CMT – DBSV

Revving all engines

At a Glance

• Results in line

• Revving organic and AEI growth drivers

• Maintain Buy, TP $2.02

Comment on Results

Results in line with street estimates. 1Q10 revenue was up 3.4% yoy to $139.1m while NPI grew a better 5.7% to $97.7m on lower expense ratio of 30%. Distribution income (after retaining $9.5m of income and CRCT dividend) increased 13.6% yoy to $71.1m on lower interest cost. During the quarter, 132,107sf NLA (4.3% of total) of space were renewed at an average 6.2% higher rate than previously while occupancy slipped marginally to 99.4% due to the termination of a mini-anchor tenant at Plaza Singapura.

Revving all engines. Looking ahead, earnings will be driven by organic rental hikes, AEI and new acquisitions/ developments. As in 1Q10, leases are re-contracted at higher levels and we believe this trend could continue given the improving economic outlook. In addition, progressive completion of AEI works at Raffles City basement, J8 and Tampines Mall from 2Q10 onwards and the rebuilding of JEC by early 2012, would provide new fuel to grow income stream in the medium term. The purchase of Clarke Quay, at NPI yield of 5.6%, could add an estimated 0.1cts to FY10 DPU. On the capital management side, recent issues of S$200m and US$500m MTN helped to diversify its funding sources, extend maturity profile as well as unencumber assets. The group would also focus on rolling over $1.057b worth of loans and CBs that are due in 2011.

Recommendation

Maintain Buy, TP $2.02. We maintain our Buy call on CMT with a TP of $2.02, translating to a total return of 13.6%. In addition to good organic growth prospects, we believe CMT is well placed to acquire new assets or development activities with a strong balance sheet and low gearing of 34.7%. These have not been factored into our current valuations and could provide further upside to our numbers when actualized.