CMT – DBSV

Fair value for a safety net

• Results in line; 6M DPU is 48% of our FY12 forecast.

• Steady rental reversion despite slower traffic footfall, AEI including IMM building to drive earnings

• Downgrade to HOLD on valuation grounds, TP maintained at S$2.05

In line with expectations. Gross revenues and NPI for 2Q12 had grown by 3%-7% on a q-o-q and y-o-y basis. The increase was largely led by JCube, which reopened in April, as well as higher rental reversions across all malls except for The Atrium and Bugis+, which are currently undergoing asset enhancement initiatives (AEI) work. As a result, DPU was marginally higher than a year ago at 2.38cts, bringing 1H DPU to 4.68 cents or 48% of our FY2012 forecast. The trust took in a revaluation surplus of S$96.9m to lift book NAV by 5.1% to S$1.62.

Portfolio performance still healthy. Occupancy has improved from 94.8% to 98.6% as the Atrium and Bugis+ emerge from the most intense phase of refurbishment. Management has also guided that positive rental reversion for the 2H should hold steady at c.6.0% vs 6.4% in the 1H. That said, in line with the general market, the economic slowdown has somewhat affected consumer spending, resulting in slower shopper traffic (-3.0% y-o-y) and tenant sales (+1.5% y-o-y). Meanwhile, the trust has announced that it would be repositioning IMM to become the largest outlet mall in Singapore. Enhancement work had begun in May and will be completed in a year. The mall will see a doubling of its outlet stores to 40-50 brands upon completion. While this could potentially lower the average rent, we think it would drive footfall in the longer term in view of the new competition.

Downgrade to HOLD on valuation grounds. While we like CMT for its big cap status and its defensive earnings, the stock is trading close to our target price, thus we downgrade our call to HOLD. We have also nudged FY12/13 DPU down slightly by 1-3% to account for IMM AEI work. Upside risks to our call will hinge on better-than expected execution of its enhancement initiatives and the current environment with investor demand for yield, resulting in further yield compression.