CRCT – Daiwa

A rocky start

· We maintain our 4 (Underperform) rating for CapitaRetail China Trust (CRCT) and six-month target price of S$2.65, based on our RNG valuation method, after the announcement (on 19 April) of its maiden results for 1Q07.

· At first glance, the 1Q07 performance looked very poor (in our opinion). For the underlying seven-mall portfolio, gross revenue was 12.7% lower than our prorated 2007 forecast, while netproperty income (NPI) was 16.8% below our forecast. Fortunately, the negative variances appear to us to be confined mostly to 1Q07, or at worst to 2007.

· Even though some of CRCT’s ‘long-term’ investors are more focused on the distribution-per-unit (DPU) boost from acquisitions and major asset enhancements, the latest results are not likely to increase their investment confidence, in our opinion.

· We have revised down our NPI forecasts by 6.3% for 2007, 2.9% for 2008 and 2.2% for 2009. At the DPU level, we have revised down our forecast by 0.5% for 2007 and revised them up by 2.2% for FY08 and 2.5% for FY09 on net-interest savings (from lower financing costs and higher interest-income assumptions).