Monday, July 6, 2009

CapitaMall Trust - Buy By UBS (6 July 2009)

A buy call by UBS on CapitaMall Trust (CMT). Overall, Real Estate Investment Trusts (REITs) are still quite far away from their all time highs.

We raise net property income estimates for 4 malls
We raise our net property income (NPI) estimates for Funan mall, Sembawang mall, and Plaza Singapura due to better-than-expected performance in Q109, and include asset enhancement for Jurong Entertainment Centre. Overall, we raise our 2009-13 EPS estimates by 4-9%.

We like CMT and Suntec, but prefer developers to SREITs
We continue to prefer high-beta developers to defensive SREITs, as we expect positive momentum on the residential front to translate to share price performance. Our top picks are UBS Key Call City Developments and CapitaLand. Among REITs, CMT’s performance has lagged the SREIT index by 15%. We think there is scope for the gap to narrow as CMT has the lowest gearing among the four large REITs at 29%, a conservative capital structure, and a top-tier management.

April retail sales down 4% YoY and tracking expectations
April retail sales ex. motor vehicles decreased 4% YoY with discretionary categories like household, apparel, and jewellery posting the largest declines. This is in line with our projection of a 4-5% decline in retail sales for 2009. We expect conditions to get worse particularly for central area malls when new supply is completed. Tourism, which continues to be weak, remains a key factor in arresting the decline.

Valuation: raise price target from S$1.25 to S$1.48; maintain Buy rating
We raise our price target from S$1.25 to S$1.48 on the back of slightly higher DPU and adjustment to our discount rate from 8.4% to 7.6%. Our price target is DCF-derived using 2.6% risk-free rate, 1x beta, and 5% market risk premium.

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