3Q12 DPU in line with expectations. CapitaMall Trust (CMT) reported 3Q12 DPU of  2.42S''  (unchanged  YoY),  equivalent  to  24.7%  of  our  FY12  DPU  estimate. Revenue for this period grew to S$167.2m (+5.1% YoY) while net property income rose by 4.3% YoY mainly due to an increase in contribution from JCube and Bugis+. Going forward, we expect CMT to continue to register strong numbers on the back of  1)  contributions  from  JCube  and  Bugis+  which  was  opened  in  April  and  August 2012 respectively; 2) additional income contribution from the AEI at Orchard Atrium which  is  scheduled  to be  completed  in  4Q12  and  3)  the  repositioning  of  IMM  as  a value-focused mall with about 30 outlet brands expected to be operational by end-2012. With CMT's bright prospect, defensive play (76% CMT's revenue contributed from  suburban  malls)  and  a  better  than  expected  pre-commitment  rate  in  its
Orchard  Atrium  space  (90%),  we  have  upgraded  our  call  on  CMT  to  BUY  with  a revised DDM based (COE: 7.2%, terminal growth: 2.0%) TP of S$2.36.  

  
New  contribution  from  Bugis+  and  JCube.  At  the  end  of  September, approximately  99.5%  and  98.5%  of  NLA  for  JCube  and  Bugis+  respectively  have been  leased  out.  Due  to  the  excellent  locations  coupled  with  diversified  tenants, JCube  and  Bugis+  recorded  on  average  of  1.3m  and  1.4m  footfall  on  a  monthly basis  respectively.  As  these  malls  continue  to  gain  popularity,  we  expect  CMT  to continue to benefit from them going forward.

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.  Concurrently,  the  IMM  building  is  undergoing  an  AEI  to reposition it as a value-focused mall. By the end of this year, about 30 outlet brands occupying about 10% of the mall's NLA will come into operational;  while  the  entire exercise is expected to end by May 2013. 
 
Hunt  for  dividend  yield  positive  to  CMT's  share  price.  As the  hunt for dividend yield  plays  continues  on  the  back  of  high  liquidity,  prolonged  low  interest  rate environment and a strong Singapore currency, we believe CMT has room for further upside. Currently, this counter is trading at 3.5% spread vs 10-year bond yield based on  FY12  DPU  estimates.  Our  target  price  of  S$2.36  translates  to  a  reasonable spread of 3.0% vs its mean spread of 3.1%.

Currently  trading  at  3.5%  spread  to  10-year  bond  yield.  We value CMT at TP of S$2.36 based on DDM (COE: 7.2%; TGR: 2.0%). CMT is currently trading at 3.5% spread to 10-year bond  yield,  which  is  41bps  and  56bps  above  its  mean  and  pre-crisis  spread  of  3.1%  and 2.9% respectively based on FY12 DPU.

Source: OSK