CMT – CIMB

No surprises

CMT’s results were within expectations, with 1H14 DPU making up c.48% of our full-year forecast. Although sequentially better, 2Q’s tenant sales and shopper footfall continued to dip yoy. This moderated outlook would mean that organic rental growth potential remains anaemic going forward. In the absence of details any makeover plans at Funan Mall and with only a small new AEI planned at Bukit Panjang Plaza, we think the drivers for share price

performance would have to come from new acquisitions. The balance sheet is strong with a gearing of 34.3%. We maintain a Hold rating with earnings projections unchanged. Our DDM-backed target price is slightly higher at $2.11 as we roll forward our numbers.

Rental renewal growth sustaining at more than 6%

2Q14’s gross revenue grew 2.5% to S$164.3m, lifted by a 6.6% positive rental reversion for its renewal leases and high occupancy of 98.6%, while NPI rose a higher 4.4% on lower property tax and better cost management. The 30%-owned Westgate contributed another S$5.6m of NPI. Distribution income of S$93.4m was up 6.5% yoy and represents a 97% payout ratio, translating to a DPU of 2.69Scts. At half time, the group achieved c.48% of our full-year DPU estimate. The group enjoyed a slight boost in valuation (with the exception of JCube) bringing book NAV to S$1.79/unit.

Cautious consumer spending still

Consumer spending remained cautious, with shopper traffic and tenant sales down 2% and 3.3% yoy respectively, although a tad better than in 1Q14. This modest spending scene would mean that rental reversion upside for the 6.4%/29% of its gross rental income due to be re-contracted in 2H14/FY15 is likely to remain anaemic. CMT plans to start an $18.5m AEI at Bukit Panjang Plaza to free up 18ksf of commercial GFA. This exercise should span over 3Q14-3Q16 with a projected ROI of 8%. Meanwhile, the creation of a 25ksf trendy cluster at J Ave, is underway and 2/3s of the space has been taken up.

Inorganic growth could be catalysts

Catalysts for stock upside would likely have to come from new acquisitions. With a gearing of 34.3% and proceeds from the sale of Westgate Office Tower, its balance sheet is in a strong position.