CMT – CIMB

Steady performer

• In line; maintain Neutral and target price of S$1.93. 2Q10 results met Street and our expectations. 2Q10 DPU of 2.29cts (+7.5% yoy) forms 25% of our full-year estimate of 9.1cts. 1H10 of 4.52cts (+10.2%) was also in line, at 50% of our FY10 forecast. We reduce our capex assumptions for JCube by S$35m according to management guidance on lower construction costs. Our DPU estimates increase by less than 1% for FY10-11 but there is no material change to our DDM-based target price (discount rate 8.1%) of S$1.93. Although we anticipate positive retail sales in 2H10 in view of mega-events such as the Youth Olympic Games and F1, there remains moderate downside risks from: 1) more than 700,000sf of NLA due for expiry in 2H10; 2) increased opex costs; 3) stiffer competition for CMT’s properties located in the central areas from newer malls; and 4) more than S$1bn of debt refinancing in FY11. Re-rating catalysts for the stock could include successful renewals with positive rental upside, in our view.

• 2Q10 net property income of S$98.8m (+5.3% yoy) was up on higher renewal rates and lower property expenses from lower property taxes, and maintenance and marketing expenses. Rental reversions grew 2% p.a. in 1H10, an improvement over the 0.5% p.a. growth in 1H09, mirroring positive retail sales.

• Portfolio occupancy as at 30 Jun 10 was 99.5%, a dip from 99.8% as at 31 Dec 09. The biggest decline came from IMM, down from 99.7% in Dec 09 to 97.9% in Jun 10 (-1.8% pts) due to the non-renewal of a junior anchor. Management remains confident of securing replacement tenants, as it did for other properties. For instance, Barang Barang departed from Plaza Singapura last quarter, but its space was shortly taken by Daiso’s new F&B concept with some rental upside.

• Asset enhancement initiatives (AEI) for JCube (previously known as Jurong Entertainment Centre) and Atrium@Orchard will be its priority in the short term. Updates include a reduction of capex by S$35m for JCube from lower construction costs and the commencement of Atrium@Orchard AEI in 1Q11, targeted for completion in 3Q12.