Cambridge – OSK/DMG

After meeting with the management of Cambridge Industrial Trust (CIT) recently, we believe FY12 would be one of the most exciting years for CIT since listing in FY06. With the acquisitions of 4 properties, DPU is expected to grow by c.12% in FY12. Although consensus expects a slowdown in Singapore’s economy in FY12, we believe the rental rate of industry property will remain resilient, following our sensitivity study of industrial rental rate vs Singapore’s PMI. Maintain BUY as CIT is currently trading at an undemanding spread of 8.2% vs pre-crisis spread of 4.6%.

Forecasted FY12 DPU to increase by c.12% amid hard times. During Jun-Jul 2011, CIT completed three acquisitions, namely, 4 & 6 Clementi Loop, 60 Tuas South Street 1, and 5 & 7 Gul Street 1. As indicated by management, the acquisition of the 4th property at 25 Pioneer Crescent will be completed by 1Q12. These acquisitions are expected to contribute 0.2-0.3 S¢ in DPU for FY11-FY12 respectively. Concurrently, the completion of a BTS project at Tuas by early 3Q12 is expected to bring in a high NPI yield of c.15%. while the property at 25 Pioneer Crescent is expected to bring an additional gross yield of 8% to the group.

Industry rental rate resilient despite slowdown in economy. Although Singapore’s economy is expected to soften in FY12, our sensitivity study of industrial rental rates vs Singapore’s PMI demonstrated that the industrial rental rate will most likely remain flattish (assuming the global economy will not fall into another economic crisis as the one that took place in FY08) during this period.

Maintain BUY with TP of S$0.595. Although CIT’s FY11 DPU is expected to fall by c.13% YoY; due to the enlargement of share base as a result of April rights issue, the contribution from abovementioned projects should allow CIT’s DPU to pick up in FY12. We maintain our BUY call with TP of S$0.595 (COE: 10.1%, TGR: 1.0%) posting an potential upside of 22.7%.