SINGAPORE (Oct 24): CIMB Research and DBS Vickers Securities are maintaining their “hold” and “buy” calls on CapitaLand Mall Trust (CMT) with the respective price targets of $2.20 and $2.25 after the REIT posted a 6.7% fall in DPU to 2.78 cents for 3Q.

(See also: <a href="http://www.theedgemarkets.com.sg/sg/article/capitaland-mall-trust-posts-67-fall-3q-dpu-lower-278-cents" target="_blank">CapitaLand Mall Trust posts 6.7% fall in 3Q DPU lower of 2.78 cents</a>)

In a Friday report, CIMB analysts Lock Mun Yee and Yeo Zhi Bin say CMT’s recent set of results were in line with their forecasts, noting an “anaemic rental uplift” despite higher tenant sales and shopper traffic.

As such, the pair expect the trust’s earnings growth for 4Q16 and FY17 to be “relatively muted” to reflect the recent closure of Funan Mall for redevelopment over the next three years.

“The planned $54 million rejuvenation/enhancement exercise at Raffles City Shopping Centre over 3Q16-1Q18, including the upgradation of lift lobbies as well as the revamp of Central Atrium at Level 3, is unlikely to move the earnings needle significantly when completed, although it would improve shopper experience at the property, in our view,” they add.

On the contrary, analysts Derek Tan and Mervyn Song believe the negative DPU for this quarter is a “false alarm”, as retention is boxed for distribution in 4Q,

Although Tan and Song expect flattish DPU growth for the full year, they highlight that CMT retained $12 million of its taxable income in 1Q16, which is equivalent to about 34 cents in DPU terms – and which the analysts are convinced will be paid out in the festive season in the next quarter.

However, they caution that any surprise move by the Fed may cause ripples in the market although consensus is still ruling out a hike in November.

“In the unlikely scenario of a rate hike ahead of consensus’ year-end expectation, we believe this will be an opportunity for investors to accumulate the stock on any dips,” conclude Tan and Song.

Additionally, both the research houses of CIMB and DBS think CMT has sufficient headroom for the redevelopment of Funan Mall, although gearing is expected to rise.

“As CMT will fund Funan’s redevelopment cost of $560 million entirely with debt, which is comfortably below the $800 million headroom available, gearing is expected to increase to 38%, which is still healthy,” explain DBS’ Lock and Yeo.

As at 12:12pm, units of CMT are trading 1.422% higher at $2.14.

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