CapitaMall Trust - Buy: Operating Expenses Kept In Check

Annualised DPU largely in line — 1Q09 DPU was 1.97 cents, or 8 cents annualized. CMT will retain S$5.9m (of which $2.6m is from CRCT) of its distributable income in 1Q09. Had it paid 100%, DPU would have been 2.16 cents (annualized DPU: 8.7cents), in line with consensus estimates of 8.9 cents.

Flat revenue, lower operating and financing cost — CMT reported flat revenue qoq for 1QFY09, although its NPI was up 8% as it has been reducing costs aggressively. Operating expenses fell S$6.4m or 13.2% qoq on lower maintenance and marketing expenses. Finance costs also fell 2% as CMT repaid S$150m notes in late Dec 08. Post rights issue, we expect CMT’s finance costs to be significantly lower in the coming three quarters.

Performance of malls — Raffles City registered a 7% qoq decline in revenue, the worst performance amongst the company's mall properties. We think this could be due largely to the weakening office and hotel market. The other malls maintained flat or up 1-2% qoq.

Maintain Buy, reducing TP from S$1.50 to S$1.40 – We cut our DPU estimates by 6-10% due to our lower rental revenue estimates for Raffles City, offset by lower expected operating costs. Our TP falls to $1.40 as a result.

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