CMT – CIMB

Opportunistic cash call?

Despite a fairly good placement price(at 1.3x P/BV) with only 4%dilution, we are disappointed that CMT has chosen to raise equity in the absence of major funding needs for acquisitions and AEI. Post-dilution yields are not compelling and we see selling pressure.

Factoring in the placement, we lower our FY13-14 DPU by up to 4%.Coupledwith more moderate growth prospects, we cut our DDM target price (discount rate 6.7%). We believe CY13 4.8% yields are no longer compelling vs. peers. Downgrade from Outperform to Underperform. We prefer MCT and FCT in the retail malls space.

What Happened

CMT has closed a private placement of 125m new units to raise gross proceeds ofS$250m. The issue price of S$2aunit represents a discount of 4.8% to its VWAP of S$2.10. The price translates into 1.3x P/BV. Management intends to use the money to refinance debt and pay for capex and AEI though no new plans have been spelt out.

What We Think

The placement is probably opportunistic given yield compression for the sector and CMT. Despite the good placement price and small dilution of 4% above, we believe its share price could be hit after the placement as the fund-raising was unexpected and not backed by major funding needs for acquisitions and AEI. We are slightly disappointed by management’s decision given that asset leverage is a lower 38% than last Nov’s 40% when it similarly placed out shares. We understand that asset leverage could dip to 35% if proceeds were used for debt repayment.

Management said the placement will provide CMT with greater financial flexibility for AEI. On past occasions, it had shared that it was on the lookout for acquisitions. But we understand that there are no concrete plans for now. Possible targets in the future include Star Vista and/or ION Orchard from CMA, we believe. There remains funding needs of about S$100m for WestGate.

What You Should Do

We revisit our estimates for CMT and relook the attractiveness of forward yields vs. peers. We believe yields are no longer compelling against peers and see some selling pressure.