Metro 3QFY09 Results by Kim Eng

Previous Day Closing price: $0.28
Recommendation: Hold (reduced from Buy)
Target price: $0.27 (reduced from $0.69)

Metro reported a 97% slide in 3Q09 net profit to $0.6m due mainly to the following. First, a $6m unrealised fall in investments, mainly holdings in REITs. Second, retail profit was affected by lower sales following a store closure in Singapore last year and poor economic conditions, as well as new store start-up costs in Indonesia. Third, a exceptional gain of $24.5m in 3Q08 from the sale of Gurney Plaza did not recur this year.

We estimate core net profit before the investment mark-to-market loss was $6.6m, bringing 9M09 net profit to $20m, or 81% of our original full year forecast. 9M09 profits are also higher by 22% from an estimated profit of $11.5m in 9M09, which is adjusted for MTM losses and measured on a continuing operation basis (i.e. excluded Gurney Plaza rental and closing down profits from Metro Tampines).

In the past two years, Metro had declared a 1 cent interim dividend and a 3 cent special dividend. This year, it did not declare an interim dividend and a special dividend is also in doubt. While cashflow is unimpeded, it may reserve cash to repay debt and to fund its new China projects. Without a special dividend, yield becomes merely ordinary at 7%.

We have cut our RNAV for Metro to 28 cents. As the last valuation of its investment properties (which account for 85% of RNAV) was done a year ago, the China slowdown could lead to severe loss of capital value. As such, we have deepened our discount assumption from 50% to 80%. Downgrade to Hold.

Source: Kim Eng, 11 Feb 2009