Since our report in January, CapitaMall Trust's (CMT) share price has risen by 10.3%.  Together with the dividend paid out since then, total return has reached a respectable 31.1% over the last six months. Even though we continue to like CMT for its defensive portfolio (~76% of portfolio in suburban) together with prospect for growth (3 AEIs to be completed by the end of this year), we believe there is limited room for upside in the near term. Currently, CMT is trading at 1.1x forecasted price to book and 3.7% spread vs the historical mean of 3.1%. Our TP of S$2.03 represents a spread of 3.4% indicating limited upside.  Given these fundamentals, despite the attractive business model of CMT, particularly for its defensiveness during a volatile market, we believe this counter is currently fairly priced as we downgrade our call to NEUTRAL while maintaining the TP of S$2.03.

New contribution from Bugis+ in 2H12. As the AEI for Bugis+, which is scheduled to be completed by July 2012, continues to remain on track, we expect CMT to book in new contributions from this mall in 2H12. Since the beginning of June, UNIQLO, a major anchor tenant has launched its 20,000 sq ft duplex flagship store in Bugis+. Due to the close proximity of Bugis+ with Bugis Junction, we expect this mall to enjoy synergies with its neighbour as big brands such as Sephora, Bershka and Filmgarde begin their operations here in the coming months. CMT's management indicated a yield on cost of 5.8% on this mall; significantly higher than the previous 3.8% when this mall was acquired as Illuma.       

More AEIs scheduled to be completed this year. Apart from Bugis+ and JCube (which was opened in April), Clarke Quay and Orchard Atrium are scheduled to be completed in 3Q and 4Q12 respectively. These projects are expected to have ROIs of 10.4% and 13.0% respectively.  Together with new contributions from the completion of various AEIs, we expect CMT's DPU to grow by 8.0% this year vs an increase of 1.4% a year ago.

Fairly priced currently. Despite our liking for CMT's growing yet defensive portfolio, we believe this counter is fairly priced at the moment. Due to the lack of further drivers in the near term, we have downgraded CMT to NEUTRAL while maintaining the TP of S$2.03. 

Source: OSK