a year ago. Nonetheless, the improvement was tainted by the closure of Barang Barang in Plaza Singapura due to liquidation. Separately, retention rates in Raffles City were exceptionally low at 20% (vs. a portfolio average of 73.4%) in the quarter due to an active change of tenants.