CMT – CIMB
Rough times ahead
• Performance on track. 3Q08 results were in line with Street and our expectations. DPU of 3.64cts for the quarter grew 7.1% yoy to form 26.3% of our forecast of 13.9cts for FY08. This excludes S$1.6m of revenue received from CRCT which has been retained for distribution in 4Q08. Gross revenue of S$129.7m was up 13.3% yoy on new contributions from Atrium@Orchard and the completion of various asset enhancement initiatives (AEI) in various malls. YTD DPU forms 76.8% of our full-year estimate, in line. Additionally, management remains committed to distributing the S$5.5m retained in 1Q08 in 4Q08.
• AEI and acquisition updates. Management revealed that planned AEI initiatives for Jurong Entertainment Centre, Funan DigitaLife Mall and Tampines Mall have been put on hold due to high construction costs although AEI for Atrium@Orchard and its integration with Plaza Singapura are expected to proceed on track, subject to official approval.
• Changes to assumptions. CMT has performed well thus far despite weakening global economic conditions. Nonetheless, a deepening global and domestic recession is expected to weaken rental reversion possibilities going forward while the global credit crunch will make debt availability for new acquisitions difficult. On this, we remove our earlier forecasts of acquisitions for Ion Orchard, Clark Quay and Vista Xchange, and drop our rental growth forecasts to 0-2% for FY09 and -10% for FY10, down from 3-15% growth expectations earlier. We also forecast a 1% drop in occupancy by 2010 for downtown malls which would be facing more competition from new supplies. Separately, we increase our associate contribution forecasts on strong YTD performances and higher cost of debt assumptions for FY09 onwards by 70bp.
• Downgrade to Underperform from Neutral; lower target price of S$1.90 (from S$3.64). Following the above various adjustments, our DPU estimate for FY08 increases by 3%, while our FY09-10 estimates decrease by 5-25%. Accordingly, our DDM-derived target price (discount rate 9.7%) drops to S$1.50 from S$3.64. Downgrade to Underperform in view of a weakening macroeconomic outlook.