CMT – DMG

Trading at unattractive yields; stock fully valued

4Q10 results within expectations. CMT reported 4Q10 DPU of 2.36¢. FY10 DPU rose 4.6% to 9.24¢, in-line with our estimates. Net property income rose 5.7% YoY on an enlarged portfolio and higher rental income from existing malls. S$10.1m income from CRCT has been retained for distribution in FY11 in anticipation of higher interest costs on its CBs. We fine-tune our DPU estimates to account for lower occupancy at the Atrium during the AEI, lowering TP marginally to S$2.00. Maintain NEUTRAL as stock trades at an unattractive FY11 yield of 5.4% relative to precrisis yield of 4.2% in 2007.

Portfolio occupancy stable; asset enhancement works remains focus. CMT’s portfolio occupancy dipped marginally to 99.3% (from 99.6% in 3Q10). Positive rental reversion of 6.5% over preceding rents has been achieved YTD. AEI works to increase retail NLA at the Atrium by 6 times (while reducing office component) has begun, with capex at S$150m, ROI of 10.4%, and is projected to provide incremental revenue of S$20m, with completion expected in 4Q2012.

Greenfield development projects a re-rating catalyst. Yield accretive acquisitions are increasingly scarce and CMT is likely to look at participating in greenfield development projects, with its substantial development capacity of $800m (regulatory limit of 10% of asset base) and the higher yield on cost compared to income producing acquisitions.

Stock fully valued. While we continue to recognize CMT’s impeccable mall management expertise and positive outlook on suburban mall rents given recovery in domestic demand and robust tourist arrivals, valuations for the counter appear rich. Without accretive acquisitions, we believe the stock is fully valued.