CMT – CIMB

Upgrade on valuation

CMT’s 3Q14 DPU was in line with expectations and made up 73% of our fullyear estimate. While organic growth is likely to remain anemic in the nearterm, tenant sales and shopper traffic are seeing some traction, with lower yoy declines. Driving near-term growth would be the new AEI works at Bukit Panjang Plaza and P2 of IMM makeover. Post the recent market weakness, CMT offers an attractive 16% total return, based on our DDM-backed target price of S$2.11. We upgrade our rating to Add from Hold on valuation.

In line set of 3Q numbers

CMT reported 3Q14 revenue and NPI of S$164.6m and S$114.1m, up 2.9% and 3.3% yoy, respectively. Distributable income came in at S$93.7m, translating to a DPU of 2.72Scts. Better performance was largely due to higher revenue from Tampines Mall, J8, Plaza Singapura and Bugis Junction (on completion of its AEI), while J Avenue at IMM opened in Sep 14. Portfolio occupancy was 98.5% while rental reversions averaged +6.3% over the previous period.

Smaller tenant sales and shopper traffic drag

While consumer retail spending remained cautious, shopper traffic and tenant sales performance across CMT’s portfolio gained some traction, down a smaller 1.5% and 3% in the 9M compared to -2% and -3.7% in 1H14, and representing a second consecutive quarter of improvements in these metrics. We expect the rental trend for the remaining 2.9% and 28.1% of rental income to be recontracted in 4Q and 2015 to be modest. Earnings enhancements via AEI would be an increasingly important factor to drive growth going forward. In this regard, commencement of AEI works at Bukit Panjang Plaza, scheduled from 4Q14 to 3Q16, should add to the bottom line. The $18.5m AEI will free up 18k of commercial GFA and generate a projected ROI of 8%. In addition, P2 of

conversion of space into outlet stores at IMM are currently underway. In the medium term, there are plans to evaluate new initiatives at Funan Mall with a view to tap the unutilised 380,000sf of commercial GFA. Balance sheet is strong with gearing at 34.1%.

Upgrade to Add

With the recent decline in share price, CMT is now offering 16% total return to our current target price of S$2.11. At this level, we think CMT is worth a relook and upgrade our call to Add from Hold. Catalysts from stabilisation in tenants’ sales performance and shopper traffic count, as well as accretive AEIs and potential acquisitions in the longer run, should drive share price performance.