CMT – DMG

No surprises in earnings; fully valued

1Q10 results moderately below expectations. CMT reported 1Q10 DPU of 2.23¢ (+13.2% YoY; -7.1% QoQ) on higher gross revenue from the full contribution of Sembawang Shopping Centre following its asset enhancement works. Annualised DPU came in at 9.04¢, which is 4% below ours and street’s estimates of 9.4¢. We, however, believe CMT will see sequential improvement in its DPU over the next few quarters in view of positive rental reversions for its other properties as well as the distribution of the S$9.5m retained earnings. CMT will trade ex-1Q10 distribution on 27 April 2010. CMT trades at an unexciting yield of 4.9%, justifying our NEUTRAL view on the counter with a DDM-derived TP of S$1.90.

Retained S$9.5m from its distributable income. Had that amount been distributed, CMT’s DPU would have been 0.29¢ higher. Management decided to err on the side of caution by retaining part of its distributable income, given that the bulk of the leases due to expire this year were locked-in at a high rate during the heydays of 2007. Management cautioned that achieving positive rental reversions for those expiring leases may be challenging in 2H10.

Portfolio occupancy stable; asset enhancement in the works. CMT’s portfolio occupancy remained relatively unchanged at 99.4%. Unitholders have approved the acquisition of the S$268m Clarke Quay mall, which we believe will be mildly yield accretive (adding 0.11¢ to FY10 DPU). Asset enhancement works for Raffles City and Jurong Entertainment Centre are on track for completion by end-2010 and early 2012, respectively. To date, 70% of Raffles City’s NLA that will be created on Basement 1 & 2, has been committed.

Maintain NEUTRAL rating. While we continue to recognize CMT’s impeccable mall management expertise, valuations for the counter appear rich compared against its historical heyday yield of 5.7%. We believe CMT is in good position to undertake acquisitions owing to its strong balance sheet and low cost of equity. We have, however, not factored any acquisitions into our assumptions. Without accretive acquisitions, we believe the stock is fully valued.