2Q12 DPU in line with expectations. CapitaMall Trust (CMT) reported 2Q12 DPU of  2.38S''  (+0.8%  YoY),  equivalent  to 23.6%  of  our  FY12  DPU  estimate.  Revenue for  this  period  grew  to  S$165.5m  (+3.7%  YoY)  while  net  property  income  rose  by 5.2% YoY mainly due to an increase in contribution from JCube and positive rental reversion  for  leases  renewed.  In  the  subsequent  quarters,  we  expect  CMT  to continue  to  register  strong  numbers  on  the  back  of  1)  contributions  from  JCube which  was  opened  in  April  2)  new  contributions  from  the  completion  of  the  AEI  at Bugis+; 3) additional income contribution from the AEIs at Clarke Quay and Orchard Atrium  which  are  scheduled  to  be  completed  in  3Q  and  4Q  respectively  and  4) resilient  rental  rates  particularly  for  malls  in  the  suburban.  Despite  the  strong prospect together with its defensive play (76% CMT's revenue contributed from suburban  malls),  given  its  recent  rally  in  share  price,  together  with  the  high  P/B valuation  it  is  trading  on  and  limited  possibility  of  further  acquisition  for  the  rest  of the  year,  we  believe  this  counter  is  fairly  priced  at  the  moment.  We  maintain  our Neutral call on CMT with an unchanged DDM based (COE: 8.0%, terminal growth: 2.0%) TP of S$2.03.

New  contribution  from  Bugis+  beginning  3Q12.  As  the  AEI  for  Bugis+,  is scheduled  to  be  completed  by  end  July  2012,  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  JCube  and  Bugis+ the AEIs at 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.  Although  the  completions  of  various  AEIs  are  expected  to increase  CMT's DPU by  8%  in  FY12,  we  believe  these  factors  have  already  been priced into the current share price.

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 driver in the near term, we maintain our Neutral rating on CMT with a TP of S$2.03.

Source: OSK