Fair Value : SG$2.38 | Recom : Outperform

Within expectations. CT’s 3Q12 core net profit came in within our and market expectations. A DPU of 2.42 cents was declared (vs. 2.38 cents in 2Q12), bringing YTD DPU to 7.10 cents, in line to achieve our full year forecast. Sequential growth in top line was rather flattish. Apart from the organic growth from positive rental reversion for new leases, the momentum was also sustained by the opening of JCube in Apr, as well as Bugis+, which has only contributed to 1-2 months earnings upon its commencement of operation in Aug. For capital management front, the refinancing exercise for the SG$783m CMBS due in Oct 2012 has already been completed. Various refinancing options will now be evaluated for the debts (SG$464.5m) due in 2013.

Lower shopper traffic reflected the weaker GDP growth. YTD Sept, shopper traffic in CT’s portfolio declined 2.2% yoy vs. a 3% fall in 1H12. Meanwhile, tenant sales growth weakened to 1.2% yoy, compared to 1.5% in 1H12. Overall portfolio occupancy remained stable at 98.4%, similar to last quarter’s. The newly opened JCube and Bugis+ have achieved 99.5% and 98.5% occupancy, with 1.3m and 1.4m visitors per month. A total of 342 leases were renewed in 9M12 with a positive growth of 6.1% over preceding rental rates, close to 1H’s 6.4% growth.

Updates on AEIs. With the opening of Bugis+ in Aug, CT’s management is now focusing on the last major asset enhancement work for the year at The Atrium@Orchard. More than 90% of the total retail and office space has been leased out. The retail portion, which will be linked to Plaza Singapura is scheduled to open in early Nov 2012. Meanwhile, AEI works for Block C Clarke Quay were completed in Sept, and the new retail spaces are now fully operational. About 30 outlet brands have been secured for IMM Building vs. the target of 40-50. The AEI works are expected to be completed by May 2013.

Risks – Downside to economic growth dampening business activities.

Forecasts. Unchanged.

Valuation. In view of the regional trend of yield compression (Singapore Benchmark 10-year Government Bond yield has declined to 1.33% from about 1.6% in 1Q), we raise our fair value to SG$2.38 (from SG$2.18) based on a lower cost of equity assumption of 6.9%. Maintain Outperform.

Source: RHB Research - 22 Oct 2012